Inflation impacts everything, and Foreign Bank and Financial Accounts (FBAR) penalties are no different.
If you hold non-U.S. accounts, you are probably all too familiar with the FBAR and the looming penalties that may be imposed should you fail to file or include a significant asset on the required yearly filing. This is in addition to the Form 1040 that you are required to file.
As the requirements state, any U.S. person – be it a resident stateside or a citizen abroad – who holds more than $10,000 worth of assets – cash or stocks – in aggregate in non-U.S. accounts must disclose those accounts on FinCEN Form 114 each year that the threshold is crossed.
Should the U.S. person fail to file FinCEN 114 (the FBAR), then the Internal Revenue Service (IRS) could assess penalties, civil or criminal. For decades, the statutory penalty had been up to $10,000 for a non-willful violation and $100,000 or 50% of the foreign balance (whichever higher) for willful violations.
But in 2015 with an amendment to the original statute and continuing through to today, the U.S. treasury has announced – to “improve the effectiveness of civil monetary penalties and to maintain their deterrent effect”- that the FBAR penalties are being increased to adjust for inflation. There was an initial “catch up” increase, and then there have been annual increases, with the 2023 increased just announced.
As a result, the penalty for any non-willful violation assessed in 2023 may be $15,611. Any willful violations may be assessed $156,107 or 50% of the account value, whichever is greater. These increased penalties will apply even to violations related to older years. So, if you willfully failed to file FBARs for 2020 and 2019 and then get assessed this year, you may get two $156,107 penalties, over $310,000 in total.
What was not changed in this recent ruling? The threshold for filing the FBAR remains at $10,000, the same as it’s been since the 1970s.
If you have significant assets outside the United States, making sure your filings are timely and accurate just got a lot more imperative. If you need help, contact the tax advisors at Moore Doeren Mayhew today.
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