Receiving a penalty notice for a late or incorrect FBAR (Foreign Bank Account Report, FinCEN Form 114) can be overwhelming. Whether your violation was non-willful or willful, understanding your rights and the appeals process is key to reducing or eliminating the penalty. This guide explains the types of FBAR penalties, how they are assessed, and what steps you can take if you’ve received a notice from FinCEN or the IRS.
💸 Types of FBAR Penalties
The IRS enforces FBAR penalties on behalf of FinCEN. The two primary categories are:
1. Non-Willful Violation
- Applies when a U.S. person unintentionally fails to file the FBAR or omits accounts
- Maximum penalty: $10,000 per violation, per year
- IRS may reduce or waive penalties if reasonable cause is shown
2. Willful Violation
- Applies when the failure to file is deliberate or due to reckless disregard
- Maximum penalty: Greater of $100,000 or 50% of the account balance at the time of the violation
- May involve criminal prosecution in extreme cases
📬 What Does an FBAR Penalty Notice Look Like?
You may receive a penalty notification through a letter issued by the IRS, such as:
- Letter 3709: Notice of FBAR Penalty Assessment
- Letter 3708: Demand for Payment of FBAR Penalty
- Letter 3800: Notification of willful penalty assessment
The letter typically outlines the violation year(s), the assessed amount, and instructions for payment or appeal.
🔍 Step-by-Step: What to Do If You Receive an FBAR Penalty
Step 1: Read the Notice Carefully
- Confirm the tax year and reason for the penalty
- Note the deadline for responding or appealing
Step 2: Determine Whether the Violation Was Non-Willful or Willful
Understanding the IRS’s classification of your conduct will help guide your next steps. If you believe the error was due to reasonable cause, you may request a waiver.
Step 3: Consider Filing an Appeal
You may submit a written protest to the IRS Appeals Office. The appeal must include:
- A statement that you wish to appeal the FBAR penalty
- A copy of the penalty notice
- A detailed explanation of your position, including reasonable cause
- Supporting documentation (e.g., evidence of non-willfulness, CPA correspondence)
- Your signature and contact information
Send your protest within 30 days of receiving the penalty notice, or by the date listed in the letter.
Step 4: Pay or Request Payment Arrangements
- If you do not appeal, you are expected to pay the amount in full
- If you cannot pay in full, you may request an installment agreement
🛡️ Defenses and Reasonable Cause
The IRS may abate or reduce non-willful penalties if you can demonstrate “reasonable cause.” Acceptable reasons include:
- You were unaware of the FBAR requirement
- You relied on a tax professional’s incorrect advice
- Serious illness or natural disaster prevented timely filing
Provide evidence such as foreign bank statements, CPA letters, or documentation of personal hardship to support your claim.
⚖️ Court Options: Suing to Recover an FBAR Penalty
If the IRS denies your appeal and you pay the penalty, you may consider filing a refund suit in U.S. District Court or the Court of Federal Claims. Legal representation is strongly advised in these cases.
📊 Example Scenarios
Example 1: Non-Willful Violation by an Expat
Susan, a U.S. citizen living in Switzerland, forgot to report her €15,000 foreign savings account. She files delinquent FBARs and receives a $10,000 penalty. She submits a protest citing reliance on a foreign tax advisor and gets the penalty waived.
Example 2: Willful Violation by a Business Owner
James has $500,000 in an undeclared offshore account. The IRS assesses a willful penalty of $250,000. He disputes the willfulness in court but loses due to email evidence showing intent to conceal.
✅ Summary
If you receive an FBAR penalty notice, don’t panic—but don’t ignore it either. Review the type of penalty, gather supporting documentation, and respond within the stated deadline. For non-willful violations, you may be eligible for penalty relief based on reasonable cause. If the violation is deemed willful, consult a tax attorney immediately. Acting swiftly and thoroughly can help protect your finances and legal standing.
