2024 FBAR Penalties
Published on May 15, 2024
by Grace Lorraine Angeles
Grace Lorraine, an IRS Enrolled Agent and CPA with 13 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working abroad.
Table of Contents
What’s changed in FBAR penalties for 2024?
Significant updates have been made to the FBAR (Foreign Bank and Financial Accounts Report) penalties from 2023 to 2024, reflecting recent judicial decisions and policy adjustments.
Key updates include:
- Standardization of Penalties: The IRS now generally imposes a standard penalty of $10,000 per violation for non-willful failures to file an FBAR. This amount is subject to inflation adjustments and aims to unify the penalty assessments across different cases.
- Per-Report Basis Penalty: Following a judicial ruling, the penalty for non-willful FBAR violations now applies per report, rather than per account. This change limits the maximum penalty to $10,000 per report, significantly reducing the financial burden for those with multiple foreign accounts.
- Removal of Mitigation Guidelines: In 2024, the IRS removed previously established mitigation guidelines that examiners used to adjust penalties. Now, IRS examiners have broader discretion to determine penalties, potentially leading to varied penalty outcomes in non-willful cases.
What is the FBAR?
The Foreign Bank and Financial Accounts Report (FBAR) is mandatory for US persons, including expatriates, who have financial interests in or signature authority over foreign financial accounts. The filing requirement kicks in if the aggregate value of these accounts exceeds $10,000 at any point during the calendar year.
Take a look at our FBAR article to learn more about the topic.
(https://www.expatustax.com/fbar-instructions/)
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What impact did the Supreme Court’s Bittner decision have on FBAR penalties?
The Supreme Court’s ruling in the Bittner case marked a pivotal shift in the penalty assessment for non-willful FBAR violations:
- Shift to Per-Report Penalty: The decision moved away from imposing penalties on a per-account basis to a per-report basis. This adjustment means that the total penalties for non-willful violations are capped at $10,000 per annual report, regardless of the number of accounts left unreported.
- Financial Relief: This ruling offers significant financial relief to individuals who may have multiple unreported foreign accounts, as it caps the potential fines to a maximum of $10,000 per year, rather than multiplying penalties by the number of unreported accounts.
What’s new in the 2024 FBAR penalty guidelines?
In 2024, the IRS simplified the penalty structure for non-willful FBAR violations. They now recommend a standardized penalty of US$10,000 per violation, adjusted for inflation, in an effort to make enforcement more consistent across cases.
How Do the 2023 and 2024 FBAR Penalties Compare?
- 2023: Penalties were applied per account, which could accumulate depending on the number of unreported accounts.
- 2024: The penalty is streamlined to a flat rate of up to US$10,000 per report, adjusted for inflation, regardless of the number of accounts involved.
What changes were made to penalty mitigation guidelines in 2024?
The IRS has removed the detailed mitigation guidelines from the Internal Revenue Manual (IRM) that previously helped IRS examiners reduce penalties for FBAR violations based on certain criteria, such as taxpayer cooperation and compliance history.
Before 2024, structured mitigation guidelines provided a framework for reducing penalties.
However, 2024 and beyond, penalties are now subject to the discretion of IRS examiners without structured guidelines, potentially leading to less predictability in their application.
How can taxpayers ensure compliance with FBAR requirements?
- Monitor Foreign Accounts: Keep detailed records of all foreign accounts throughout the year to ensure all are accounted for when preparing to file FBAR.
- Understand the Reporting Thresholds: Be aware that you must file an FBAR if the aggregate value of your foreign financial accounts exceeds $10,000 at any point during the calendar year.
- File Electronically: Submit your FBAR electronically using FinCEN’s BSA E-Filing System. The standard deadline is April 15, but an automatic extension allows filings until October 15 without additional paperwork.
- Seek Professional Advice: Consulting with a tax professional experienced in international taxation can help navigate the complexities of FBAR compliance, especially if you have extensive foreign holdings or if the rules seem complex.
