FBAR Penalties & Other Dangers of Hiding Offshore Assets
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Contents
- What's an FBAR Anyway?
- Who Has to File?
- What Kinds of Accounts Count?
- The Scary World of FBAR Penalties
- When You Just Didn't Know (Non-Willful Violations)
- When They Think You Knew Better (Willful Violations)
- A Real Person Who Got Caught: The Leeds Case
- How the IRS Finds Your Hidden Money
- Why "Quiet Disclosure" Is a Terrible Idea
- Better Ways to Fix Your FBAR Problems
- How to Stay Out of Trouble with FBARs
- Why Going Offshore Still Makes Sense (If You Do It Right)
- Which Offshore Assets Trigger FBAR Requirements?
- Common FBAR Reporting Mistakes to Avoid
- FBAR vs. FATCA: Understanding the Difference
- Recent FBAR Penalty Developments You Should Know
- Final Thoughts: Don't Gamble With Your Financial Future
Got money stashed outside the US? You need to know about something called the FBAR (Foreign Bank Account Report).
The US government has dramatically increased enforcement on offshore account reporting, especially since the implementation of FATCA (Foreign Account Tax Compliance Act) in 2014. As a result, foreign banks must now report US account holders directly to the IRS. Alternatively, foreign banks must report data on US account holders to their country’s tax agency. That agency must then send the data to the IRS.
And, if you fail to file an FBAR and the government determines it was willful, you face potential criminal prosecution and staggering penalties – sometimes even more than what you have in the accounts!
In this article, we’ll break down what FBAR rules are all about, what happens if you don’t follow them, and how to keep yourself safe.
What's an FBAR Anyway?
FBAR stands for Foreign Bank Account Report. Think of it as a form you need to fill out if you have money in foreign accounts.
Here’s the deal: if your foreign financial accounts add up to more than $10,000 at any time during the year, you need to tell the US government about it. It doesn’t matter if it’s just for one day – if you hit that $10,000 mark, you need to file.
You need to submit this form online through a Treasury bureau called the Financial Crimes Enforcement Network (FinCEN) by April 15 each year. Don’t worry if you’re running late – you automatically get until October 15 to file (meaning you don’t need to request an extension).
Who Has to File?
You need to file an FBAR if you’re:
- A US citizen or permanent resident (green card holder), no matter where you live in the world.
- A person who isn’t a US citizen or permanent resident, but who spends enough time living in the US that they meet the substantial presence test.
- A US corporation, partnership, LLC, trust, or estate.
The key thing? Your foreign accounts need to add up to more than $10,000 at some point during the year. That’s total across all accounts – not each one separately. Note that this threshold isn’t indexed for inflation.
What Kinds of Accounts Count?
Pretty much any financial account you have outside the US might need to be reported:
- Regular bank accounts (checking, CDs, and savings).
- Investment accounts where you buy stocks or bonds.
- Mutual funds or pooled investments.
- Brokerage accounts.
- Life insurance policies with cash value.
- Retirement accounts (like foreign pensions, certain retirement funds depending on ownership/control).
- Some types of prepaid cards or online payment accounts (if they’re held at a foreign financial institution).
- Accounts where you have signature authority (even if you don’t own the funds personally — for example, an employer account you can sign for).
The Scary World of FBAR Penalties
Let me tell you – the penalties for missing an FBAR filing are no joke. The IRS is getting tougher on offshore accounts. They’re looking harder and punishing harder than ever before.
When You Just Didn't Know (Non-Willful Violations)
Say you honestly didn’t know you needed to file, or you made a simple mistake. The government calls this “non-willful” – but you can still get hit with:
- Fines up to $10,000 for each form you should have filed.
- Good news: The Bittner vs. US SCOTUS ruling says it’s per form, not per account (so if you have 5 accounts but missed one year, that’s one $10,000 penalty, not five).
- Bad news: These penalties go up with inflation each year. Adjusted for inflation, the actual penalty is now $16,536 for 2025.
Even if it was an honest mistake, these penalties can destroy your savings fast – especially if you missed filing for several years in a row.
When They Think You Knew Better (Willful Violations)
If the IRS decides you knew about the FBAR but chose not to file it, watch out, the penalties get even worse:
- Either $100,000 OR half the value of your account – whichever is MORE.
- They can hit you with this for EACH YEAR you didn’t file.
- In 2025, that $100,000 number has grown to more than $165,000 because of inflation.
- In the worst cases, you could face criminal charges and even jail time.
Imagine having $300,000 in a foreign account and getting hit with a $165,000 penalty for each year you didn’t report it. Five years of willful non-filing could mean penalties of over $800,000 – much more than you even have in the account!
A Real Person Who Got Caught: The Leeds Case
Want to see how bad it can get? Just look at what happened to Richard Leeds (US v. Leeds, decided in Idaho in 2025).
Leeds was a US citizen who kept Swiss bank accounts hidden for over 30 years. The IRS found out and decided he knew exactly what he was doing when he didn’t file his FBARs from 2006 to 2012. The penalty? Over $2 million!
Here’s the kicker – even after Leeds died in 2021, the government went after his estate for the money. The court said his estate still had to pay up, though they did spare his wife from having to pay from her own pocket.
The message is clear: the IRS will come after your money for FBAR violations even if they have to get it from your heirs after you’re gone.
How the IRS Finds Your Hidden Money
Think your foreign accounts will stay secret? Think again. The IRS has gotten really good at finding offshore money. Here’s how they do it.
Foreign Banks Are Required to Rat You Out (FATCA)
There’s a law called FATCA (Foreign Account Tax Compliance Act) that basically forces foreign banks to tell on you. Any foreign bank with American account holders must report those accounts to the IRS each year.
The bank has to tell the IRS (or the tax authorities in the country where the bank is located, who in turn tell the IRS):
- Who owns the account.
- How much money is in it.
- What the account number is.
- What interest or other income the account earned.
If banks don’t report this info, they face huge penalties. Most would rather turn you in than face those penalties.
The US Has Deals With Almost Every Country
The US has signed tax treaties with more than 50 countries and special FATCA agreements with more than 110 countries. This means the government has eyes and ears almost everywhere money can be hidden.
These countries have all agreed to make their banks report accounts owned by Americans. Even traditional “banking havens” like Switzerland have caved to this pressure.
They Use Smart Computer Programs
The IRS uses fancy computer systems to match what foreign banks tell them with what you’ve reported (or haven’t reported). They can easily spot when numbers don’t add up or when you’ve forgotten to mention an account.
Essentially, they use data-matching technology and computer systems to cross-check the information foreign banks report under FATCA with the data provided by US taxpayers. These systems are designed to flag discrepancies between what taxpayers report on their tax returns (including foreign income) and the information reported by financial institutions, making it easier for the IRS to spot unreported foreign accounts or income.
People Will Turn You In for Cash
The IRS also runs a “whistleblower” program that pays people to rat out tax cheats. If someone knows about your hidden accounts – maybe an ex-spouse, a former business partner, or even a bank employee – they can report you and get a chunk of whatever the IRS collects from you.
Some whistleblowers have earned millions of dollars for reporting big tax evaders. That’s a strong motivation for people to turn you in!
Why "Quiet Disclosure" Is a Terrible Idea
When people realize they’ve messed up by not filing FBARs, they sometimes think: “I’ll just file amended tax returns (which require a similar disclosure to the FBAR on Schedule B) along with the delinquent FBARs now and hope nobody notices I was supposed to file before.” This is called “quiet disclosure,” and it’s one of the worst things you can do.
Here’s why trying to slip under the radar is so dangerous:
- The IRS specifically looks for people trying this trick.
- If caught, you’ll likely get hit with the harshest penalties.
- It can be seen as tax fraud, which means the IRS might have unlimited time to come after you.
- It could mess up your immigration status or your ability to keep your US passport.
- The IRS can go after both your foreign AND US assets if you owe penalties.
Better Ways to Fix Your FBAR Problems
If you’ve missed filing FBARs, don’t freak out. The IRS actually has several programs to help people come clean. These are much safer than trying to hide your past mistakes.
The Streamlined Program (For Honest Mistakes)
This program is for people who truly didn’t know they needed to report the income from their foreign accounts or file FBARs:
- If you live outside the US, you might pay ZERO penalties under the Foreign Streamlined Program if you’re able to prove that your failure to file was non-willful.
- If you live in the US, you’ll pay a much smaller penalty than if the IRS catches you.
- You’ll need to sign a statement saying you honestly didn’t know about the requirement.
- You’ll file the last three years of tax returns and six years of missing FBARs.
The Delinquent FBAR Procedures (If You Reported Your Income)
This program might work if you reported all your foreign income on your tax returns, but just didn’t know about the separate FBAR form:
- You file your missing FBARs with a simple statement explaining why they’re late.
- Usually no penalties if you reported and paid tax on all your foreign income.
- You’ll need to confirm the IRS hasn’t contacted you about the missing FBARs yet (you cannot be under audit or have already been informed by the IRS about your FBAR violations).
The Voluntary Disclosure Program (For Bigger Problems)
If you knew you should have filed but didn’t, this program might be your best bet:
- It protects you from criminal charges if the IRS accepts your voluntary disclosure (remember, in the worst cases, FBAR violations can lead to jail time).
- You’ll know upfront what your penalties will be.
- While you may still face stiff penalties, you’ll be able to sleep at night knowing the problem is being fixed.
The "Reasonable Cause" Approach
Sometimes, you can argue you had a good reason for not filing:
- Maybe your tax preparer gave you bad advice.
- Perhaps you had a serious illness that prevented you from handling your finances.
- Maybe you tried your best to follow the rules, but just didn’t understand them.
Unlike the formal programs above, this approach is more case-by-case, but can work well for people with strong documentation of why they couldn’t file.
How to Stay Out of Trouble with FBARs
The best way to deal with FBAR problems is to avoid them in the first place.
Here are some simple steps to keep yourself safe:
Keep Good Records (Really Good Records)
- Write down the highest amount in each foreign account during the year.
- Save all your foreign bank statements – digital copies are fine.
- Keep a list of all accounts where you’re a signer, even if the money isn’t yours.
- Take screenshots of online account balances if you don’t get regular statements.
Put FBAR Deadlines on Your Calendar
- Set a reminder for April 15 each year.
- Know that you automatically have until October 15 to file if you miss the April date.
- Don’t wait until the last minute – technical problems happen!
Get Expert Help
- Not all tax preparers understand international reporting – find one who does.
- Consider having a review of your offshore setup by someone who specializes in this.
- If you have complex international assets, a professional review can save you from huge headaches.
Smart Ways to Diversify Internationally
- Look at the reporting hassles before opening foreign accounts.
- Sometimes simpler is better – fewer accounts mean fewer forms.
- Consider using US-based assets that give you international exposure without the FBAR headaches.
Why Going Offshore Still Makes Sense (If You Do It Right)
With all these scary penalties, you might wonder: “Is it even worth having money outside the US?”
The answer is yes – if you do it properly and follow the rules.
Here’s why offshore assets still make sense:
Protection Against Domestic Financial Instability
Having money in different countries means you’re not totally exposed to problems in the US. If the US economy hits trouble or the dollar weakens significantly, assets in other countries may provide stability.
Currency Diversification
Access to Unique Investment Opportunities
Some of the best investment opportunities aren’t available in the US. Foreign markets sometimes offer better returns or unique opportunities that you can’t access through US-based investments (and they get even better if you have pre-existing connections to your chosen nation).
Asset Protection Benefits
Which Offshore Assets Trigger FBAR Requirements?
Not every foreign asset triggers FBAR filing requirements. It’s important to understand exactly what needs to be reported and what doesn’t:
Financial Accounts That Must Be Reported
- Foreign bank accounts (checking, savings, CD accounts).
- Foreign brokerage accounts where you hold securities.
- Foreign mutual funds.
- Foreign retirement accounts in many cases.
- Foreign life insurance policies with cash value.
- Foreign prepaid debit cards if they function like accounts.
- Some foreign payment apps and online wallets.
What You DON'T Need to Report on the FBAR
- Direct personal ownership of foreign real estate.
- Physical currency or precious metals held in a foreign safety deposit box or private vault (or in your possession if you live overseas yourself)
- Personal property (like cars, jewelry, art) held overseas.
- Direct stock ownership in foreign companies (not held through an account).
- Cryptocurrencies (as of 2025, though this could change).
Here’s where people often get confused: while your rental property in Mexico itself doesn’t trigger FBAR requirements, the Mexican bank account where you deposit the rental income absolutely does (so long as that $10,000 cumulative threshold is met).
Same thing with precious metals – gold coins in your foreign safe deposit box don’t need FBAR reporting, but the bank account tied to the safe deposit box is considered a financial account.
Common FBAR Reporting Mistakes to Avoid
Even when people try to comply with FBAR requirements, they often make mistakes that could trigger penalties. Here are some of the most common errors:
Forgetting Accounts Where You Have Signature Authority
You might not own the money, but if you can sign on an account (like for your employer or a relative), it usually needs to be reported. This catches many people off guard.
Misunderstanding the $10,000 Threshold
Remember: it’s the combined total of all your foreign accounts that matters, not each individual account. If you have three accounts with $4,000 each, you’re over the threshold and must disclose all of them on the FBAR.
Not Reporting Accounts That Dropped Below $10,000
If your account balance exceeded $10,000 at any point during the year – even for a single day – the reporting requirement is triggered for that entire year, even if the balance was lower on December 31.
Assuming Tax Preparers Handle It Automatically
We love our tax preparers, but never assume your accountant is handling this correctly unless you’ve specifically discussed it.
Thinking Accounts in Your Country of Birth Are Exempt
If you’re a dual citizen or immigrant to the US, your accounts in your birth country still count as “foreign” to the IRS. There’s no exemption for accounts in your homeland.
Thinking Accounts in Your Country of Residence Are Exempt
If you live outside the US, you might think of the bank down the street where you hold an account as a local bank. But the IRS still considers an account there as a foreign account.
FBAR vs. FATCA: Understanding the Difference
Many people confuse FBAR requirements with FATCA reporting. FBAR and FATCA are intertwined since the FBAR requirements are enforced through FATCA. But in addition to your FBAR reporting obligations, you might have separate reporting obligations under FATCA with different thresholds and a different form:
FBAR (FinCEN Form 114)
- Filed with the Treasury Department (not the IRS).
- $10,000 aggregate threshold for all foreign accounts.
- Same threshold regardless of where you live or filing status.
- Only reports the existence of accounts and maximum balances (does not include all foreign assets).
- Due April 15 with automatic extension to October 15.
FATCA Reporting (IRS Form 8938)
- Filed with your tax return to the IRS.
- Higher thresholds: $50,000-$600,000 depending on filing status and residence.
- Reports more detailed information about assets, their types, and income.
- No automatic extension beyond your tax return due date. However, if you file for an extension for your tax return, the deadline for Form 8938 is also extended for six months.
- Covers more types of foreign assets beyond just accounts.
You might need to file both, either, or neither, depending on your specific situation. While Form 8938 and the FBAR have different thresholds and purposes, if you’re required to file Form 8938, you’ll often need to file an FBAR as well.
Recent FBAR Penalty Developments You Should Know
The landscape for FBAR penalties has been changing due to important court decisions and policy shifts. Here are some key developments that could affect you if you have foreign accounts:
How the Bittner Supreme Court Decision Affected FBAR Penalties
Remember how we mentioned the US v. Bittner SCOTUS ruling earlier? Before this ruling, if you had 10 foreign accounts and failed to file an FBAR for one year, the IRS could potentially charge you 10 separate $10,000 penalties ($100,000 total). Now, they can only assess one $10,000 penalty for that year’s missing form. (But again, don’t forget the $10,000 penalty is inflation-adjusted and now is actually $16,536 for 2025.)
However, willful penalties can still be applied per account, which is why the distinction between willful and non-willful violations is so crucial.
FBAR Penalties and Statute of Limitations
How long can the IRS come after you for FBAR violations? Generally, they have six years from the due date of the FBAR to assess penalties.
However, there’s a critical exception:
- For civil penalties, the IRS has six years from the FBAR due date to assess civil penalties for both willful and non-willful violations. This six-year period applies to each year’s FBAR filing individually.
- For criminal violations, it’s 5 years. But if the IRS can prove fraud, there may be no time limit at all.
This means you’re never truly “in the clear” if your non-filing was deliberate. The IRS could potentially come after you decades later if it can prove willful concealment.
Joint Accounts and FBAR Penalties
If you have joint accounts with a spouse or someone else, both account holders typically must file separate FBARs if they’re US persons. This is different from how joint assets are often handled on tax returns.
A common mistake is assuming that if one spouse reports the account, the other doesn’t need to. This isn’t true – each person with signature authority needs to file separately.
However, there is an exception for accounts jointly held by spouses. If all of your foreign accounts are jointly owned with your spouse, your spouse files an FBAR reporting all the accounts, and you have no other reportable foreign accounts, you may be able to avoid filing a separate FBAR.
Final Thoughts: Don't Gamble With Your Financial Future
The penalties for not filing FBARs are among the harshest in the entire US tax system. The government has made finding hidden offshore money a top priority, and the IRS is incredibly effective at finding undisclosed accounts.
If you haven’t reported foreign accounts you should have, now is the time to fix it. The longer you wait, the fewer options you’ll have and the worse the penalties might be.
For those thinking about diversifying internationally, don’t let these rules scare you off completely. Just make sure you get good advice before you move money overseas. Having the right guidance from the beginning can save you from expensive mistakes.
At The Nestmann Group, we’ve been helping people legally protect their assets internationally since 1984. We know these complex rules inside and out and can help you structure things the right way.
Don’t try to figure this out on your own. It’s just too complicated and the stakes are too high. Contact us today for a consultation with a Nestmann Associate who can help you protect what you’ve worked so hard to build.
Remember: it’s not about hiding your money. It’s about legally positioning your assets to give you more freedom, more options, and more security in an uncertain world.
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We have 40+ years experience helping Americans move, live and invest internationally…
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We have 40+ years experience helping Americans move, live and invest internationally…
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