For U.S. taxpayers with foreign financial assets or income, there are various applicable penalties for non-compliance.
With the exception of willful FBAR penalties, these penalties do not require willfulness or bad intent from the taxpayer. All that is required to assert the penalty is a failure to file the form.
Quick Reference Guide to International Penalties
| Taxpayer | Filing Requirement | Penalty Code Section | Penalty Amount |
|---|---|---|---|
| FBAR — Foreign Bank and Financial Account Reporting (FinCEN 114) | |||
| Non-Willful Violation — U.S. persons with financial interest in or signature authority over foreign financial accounts exceeding $10,000 | 31 USC 5321(a)(5)(B) | Up to $10,000 per violation per year (inflation-adjusted; currently up to $15,611) | |
| Willful Violation — Knowing or reckless failure to file or report required account information | 31 USC 5321(a)(5)(C) | Greater of $100,000 or 50% of account balance per violation (inflation-adjusted; currently up to $155,000+); criminal penalties up to $250,000 and/or 5 years imprisonment | |
| Willful Violation in conjunction with another law violation or pattern of illegal activity | 31 USC 5322(b) | Criminal penalties up to $500,000 and/or 10 years imprisonment | |
| U.S. Person with Interest In | |||
| Foreign Corporation (FC) | Form 5471 | IRC 6038(a) | $10,000 per year; up to $50,000 for continued failure after IRS notice |
| Foreign Partnership (FP) | Form 8865 | IRC 6038(a) | $10,000 per year; up to $50,000 for continued failure after IRS notice |
| Foreign Disregarded Entity | Form 8858 | IRC 6038(a) | $10,000 per year; up to $50,000 for continued failure after IRS notice |
| Foreign Corporation (FC) | Form 5471 | IRC 6038(a) | $10,000 per year; up to $50,000 for continued failure after IRS notice |
| Penalty Reducing Foreign Tax Credit | |||
| Foreign Corporation (FC) | Form 5471 | IRC 6038B(a) | 10% of FMV of transferred property; max $100,000 unless intentional |
| Foreign Partnership (FP) | Form 8865 | IRC 6038B(a) | 10% of FMV of transferred property; max $100,000 unless intentional |
| FC or FP with Foreign Disregarded Entity | Form 8858 | IRC 6038B(a) | 10% of FMV of transferred property; max $100,000 unless intentional |
| 25 percent foreign-owned U.S. corporations | Form 5472 | IRC 6038A(d) | $25,000 per year; up to $25,000 per 30-day period after IRS notice |
| 25 percent foreign-owned U.S. corporations that fail to: 1) authorize the reporting corporation to act as agent of a foreign related party; or 2) substantially comply with a summons for information | Not applicable | IRC 6038A(e) | $25,000 per 30-day period of noncompliance after IRS notice |
| Transfer of Certain Property to Foreign Persons | |||
| Foreign Corporation | Form 926 | IRC 6038B(a) | 10% of FMV of transferred property; max $100,000 unless intentional |
| Foreign Partnership | Form 8865 Schedule O | IRC 6038B(a) | 10% of FMV of transferred property; max $100,000 unless intentional |
| Foreign corporations engaged in U.S. business | Form 5472 | IRC 6038C(c) | $25,000 per year; up to $25,000 per 30-day period after IRS notice |
| Individuals receiving gifts from foreign persons exceeding $100,000 or $16,649 in the case of a gift from a foreign corporation or foreign partnership (adjusted annually for cost of living) | Form 3520 | IRC 6039F(c) | 5% of gift amount per month not filed (max 25% of gift amount) |
| Foreign persons that relinquish their U.S. citizenship or abandon their long-term resident status | Form 8854 | IRC 6039G(c) | $10,000 per failure to file |
| Foreign persons holding direct investments in U.S. real property interests | Not applicable | IRC 6652(f) | $100 per day of noncompliance; max $50,000 per return |
| U.S. person who creates a foreign trust, transfers property to a foreign trust, or receives a distribution from a foreign trust | Form 3520 | IRC 6677(a) | Greater of $10,000 or 35% of gross reportable amount |
| U.S. Owner of a foreign trust | Form 3520-A | IRC 6677(b) | Greater of $10,000 or 5% of gross reportable amount |
| Failure to File Returns with Respect to Acquisitions of Interests In | |||
| Foreign Corporation | Form 5471 Schedule P | IRC 6679 | $10,000 per failure; up to $50,000 for continued failure after IRS notice |
| Foreign Partnership | Form 8865 Schedule P | IRC 6679 | $10,000 per failure; up to $50,000 for continued failure after IRS notice |
| IC-DISC or FSC Failure to File Returns or Supply Information | |||
| IC-DISC | Form 1120 IC-DISC | IRC 6688 | $1,000 per failure; max $25,000 per year |
| FSC | Form 1120-FSC | IRC 6688 | $1,000 per failure; max $25,000 per year |
| Allocation of Individual Income Tax to Guam or the CNMI | Form 5074 | IRC 6688 | $1,000 per failure; max $25,000 per year |
| Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Possession | Form 8898 | IRC 6688 | $1,000 per failure; max $25,000 per year |
| Taxpayer’s failure to file notice of foreign tax redetermination under IRC 905(c) or IRC 404A(g)(2) | Form 1116 or Form 1118 / Form 1120-X | IRC 6689 | 5% of deficiency per month (max 25%); min $100 |
| Taxpayer’s failure to file notice of foreign tax redetermination position | Not applicable | IRC 6689 | 5% of deficiency per month (max 25%); min $100 |
| Taxpayer’s failure to disclose treaty-based return position | Form 8833 or statement | IRC 6712 | $1,000 per failure ($10,000 for corporations) |
| Failure to Provide Information Concerning Resident Status (Expatriation Information) | Not applicable | IRC 6039C | $5 per day; max $1,825 per year |
| Taxpayer’s failure to furnish information with respect to specified foreign financial assets | Form 8938 | IRC 6038D(d) | $10,000 per year; up to $50,000 for continued failure after IRS notice |
* IRC = Internal Revenue Code | FBAR penalties administered by FinCEN/DOJ under the Bank Secrecy Act (31 USC). All other forms are IRS filing requirements. Penalty amounts are for informational purposes only, are subject to inflation adjustments, and may change. Consult a qualified tax professional for current figures.
In addition to the above foreign asset reporting penalties, if a US citizen or permanent resident living abroad fails to file a US tax return, the various return penalties (failure to pay, failure to file, and interest) are applied in combination with the above penalties.
If taxpayers are non-compliant with the foreign asset and income reporting requirements, they should consider applying to one of IRS’ voluntary disclosure programs:
- Voluntary disclosure program
- Streamlined domestic offshore program
- Streamlined foreign offshore program
- Delinquent international information return submission procedures
- Delinquent FBAR Submission Procedures
We assist taxpayers who have undisclosed foreign financial assets. Schedule an appointment to see how we can help.