By:  Amanda Wilson

A taxpayer that has a foreign bank account is required to file a special form, the Report of Foreign Bank and Financial Accounts, disclosing information about the account. Failure to file this form, which is commonly referred to as an FBAR, can result in significant penalties. A person that fails to properly file an FBAR can be subject to a penalty up to $10,000 per violation. This penalty can be increased to the greater of $100,000 or 50% of the balance in the account at the time of the violation if the violation was willful.

Where the IRS views the facts as being particularly egregious, multiple penalties can be imposed (a penalty for each year that the FBAR was not filed). An example of this can be found in a recent Florida case, United States v. Zwerner. Yesterday, a jury upheld the imposition of penalties and interest amounting to $2.2 million, where the foreign bank account had at its highest point a balance of $1.5 million. In other words, penalties and interest were roughly 145% of the peak balance.

While the Florida case is an extreme situation, it is nonetheless a cautionary tale and shows the importance of timely and properly filing the FBAR. For taxpayers that have an obligation to file but have not done so, the IRS does offer a voluntary disclosure program.