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U.S. Supreme Court Reverses Non-Willful Failure to Disclose Foreign Accounts Penalty

In a 5-4 vote, the U.S. Supreme Court determined that Report of Foreign Bank and Financial Accounts (FBAR) penalties will no longer be applied per account. With this decision, made on February 28, 2023, taxpayers in non-willful cases will now only be subject to FBAR penalties for the non-willful failure to file per form, up to $10,000 annually. 

Taxpayers are currently required to keep records of all foreign accounts and disclose their foreign financial information by filing FinCEN Form 114. By overturning the previous ruling, the Supreme Court concluded that the IRS may only penalize taxpayers $10,000 annually for failing to report their information, rather than $10,000 per account each year. The decision may significantly reduce the amount of penalties taxpayers owe. This ruling is effective immediately and will apply to the 2022 reports that are due in 2023, if not timely filed. Refund claims may be appropriate for taxpayers who have previously paid non-willful penalties on a per account basis. 

According to the IRS website, any U.S. person, including a citizen, resident, corporation, partnership, limited liability company, trust and estate, must file an FBAR to report certain foreign financial accounts, including bank accounts, brokerage accounts and mutual funds, if the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported. 

While the Supreme Court decision may not directly affect you or your business, it’s an important reminder to keep a record of all your financial accounts. The IRS requires you to keep records with the following information: 

  • Name on the account 
  • Account number 
  • Name and address of the foreign bank 
  • Type of account 
  • Maximum value during the year 

Documents may include bank statements or a copy of a filed FBAR if they include the required information. The FBAR, though due April 15 following the calendar year reported, is not filed with your federal tax return. FBAR filings may be completed online through BSA’s E-Filing System. If you have more questions about FBAR filings, reach out to your Janover professional or contact us today. 

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