Foreign Account Reporting Defense — FinCEN & IRS
FBAR Attorney
FBAR non-filing penalties range from $10,000 per account per year for non-willful violations to the greater of $100,000 or 50% of the account balance for willful violations. Brotman Law defends FBAR enforcement proceedings and handles Streamlined Filing Compliance Procedures.
What Is an FBAR and Who Has to File?
The FBAR (FinCEN Form 114, Report of Foreign Bank and Financial Accounts) is required for any US person who had a financial interest in, or signature authority over, one or more foreign financial accounts with an aggregate value exceeding $10,000 at any point during the calendar year. Non-willful failure to file: up to $10,000 per account per year. Willful failure to file: the greater of $100,000 or 50% of the account balance — per account per year. The filing deadline is April 15, with an automatic extension to October 15. The FBAR is filed with the Financial Crimes Enforcement Network (FinCEN), not the IRS, but IRS examiners administer enforcement on FinCEN's behalf.
Call (619) 378-3138 to speak with an FBAR attorney.
FBAR compliance sits at the intersection of international tax law, Bank Secrecy Act (BSA) requirements, and criminal tax exposure. The penalties are among the most severe in the tax code — assessed per account, per year, they can quickly exceed the total value of the accounts in question. The central question in nearly every FBAR enforcement matter is whether the failure to file was willful. That determination drives penalty exposure, remediation strategy, and, in serious cases, whether criminal referral is a genuine risk.
Who Must File an FBAR
The FBAR obligation applies to US persons — a term that includes US citizens, green card holders, and US residents for tax purposes. Dual-status taxpayers, dual citizens, and individuals who have renounced citizenship but remain subject to US tax obligations may also have FBAR obligations depending on the specific facts of their situation.
The term "financial account" is broader than it first appears:
- Bank accounts: Checking, savings, time deposits, and demand accounts at foreign financial institutions.
- Securities accounts: Brokerage, investment, and managed portfolio accounts at foreign brokers or custodians.
- Mutual funds: Foreign mutual funds or equivalent collective investment vehicles.
- Foreign retirement accounts: Many foreign pension or retirement savings plans — including accounts that are tax-exempt in the foreign country — are reportable. This is a common oversight for dual citizens and expatriates.
- Life insurance with cash value: Foreign life insurance policies with a cash surrender value are reportable financial accounts.
- Foreign trusts and estates: If you have a financial interest in a foreign trust or estate that holds reportable accounts, you may have an indirect FBAR obligation. This intersects with Form 3520 reporting for foreign trusts.
What is generally not reportable: nominee accounts where you have no beneficial interest, accounts maintained at a US military banking facility, and accounts of a US person doing business as a sole proprietor in certain qualifying circumstances. The determination of what is and is not reportable requires account-by-account analysis.
Willful vs. Non-Willful: The Central Distinction
The difference between willful and non-willful FBAR violations is the difference between a manageable penalty and a potentially catastrophic one. It is also one of the most actively litigated questions in FBAR enforcement.
FBAR Penalty Comparison: Willful vs. Non-Willful
Non-willful penalty: Up to $10,000 per account per year. Assessable per account, per year the FBAR was not filed. Example: one account unreported for five years = up to $50,000.
Willful penalty: The greater of $100,000 or 50% of the highest balance in the account during the year — per account per year. Example: one account with a $400,000 balance unreported for five years = up to $1,000,000 (50% × $400,000 × 5 years). The willful penalty can exceed the total account value.
Criminal exposure for willful violations: Under 31 U.S.C. § 5322, willful FBAR violations can result in criminal prosecution — up to 10 years imprisonment and criminal fines. Criminal referrals are reserved for the most egregious cases, but they are a real consequence when the government believes the non-disclosure was deliberate and protracted.
How Courts Define Willfulness
Willfulness under the BSA/FBAR statute has been interpreted broadly by federal courts. In United States v. Horowitz (4th Cir. 2019), the court held that "reckless disregard" of a known legal duty satisfies the willfulness standard — meaning you do not have to have actual knowledge that you were required to file. Checking a box on your federal income tax return certifying you had no foreign accounts, when you did have foreign accounts, has been treated as evidence of willfulness in multiple circuits.
The government has argued — and courts have accepted — that a taxpayer who: (1) had offshore accounts; (2) signed tax returns with questions about foreign accounts; and (3) answered "no" to those questions, can be found to have acted willfully even if they claim they did not know about the FBAR requirement. This is a significant exposure point for clients who received aggressive offshore account planning without corresponding disclosure advice.
Non-willful, by contrast, covers genuine ignorance of the filing requirement, reasonable reliance on a tax preparer who failed to ask about foreign accounts, and situations where the taxpayer disclosed the foreign accounts to their preparer but the preparer failed to prepare the FBAR. The distinction is fact-intensive and requires thorough documentation of what the taxpayer knew and when.
The IRS Examination Process
FBAR examinations are conducted by IRS examiners on behalf of FinCEN. They typically begin in one of three ways:
During an income tax examination. The most common trigger. When an IRS examiner opens a federal income tax audit, they routinely request information about foreign accounts, foreign income, and whether the taxpayer filed FBARs. A "no" on the Schedule B question and an absence of FBAR filings in the IRS's records is a red flag that triggers a parallel FBAR inquiry.
FATCA information received from foreign financial institutions. Under FATCA (Foreign Account Tax Compliance Act), foreign banks are required to report US account holders to the IRS. The IRS matches FATCA data against FBAR filings and income tax returns. FATCA has significantly expanded the IRS's ability to identify non-filers without relying on voluntary disclosure.
Whistleblower or third-party information. Former bankers, financial advisors, or account holders at offshore institutions have provided information to the IRS in exchange for whistleblower awards. The Swiss bank program that concluded in 2016 generated substantial information about US account holders at Swiss institutions.
Once an FBAR examination begins, the IRS issues a formal examination letter and requests account records, account statements, and correspondence with the foreign financial institution. The examination may run parallel to an income tax audit. Documents produced in the FBAR examination can be used by IRS Criminal Investigation if the case is referred for criminal review.
Form 8938 (Statement of Specified Foreign Financial Assets), required under FATCA for US individuals with foreign assets above certain thresholds, runs parallel to the FBAR. The two forms overlap significantly but are not identical — different thresholds, different definitions, and different filing requirements. Non-compliance with Form 8938 carries its own penalty structure (up to $50,000 for continued failure after notice). In most examinations, both are reviewed simultaneously.
Streamlined Filing Compliance Procedures
The Streamlined Filing Compliance Procedures are the IRS's primary voluntary disclosure program for non-willful FBAR non-filers, and they offer substantially reduced penalties compared to traditional voluntary disclosure.
There are two variants:
| Streamlined Domestic (SDOP) | Streamlined Offshore (SFOP) | |
|---|---|---|
| Who qualifies | US residents (US address on most recent filed return) | Non-residents (foreign address or lived outside the US for at least 330 days in one of the prior 3 years) |
| Penalty | 5% of the highest aggregate balance in the unreported accounts during the covered period | No FBAR penalty (0%) |
| Returns required | 3 years of amended income tax returns + 6 years of FBARs | 3 years of amended income tax returns + 6 years of FBARs |
| Non-willfulness certification | Required — must certify conduct was non-willful | Required — must certify conduct was non-willful |
The Streamlined procedures require submitting a non-willfulness certification — a narrative explanation of why the FBAR was not filed. The IRS reviews these certifications and, if it later determines the conduct was in fact willful, it can reject the Streamlined submission and assess full willful penalties retroactively. Drafting the non-willfulness certification is not a form exercise — it is a legal document with potential criminal implications if the government disagrees with the characterization.
The Streamlined procedures are not available to taxpayers who are already under examination. If the IRS has opened an FBAR examination or an income tax examination that has touched on foreign accounts, the window for Streamlined may be closed. This is why early evaluation of compliance status matters.
OVDP / OVDI — The Closed Programs
The IRS's Offshore Voluntary Disclosure Program (OVDP) and its predecessors (OVDI) ran in various forms from 2009 through September 2018, when the IRS formally closed the program. The OVDP offered protection from criminal prosecution and reduced penalty exposure in exchange for disclosure of offshore accounts and payment of a set penalty (generally 27.5%–50% of the highest aggregate account balance). The program is closed and is no longer available for new submissions.
Taxpayers who entered OVDP and have pending cases with the IRS may have issues that are still being resolved, particularly in complex cases involving foreign trusts, partnership interests, or accounts in jurisdictions where the IRS had specific settlement initiatives. If you have an open OVDP case, we can evaluate where it stands and what options exist for resolution.
IRS Criminal Investigation Voluntary Disclosure
For taxpayers with potential criminal exposure — meaning willful FBAR violations combined with unreported income, tax evasion, or related conduct — the IRS Criminal Investigation (CI) voluntary disclosure program is a separate process from the civil Streamlined procedures. CI voluntary disclosure does not guarantee non-prosecution, but it is the only mechanism that provides a pathway to a resolution that considers criminal exposure.
The CI voluntary disclosure window closes the moment an IRS or DOJ investigation begins. Once an investigation is open, a taxpayer can no longer make a voluntary disclosure — they are a target, not a disclosing party. The threshold question in any willful case is whether there is a live investigation, and how to determine that requires careful work. We coordinate with counsel in the relevant jurisdictions when CI voluntary disclosure is potentially appropriate.
Representative Matters
Each matter is different, and past results do not guarantee any particular outcome.
A dual US-Swiss citizen had maintained accounts at a Swiss cantonal bank for over a decade, primarily using them for family savings accumulated prior to US residency. She had not filed FBARs for any year. After analysis of her residency history and account documentation, she qualified for the Streamlined Offshore Procedures. We prepared three years of amended US income tax returns reflecting the foreign interest income, six years of FBARs, and a non-willfulness certification documenting her reliance on Swiss banking advisors who were unfamiliar with US reporting requirements. The 5% offshore penalty applied; no civil penalties beyond the Streamlined framework were assessed.
A green card holder inherited an interest in a foreign family trust established by his parents in their home country. He had no independent control over the trust and received distributions infrequently. The trust held foreign bank accounts. We analyzed his beneficial interest under the applicable trust documents and relevant case law, determined that he had a reportable FBAR interest in the trust's accounts, and filed corrected FBARs along with Forms 3520 and 3520-A for the relevant years. We submitted a non-willfulness certification explaining the complexity of the inherited trust structure and his lack of awareness of the US reporting obligation. The IRS accepted the Streamlined submission without penalty escalation.
A US business owner had established foreign subsidiaries that maintained operating bank accounts in multiple jurisdictions. He had FBAR filing obligations as the officer with signature authority over those accounts, but had not filed FBARs because his accountant had advised him the accounts were "business accounts" not subject to personal reporting. We analyzed each account against the FBAR regulations and the FinCEN exception for certain officers with signature authority over employer accounts (31 C.F.R. § 1010.350(f)(2)). Several accounts qualified for the exception; for the remaining accounts, we filed delinquent FBARs with a statement of reasonable cause. No FBAR penalties were assessed.
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About Sam Brotman
Sam Brotman is a tax attorney with over 15 years of experience in federal tax controversies, including international tax compliance, FBAR enforcement defense, and IRS Criminal Investigation matters. He holds a J.D., an LL.M. in Taxation, and an MBA. He is admitted to practice before the U.S. Tax Court and multiple federal district courts.
FBAR matters require a careful, fact-specific analysis of what happened, when the taxpayer became aware of their obligations, and what remediation pathway makes sense given the specific facts. The wrong choice — submitting to Streamlined when the conduct was actually willful, or disclosing when the IRS has no information — can create more problems than it solves. If you have unreported foreign accounts or have received any IRS inquiry about foreign assets, schedule a consultation before making any disclosure decisions.
Frequently Asked Questions About FBAR Defense
Do I have to file an FBAR?
What are the penalties for not filing an FBAR?
What is the difference between willful and non-willful FBAR violations?
What is the Streamlined Filing Compliance Procedure?
How does an FBAR attorney defend a non-filing case?
Foreign Account Reporting Defense
The Right Path Depends on Your Specific Facts
FBAR compliance and enforcement involves a series of decisions — Streamlined or not, voluntary disclosure or wait — that have significant and sometimes irreversible consequences. We can help you understand what your situation actually looks like and what the options are before you make those decisions.
- Free 15-minute intro call — a clear read on your exposure and your options
- Civil and criminal tax defense under one roof
- Completely confidential — attorney-client privilege from the first call