The Report of Foreign Bank and Financial Accounts (FBAR) and the Foreign Account Tax Compliance Act (FATCA) serve as critical pillars in U.S. efforts to combat offshore tax evasion and illicit financial activity. FinCEN Form 114 (FBAR) and IRS Form 8938 (FATCA) impose annual reporting requirements on U.S. persons with specified foreign assets. Missing these deadlines not only triggers steep civil penalties but can also expose filers to criminal prosecution. This blog explores the scope of those risks, the distinction between non‑willful and willful violations, and strategies to stay compliant.
Overview of FBAR and FATCA Reporting
FBAR (FinCEN Form 114) is required when a U.S. person’s aggregate foreign financial account balances exceed $10,000 at any point during the calendar year. The deadline is April 15 with an automatic extension to October 15.
FATCA (Form 8938) applies to specified foreign financial assets exceeding thresholds that vary by filing status and residency. Form 8938 is filed with the taxpayer’s Form 1040 by April 15, with the same extension options as the individual return.
Civil Penalties for Non‑Willful Violations
Non‑willful failures to file FBAR or FATCA statements carry significant monetary penalties, even when the omission was inadvertent:
- FBAR: Up to $12,921 per violation (adjusted annually) if no reasonable cause is shown.
- FATCA: $10,000 initial penalty, plus an additional $10,000 for each 30‑day period of continued non‑compliance after IRS notice, up to $50,000 maximum.
These penalties are assessed per form, per year, meaning multiple years of non‑filing can quickly accumulate into six‑figure liabilities.
Civil Penalties for Willful Violations
Willful disregard of FBAR or FATCA obligations carries far heavier civil sanctions:
- FBAR: The greater of $129,210 (2025 amount) or 50% of the highest account balance during the year for each violation.
- FATCA: 40% of the understatement of tax attributable to undisclosed foreign assets, in addition to the standard late‑filing penalties.
Willful penalties can effectively seize half of an account’s value, making compliance paramount.
Criminal Penalties and Prosecution Risks
Beyond civil fines, willful violations expose filers to criminal charges under Title 31 (FBAR) and Title 26 (FATCA) of the U.S. Code:
- FBAR Criminal Sanctions: Up to 5 years imprisonment (30 years if fraud is involved) plus fines up to $250,000 for individuals or $500,000 for corporations (31 U.S.C. § 5322).
- FATCA Criminal Sanctions: For willful failure to file Form 8938, up to one year imprisonment and fines up to $100,000 (26 U.S.C. § 7203), plus enhanced fraud penalties if misstatement is found (26 U.S.C. § 7201).
Criminal enforcement remains relatively rare but has increased in recent years, with high‑profile prosecutions of individuals who concealed offshore assets.
Factors Influencing Civil vs. Criminal Treatment
The IRS and DOJ consider several factors when deciding whether to pursue criminal charges:
- Willfulness: Evidence of intentional concealment, falsification of statements, or destruction of records.
- Amount of Unreported Assets: Larger account balances and higher tax understatements escalate enforcement priority.
- Pattern of Behavior: Multiple years of non‑filing or repeated violations suggest willful disregard.
- Cooperation: Voluntary disclosure, prompt correction, and participation in IRS amnesty or disclosure programs can mitigate criminal risk.
Voluntary Disclosure and Relief Programs
U.S. persons who have missed FBAR or FATCA filings may qualify for reduced penalties and protection from criminal prosecution through the following programs:
- Delinquent FBAR Submission Procedures: For non‑willful FBAR failures, waives penalties if all other tax obligations are current.
- Streamlined Filing Compliance Procedures: For non‑resident and resident taxpayers with non‑willful gaps in FBAR and FATCA filings, offering reduced penalties (5% of highest account balance) and no criminal referrals.
- Voluntary Disclosure Practice (VDP): For taxpayers with willful non‑compliance, requires full disclosure and payment of back taxes, penalties, and interest, with protection from criminal prosecution under certain conditions.
Best Practices to Avoid Risks
- Maintain Accurate Records: Track all foreign accounts, asset values, and transactions throughout the year.
- Calendar Key Deadlines: Set alerts for April 15 (FBAR & FATCA initial deadline) and October 15 (FBAR extension).
- Use Professional Tools: Leverage tax software or specialized FBAR/FATCA solutions to automate calculations and e‑filing.
- Consult Qualified Advisors: Engage international tax experts to interpret complex ownership rules and aggregation requirements.
- Act Promptly on Misses: If you discover a missed filing, initiate voluntary disclosure procedures immediately to minimize penalties.
Conclusion
Non‑compliance with FBAR and FATCA deadlines can trigger ruinous civil penalties and, in willful cases, criminal charges carrying severe fines and jail time. The distinction between non‑willful and willful violations guides penalty assessments, but both carry substantial financial risk. By implementing robust recordkeeping, leveraging relief programs when necessary, and seeking professional guidance, U.S. persons can navigate FinCEN deadlines confidently and avoid the serious repercussions of late or missing filings.
