IRS Targets Unreported Foreign Accounts: Kiplinger Tax Letter
The IRS devotes significant resources to ensure timely reporting of overseas financial accounts.
Getting the right tax advice and tips is vital in the complex tax world we live in. The Kiplinger Tax Letter helps you stay right on the money with the latest news and forecasts, with insight from our highly experienced team (Get a free issue of The Kiplinger Tax Letter or subscribe). You can only get the full array of advice by subscribing to the Tax Letter, but we will regularly feature snippets from it online, and here is one of those samples…
As the IRS looks to increase tax compliance, unreported foreign accounts are a top target. The agency continues to devote significant resources to get U.S. owners of overseas financial accounts to report them each year if the aggregate value has exceeded $10,000 at any time during the prior year.
You still have time to report foreign accounts for 2022. Taxpayers who missed the April 18 deadline to e-file FinCEN Form 114 to disclose the accounts automatically have until Oct. 16 to electronically submit the FBAR form.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Nonwillful violations of foreign account reporting rules
Penalties for nonreporting overseas accounts or inaccurate filings are stiff. The penalty for nonwillful violations is $10,000 per nonfiled FBAR form. The IRS used to take the position that the $10,000 fine applied per unreported account. But in March, the U.S. Supreme Court dealt a blow to the agency by ruling that the fine for nonwillful failures to disclose foreign accounts applies per nonfiled FBAR form.
In the case, a man with dozens of foreign accounts didn’t file FBAR forms for five years. Though his failure to report was nonwillful, the IRS assessed penalties of $2.72 million. Because of the Supreme Court’s ruling, his total fine was reduced to $50,000…$10,000 for each year of nonreporting.
The IRS recently revised its internal procedures to account for the High Court’s ruling.
Willful violations of foreign account reporting rules
The fine for willful violations is much steeper: The larger of $100,000 or 50% of the highest balance in the account. The willfulness penalty can be particularly harsh, especially if there are multiple accounts and/or multiple years of nonfiling involved.
Foreign account owners have fought the willfulness penalty on many fronts. Here are three examples:
- What is the standard for willfulness? A U.S. citizen facing a $1.3 million fine asked the Supreme Court to reverse an appellate court ruling, which found that he willfully violated his reporting obligations because he acted with objectively reckless disregard of the rules. The court chose not to take his case.
- Is such a large fine constitutional? If there are multiple years of nonreporting or many accounts, the willfulness penalty can exceed the amount in the accounts. Some say a penalty of that size is an excessive fine barred by the Eighth Amendment. So far, taxpayers haven’t had luck with this argument. For instance, just last year the 1st Circuit Court of Appeals upheld a fine of over $2 million against a U.S. citizen who didn’t report her Swiss account. The court found that the penalty is not a fine for Eighth Amendment purposes, saying the penalty is remedial…not punitive… and is not tied to a criminal action. The account owner asked the Supreme Court to step in, but it decided not to. Another person, who owes $13 million in penalties for not disclosing offshore accounts in 2007-09, wants the 11th Circuit Court of Appeals to rule that such a penalty is an unconstitutional fine under the Eighth Amendment.
- Is the willfulness penalty capped at $100,000? A number of taxpayers over the years have argued that IRS regulations that were issued in 1987, before the statute was amended in 2004 to add the 50% language, state that the fine is capped at $100,000. Four appeals courts have sided with the IRS, that the statute supersedes the regs. No appeals courts have ruled for the taxpayer on this issue.
This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.
Related Content
- IRS Ramps Up Tax Enforcement for Millionaires
- Claiming the Employee Retention Tax Credit is an IRS Audit Red Flag: Kiplinger Tax Letter
- Why the IRS Shouldn't Literally Be Knocking at Your Door
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Joy is an experienced CPA and tax attorney with an L.L.M. in Taxation from New York University School of Law. After many years working for big law and accounting firms, Joy saw the light and now puts her education, legal experience and in-depth knowledge of federal tax law to use writing for Kiplinger. She writes and edits The Kiplinger Tax Letter and contributes federal tax and retirement stories to kiplinger.com and Kiplinger’s Retirement Report. Her articles have been picked up by the Washington Post and other media outlets. Joy has also appeared as a tax expert in newspapers, on television and on radio discussing federal tax developments.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Landlord With Rental Income? See if You Qualify for a 20% Tax Break
The Tax Letter Many landlords are eligible to take the 20% tax deduction for qualified business income
By Joy Taylor Published
-
Five Ways to Fund Medicare Part A
The Tax Letter Higher taxes can help stave off the projected 2036 insolvency of Medicare's Hospital Insurance trust fund.
By Joy Taylor Published
-
QCDs Are a Tax-Smart Way for Retirees To Donate to Charity
The Tax Letter With QCDs, retirees can save on taxes by making donations from their IRAs directly to charity. Here's what you need to know about qualified charitable distributions.
By Joy Taylor Published
-
The IRS is Ramping up Tax Audits
The Tax Letter Wealthy individuals, large corporations and partnerships are all audit targets, thanks in large part to the IRS's multi-billion dollar windfall.
By Joy Taylor Published
-
IRS Direct File Will Be Permanent, Competing With TurboTax, H&R Block
Tax Filing The IRS says it will bring Direct File back next tax season.
By Kelley R. Taylor Last updated
-
Biden's Plans to Impose an Income Tax on Death
The Tax Letter The president has proposed a new taxing regime that would make death an income tax realization event for wealthy decedents.
By Joy Taylor Last updated
-
Key Tax Provisions That Are Expiring After 2025
The Tax Letter Unless Congress decides to act, lots of tax changes will take effect in 2026, including higher tax rates and lower standard deductions.
By Joy Taylor Published
-
Knowing How to Compute Tax Basis in Your Home Can Save You Money
The Tax Letter Whether you're selling or buying a home, you'll want to know how to compute tax basis. It could save you on taxes when you sell.
By Joy Taylor Published