What You Must Report
If you have a financial interest in or signature authority over a foreign financial account and the aggregate value of all your foreign accounts exceeds $10,000 at any time during the year, you must file a Report of Foreign Bank and Financial Accounts, known as the FBAR. This is FinCEN Form 114, filed electronically through the BSA E-Filing System.
Separately, you may need to file Form 8938 under FATCA if your foreign financial assets exceed higher thresholds. The FBAR and Form 8938 are different requirements with different thresholds, different filing deadlines, and different penalties.
The Penalties
Non-willful failure to file an FBAR carries a penalty of up to $10,000 per account per year. Willful failure carries a penalty of the greater of $100,000 or 50 percent of the account balance per year. These penalties can exceed the value of the account. I have seen cases where the penalties were multiple times the amount of money in the account.
Criminal penalties for willful violation include up to five years in prison and $250,000 in fines. The IRS has been aggressive in pursuing FBAR cases, and federal courts have upheld massive penalty assessments.
Coming Into Compliance
If you have unreported foreign accounts, you have several options. The IRS Streamlined Filing Compliance Procedures are designed for taxpayers who were non-willful in their failure to report. Domestic filers pay a 5 percent miscellaneous offshore penalty. Foreign residents may qualify for zero penalties.
A tax attorney evaluates your facts to determine which program is right for you. The wrong choice can cost you hundreds of thousands of dollars. The right choice can resolve the issue with minimal penalties and no criminal exposure.