What are your FBAR requirements as a U.S. person or taxpayer for an offshore account, group of accounts, property, or investment? The penalties associated with non-compliance with the reporting of offshore accounts, assets and income are quite severe.
Primary Takeaways Regarding FBAR Requirements as a U.S. Person or Taxpayer With Offshore Accounts and Assets:
- 2025 has brought substantial changes to FBAR (FinCEN Form 114) reporting requirements and associated penalties.
- Those who are considered a “U.S. Person,” including U.S. citizens, expatriates, entities, and residents, are required to file FinCEN Form 114, also known as an “FBAR,” electronically when certain thresholds are met.
- If the aggregated value of all qualifying accounts with a single or multiple “Foreign Financial Institutions” (FFIs) or offshore accounts (including those in which the taxpayer holds either a beneficial interest or signature authority) exceeds $10,000, even during a single day of the calendar year, a U.S. Person is required to file an FBAR with FinCEN.
- The lowest penalty for failure to file an FBAR is up to $16,536 for each violation (not per account, but per FBAR report) when the actions of the U.S. person are deemed “non-willful.” Willful violations expose violators to up to the higher amount of $163,353 or 50% of the associated account balance. Criminal violations of FBAR reporting requirements now result in a fine of up to $250,000, 5 years in prison, or both, for willful violations, as well as an additional $10,000 penalty for “knowing filing false FinCEN 114 reports.”
FinCEN Form 114 or FBAR Reporting Requirements
Many US taxpayers including resident foreign nationals are not aware of all FBAR reporting requirements, (FinCEN Form 114 Report of Foreign Bank and Financial Reports), such as when one is listed on an offshore account or has signatory authority, even if not the “beneficial owner.” Reporting applies to any “U.S. Person,” including U.S. citizens, expatriates, business or corporate entities, and foreign residents.
FBAR requirements for a U.S. person or taxpayer are not just a matter of signatory authority on the account; they may also apply to those who have a beneficial interest but whose names are listed on the account itself. For example, if you are listed on an offshore account that belongs to your mother or father, you should list that account on your FBAR and offshore-related forms. You may not have a beneficial ownership interest in the account, but if you have signatory authority, you are required to list it on your FBAR. If you do have a beneficial ownership interest in the account, you must not only report it on your FBAR, but also report any interest income as you would any other form of W-2 or 1099 income.
Foreign banks may or may not generate a 1099, and you may feel there is no way for FinCEN or the IRS to find out. Others may think, “Well, there were only a few hundred dollars of interest earned in our account, and that is split between us as siblings – I don’t need to report this.” On the contrary, the complications of failing to report represent too high a risk. If this example related to a single account that was not listed on an FBAR, the U.S. person would face an immediate penalty of up to $16,536 for each FBAR that failed to list that single account.
Penalties for Failure to File or Unreported Accounts on an FBAR
The FBAR requirements as a U.S. person or taxpayer include penalties for failure to report any foreign bank or investment accounts whose balance exceeds $10,000 at any point in the year, which are increased to up to $16,536 per FBAR report, per year – even if the omission was non-willful in nature. If you fail to file the FinCen Form 114 – commonly referred to as an FBAR – or omit an account or accounts where you are listed on the account, you may face more aggressive penalties than if you were attempting actually to evade taxes.
If the agency believes the failure to file an FBAR was “willful” in nature, the civil penalty grows to $164,353 for each associated FBAR, or 50% of the balance of any unreported account(s) when the violation occurred. Criminal exposure and associated consequences may be applied for:
- Knowingly and purposefully filing a false FBAR: Up to $10,000 in fines, and/or 5 years imprisonment.
- Willfully failing to retain records or file each FBAR: Up to $250,000 in fines, and/or 5 years imprisonment, or even greater consequences if the violation involves additional violations of the Bank Secrecy Act (BSA).
It is important to note that a single violation of a U.S. Person’s FBAR requirements as a U.S. taxpayer can result in “stacked sanctions,” exposing the taxpayer to both civil and criminal penalties.
How Will a Failure to File the Required FBAR Ever Come to Light?
Unfortunately, many U.S. persons still believe they can hide their activities or that their activities are too small to come to the attention of FinCEN or the IRS.
That time has long since passed. The combination of state-of-the-art data processing systems and Artificial Intelligence (AI) applications means potential violators are electronically identified and flagged without any other human involvement. Streams of electronic information are flowing into the IRS and FinCEN as a result of FATCA data sharing and reporting agreements and requirements.
Did you know that more than 110 foreign countries and jurisdictions electronically transmit detailed information about the accounts and activities of U.S. taxpayers and U.S. persons to the IRS under Intergovernmental Agreements (IGAs)? The Bank Secrecy Act requires all FFIs to provide extensive electronic reporting to U.S. government agencies, including FinCEN and the IRS. This information includes ownership, activities, and balances of foreign financial accounts; cash transactions exceeding $10,000 (which automatically trigger an investigation or audit); and cash purchases of negotiable instruments, including cryptocurrency. Yes, most cryptocurrency exchanges and wallet providers provide information to FinCEN and the IRS.
The IRS has separate groups that focus on Small Business/Self-Employed (SB/SE) taxpayers, as well as Large Business and International Companies (LB&I group). The agencies’ extensive data processing systems and AI applications apply filters and analyses to all incoming data and contrast it with information disclosed on associated tax filing reports for each U.S. taxpayer. What used to require hours (or days) of manual human investigation is now accomplished in seconds by advanced automated applications.
U.S. Persons Must Meet All FBAR Requirements as a U.S. Taxpayer
FBAR requirements as a U.S. person or taxpayer must be understood and met. This is the responsibility of any U.S. taxpayer, person, resident alien, or citizen. The risks are simply too significant. There are FBAR requirements for those who are considered to be a “U.S. Person,” including U.S. citizens, expatriates, entities, and residents, who are required to electronically file FinCEN Form 114 or FBAR when established thresholds are met.
If you are a U.S. person (individual, entity, or resident) and have offshore financial accounts of any nature, including beneficial interest or signatory authority over any bank or investment account, you need to consult with an experienced U.S. tax attorney and file FinCEN Form 114 (FBAR) if you meet established thresholds.
If you have not filed an FBAR in past years, it is time to come into immediate compliance – even if you do not owe any taxes. If you have questions regarding offshore account reporting, taxes and FBAR we invite you to learn more about the integrated tax, legal, accounting and business consulting services of Allen Barron and contact us or call today to schedule a free consultation at 866-631-3470.
