The FBAR—Report of Foreign Bank and Financial Accounts—carries some of the most severe penalties in all of tax law. A single willful violation can result in penalties of $100,000 or 50% of the account balance, whichever is greater. Even non-willful violations now carry penalties exceeding $60,000 per account, per year. For California taxpayers with foreign accounts—whether from international business dealings, overseas investments, or immigrant family connections—understanding FBAR requirements has never been more critical.

At the Law Office of Pietro Canestrelli, we help California taxpayers with international tax compliance and FBAR penalty disputes. As a former IRS agent and California Board Certified Tax Specialist, Pietro Canestrelli understands both the technical filing requirements and the resolution options when taxpayers face FBAR penalties. This guide explains what you need to know to stay compliant—and what to do if you’ve fallen behind.

Understanding FBAR Requirements

What Is the FBAR?

The FBAR (FinCEN Form 114) is a report filed with the Financial Crimes Enforcement Network (FinCEN), not the IRS. It’s part of the Bank Secrecy Act, originally designed to combat money laundering and tax evasion. Despite being filed separately from your tax return, FBAR non-compliance is often discovered through IRS examination.

Who Must File?

You must file an FBAR if:

• You are a U.S. person (citizen, resident alien, or certain entities)
• You have a financial interest in or signature authority over foreign financial accounts
• The aggregate value of all foreign accounts exceeded $10,000 at any time during the calendar year

Note the “aggregate” requirement: If you have three accounts that individually never exceed $10,000, but together exceeded $10,000 at any point, you must file.

What Accounts Must Be Reported?

Reportable foreign accounts include:

• Bank accounts (checking, savings)
• Securities accounts (brokerage)
• Mutual funds
• Retirement accounts (foreign pensions, etc.)
• Insurance policies with cash value
• Accounts where you have signature authority (even if not the owner)

Filing Deadline

The FBAR is due April 15, with an automatic extension to October 15. Unlike tax returns, you don’t need to request this extension—it’s automatic.

2026 FBAR Penalty Amounts

FBAR penalties are adjusted annually for inflation. For 2026:

Non-Willful Violations

• Maximum penalty: Approximately $16,000-$17,000 per violation (adjusted for inflation)
• Per account, per year: Each unreported account for each year is a separate violation
• Reasonable cause defense: Penalties may be waived if you show reasonable cause for failure to file

Recent court decisions have created uncertainty about whether penalties are per-account or per-form. The Supreme Court’s 2023 Bittner decision established that non-willful penalties are per-form (one penalty per year), not per-account—significantly limiting penalty exposure for non-willful violations.

Willful Violations

• Civil penalty: Greater of $100,000 or 50% of the account balance at time of violation
• Per account, per year: Unlike non-willful, willful penalties clearly apply per account
• Criminal penalties: Willful violations can result in criminal prosecution, with fines up to $250,000 and imprisonment up to 5 years

What Makes a Violation “Willful”?

Willfulness requires either:

• Knowing and intentional violation of the FBAR requirement
• Reckless disregard for whether conduct was prohibited

Courts have found willfulness based on:

• Checking “no” on Schedule B when you had foreign accounts
• Using foreign accounts to hide income
• Receiving professional advice about FBAR and ignoring it
• Sophisticated taxpayers who “should have known” about requirements

FBAR vs. Form 8938 (FATCA)

Many taxpayers confuse FBAR with Form 8938. Both report foreign accounts, but they’re different:

Important: You may need to file both forms—they’re not duplicative, and filing one doesn’t satisfy the other.

Common FBAR Compliance Mistakes

Not Knowing About the Requirement

Many taxpayers—especially immigrants, expats, and those with inherited foreign accounts—don’t know FBAR exists. Unfortunately, ignorance alone may not be reasonable cause for penalty waiver.

Misunderstanding “Financial Interest”

You have a financial interest in accounts you don’t own if:

• You’re the beneficial owner
• A corporation you own more than 50% of owns the account
• You’re a beneficiary of a trust that owns accounts

Overlooking Signature Authority

If you can sign on a foreign account—even if it’s your employer’s account and you derive no personal benefit—you may need to file FBAR.

Underestimating Account Values

Use the maximum value during the year, converted to dollars at the year-end exchange rate (or the exchange rate when the account had its maximum value, per FinCEN guidance).

Missing Related Requirements

FBAR is just one international reporting form. Others may apply:

• Form 3520/3520-A for foreign trusts
• Form 5471 for foreign corporations
• Form 8865 for foreign partnerships
• Form 8621 for passive foreign investment companies (PFICs)

What to Do If You Haven’t Filed FBARs

If you have unreported foreign accounts, you have several options:

Streamlined Filing Compliance Procedures

The IRS’s Streamlined Procedures are available to taxpayers who can certify their failure was non-willful:

Streamlined Domestic Offshore Procedures (for U.S. residents)

• File 3 years of amended returns
• File 6 years of FBARs
• Pay a 5% penalty on highest aggregate balance
• Must certify non-willfulness

Streamlined Foreign Offshore Procedures (for qualifying foreign residents)

• File 3 years of amended returns
• File 6 years of FBARs
• No penalty
• Must meet foreign residency requirements

Delinquent FBAR Submission Procedures

If you don’t owe additional tax (your foreign income was properly reported), you may file late FBARs with a statement explaining why they’re late. No penalties apply if the IRS accepts your explanation—but this procedure has risks if you’re wrong about owing no additional tax.

Voluntary Disclosure Practice

For taxpayers with willful violations or significant unreported income, the IRS’s Voluntary Disclosure Practice may be appropriate. This involves:

• Full disclosure to IRS Criminal Investigation
• Substantial penalties (but reduced from maximum)
• Protection from criminal prosecution

Quiet Disclosure (Not Recommended)

Some taxpayers simply file late FBARs without using formal procedures—a “quiet disclosure.” This approach carries significant risks:

• No certainty about penalty exposure
• No protection from criminal prosecution
• IRS has stated this approach is inappropriate

Our guide on international tax compliance provides additional context for these options.

Defending Against FBAR Penalties

If you’ve been assessed FBAR penalties, defense strategies include:

Reasonable Cause

Demonstrating reasonable cause for failure to file can eliminate non-willful penalties. Factors include:

• Reliance on professional advice
• Circumstances beyond your control
• Good faith errors
• Complexity of the law

Challenging Willfulness

If the IRS assesses willful penalties, disputing willfulness can reduce penalties by 90% or more. The burden is on the IRS to prove willfulness.

Proportionality Arguments

Courts have shown increasing willingness to consider whether penalties are proportional to the violation. Penalties vastly exceeding the unreported tax may be reduced.

Procedural Challenges

FBAR penalty assessments must follow specific procedures. Errors in the assessment process can provide defense grounds.

Learn more about appealing IRS determinations.

California-Specific Considerations

California taxpayers with foreign accounts face additional considerations:

• High state taxes: Unreported foreign income is taxable by California at rates up to 13.3%
• FTB information sharing: The FTB receives information from the IRS about international issues
• Residency complications: California residency rules can create tax obligations on worldwide income
• Immigrant population: California’s large immigrant community means many residents have foreign accounts from their home countries

Understanding California tax compliance requirements is essential for taxpayers with international connections.

Record-Keeping Requirements

You must maintain records of foreign accounts for five years from the FBAR due date. Records should include:

• Account statements showing maximum value
• Name of financial institution
• Account number
• Type of account
• Documentation of any account closures

Frequently Asked Questions

Do I need to report a foreign account I closed during the year?

Yes. If the account existed at any point during the year and contributed to exceeding the $10,000 threshold, you must report it.

What about cryptocurrency on foreign exchanges?

Cryptocurrency held on foreign exchanges may be reportable. FinCEN guidance suggests virtual currency is covered, though implementation details continue to evolve. For crypto-specific issues, see our cryptocurrency tax guide.

My spouse has foreign accounts but I’m a U.S. citizen—do I file?

If you file jointly with a non-resident alien spouse who has foreign accounts, complex rules determine your obligations. Professional guidance is essential.

Is there a statute of limitations on FBAR penalties?

The government has six years from the FBAR due date to assess civil penalties. Criminal prosecution has no time limit for willful violations.

Get Expert Help With FBAR Compliance

FBAR penalties are among the most severe in tax law, and the rules are unforgiving. Whether you need to come into compliance through disclosure programs, defend against assessed penalties, or simply ensure proper ongoing compliance, the Law Office of Pietro Canestrelli provides the expertise you need.

As a former IRS agent, Pietro Canestrelli understands how the government approaches international tax enforcement. As a California Board Certified Tax Specialist, he has the technical expertise to navigate complex international reporting requirements.

Have foreign accounts that need reporting or facing FBAR penalties? Contact our office for a confidential consultation. We’ll evaluate your situation and develop the best strategy for compliance or defense.