The United States government expects taxpayers to report certain foreign accounts. In some cases, the government will require the taxpayer to file a separate form. For example, the government requires the Report of Foreign Bank and Financial Accounts (FBAR) when a taxpayer owns or has signatory authority over an account located outside of the United States that has an aggregate value of $10,000 or more at any point during the tax year.
What happens if a taxpayer fails to file an FBAR?
Taxpayers who meet this requirement and fail to file an FBAR and can face serious penalties. Depending on the details around the failure, the penalties could include stiff monetary fees or potential imprisonment.
The government generally only pursues jail time in the event the error was an intentional attempt to evade tax obligations.
How are financial penalties determined?
When looking at financial penalties, the government has discretion. This was highlighted in a recent case. In this case, a taxpayer attempted to argue that the fine should be based on the fact that there was a violation for the tax year. She argued it should not be based on a failure to report each account. Essentially, the taxpayer attempted to argue the fine for a non-willful failure to file violation should not exceed the $10,000 threshold whether the issue involved a failure to report one account or twenty accounts.
Ultimately, the court decided the government can decide if it wants to apply the penalty based on the number of accounts or just one penalty per tax year. The court encouraged the government to make this decision based on the facts and circumstances of each case.