Inflation Adjustment of Civil Monetary Penalties (Mar. 19, 2018)
The Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department, has announced the inflation-adjusted increase in the penalty amounts for a failure to file a Report of Foreign Bank and Financial Accounts (FBAR) reporting an interest in a foreign financial account.
Background on FBAR. Each U.S. person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts in a foreign country, must file an FBAR (Report of Foreign Bank and Financial Accounts, i.e., FinCEN Form 114) if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
A U.S. person means a U.S. citizen (including a child), a individual who is a resident alien under Code Sec. 7701(b) of the U.S., the District of Columbia, the Indian lands (as that term is defined in the Indian Gaming Regulatory Act), and the Territories and Insular Possessions of the U.S., and an entity, including a corporation, partnership, trust or limited liability company organized or formed under U.S. laws or the law of any State, the District of Columbia, the U.S. Territories and Insular Possessions or Indian Tribes.
A “foreign financial account” is a financial account located outside the U.S. The U.S. includes the states, the District of Columbia, territories and possessions of the U.S., and certain Indian lands. An account maintained with a branch of a U.S. bank that is physically located outside of the U.S. is a foreign financial account. An account maintained with a branch of a foreign bank that is physically located in the U.S. is not a foreign financial account.
A U.S. person has a financial interest in a foreign financial account for which:
- The U.S. person is the owner of record or holder of legal title, regardless of whether the account is maintained for the benefit of the U.S. person or for the benefit of another person; or
- The owner of record or holder of legal title is one of certain listed entities, which include
- An agent, a nominee, attorney, or a person acting in some other capacity on behalf of the U.S. person with respect to the account, or
- Any of certain entities controlled by the U.S. person.
The civil and criminal penalties for noncompliance with the FBAR filing requirements are significant. Civil penalties for a non-willful violation can range up to $10,000 per violation (31 U.S.C. 5321(a)(5)(B)(i)), as adjusted for inflation, and civil penalties for a willful violation can range up to the greater of $100,000 (31 U.S.C. 5321(a)(5)(C)), as adjusted for inflation, or 50% of the amount in the account at the time of the violation. As adjusted for inflation, these amounts are, for penalties assessed after 8/1/2016 but before 1/16/2017, $12,663 and $126,626, respectively. A “reasonable cause” exception exists for non-willful violations, but not for willful ones.
Inflation adjustment. For penalties assessed after 1/15/2017, the FBAR penalty for a non-willful failure to report penalty increases from $12,663 to $12,921, and the penalty for a willful failure to report increases from $126,626 to $129,210.
References: For foreign financial accounts reporting requirements, see FTC 2d/FIN S-3650; United States Tax Reporter 60,114.06.