FBAR Penalties Back on Trial

The IRS continues to crack down on taxpayers that failed to file Foreign Bank and Financial Accounts (FBAR) disclosures. The news of willful and non-willful penalties have been frequent in the news as of late. The IRS is currently seeking FBAR-related penalties from two separate taxpayers.

Monica Toth, an 81 year-old resident of Massachusetts, is facing a $2.1 million fine for willfully failing to file FBARs. The IRS argues that she did not file FBARs, which subjects her to a penalty of $100,000, or half the value of the account in question, whichever is greater. Lower courts previously sided with the IRS, so it appears she will be subject to these penalties unless a higher court agrees to hear the case.

Alexandru Bittner moved to the U.S. in 1987 from Romania, where he held many foreign bank accounts. He was unaware he needed to file FBARs for these accounts, but did so in 2013 after speaking with a new CPA. The penalty for non-willfully failing to file FBARs is $10,000 per violation. Mr. Bittner argues that there were only 5 violations (one for each year), which would result in a $50,000 penalty. The IRS believes there are 270 violations (one for each account, each year) which would result in a $2.7 million penalty. Lower courts have already ruled in Mr. Bittner’s favor, but the Supreme Court has now agreed to hear the case.

Bottom line? Don’t mess around with FBARs. If you have foreign bank accounts with a maximum value over $10,000 at any point during the year, file an FBAR for all accounts! This includes online gambling accounts. Any site that offers casino games requires disclosure. While there is some gray area about poker-only sites, it is still recommended to disclose these balances.

You should consider including your offshore cryptocurrency exchange balances as well. Based on current interpretations of guidance, cryptocurrency held on foreign exchanges is not subject to FBAR reporting requirements. However, there are certain instances surrounding fiat (held on exchanges) that could trigger a reporting requirement. This is something to keep in mind as the IRS increases its scrutiny surrounding crypto-related tax issues.