FBAR and FATCA Compliance

Foreign account reporting is the area of tax law where the penalties most often exceed the tax. A taxpayer can owe nothing — accounts fully taxed abroad, income properly reported, no evasion of any kind — and still face penalties in the tens of thousands of dollars for failing to file an information form they had never heard of.

The reporting obligations attach to U.S. citizens, green card holders, and residents regardless of where they live. Southern California’s population makes this a routine issue rather than an exotic one: immigrants with accounts in their country of origin, dual citizens, people who inherited property abroad, and residents with business interests overseas.

We handle offshore compliance matters in Temecula, Murrieta, San Diego, Riverside, and San Bernardino, and for clients abroad with U.S. filing obligations.

Two Separate Requirements

FBAR and FATCA are frequently confused. They are different forms, filed with different agencies, under different thresholds — and filing one does not satisfy the other.

FBAR — FinCEN Form 114

Required if the aggregate value of foreign financial accounts exceeded $10,000 at any point during the year. Note both words: aggregate across all accounts, and at any point — not year-end.

Three accounts holding $4,000 each trigger the requirement. So does a single account that briefly held $12,000 during a property sale and was emptied the next week.

It covers accounts you own and accounts over which you have signature authority without any ownership — a fact that catches employees who manage an employer’s foreign accounts and adult children added to an elderly parent’s account abroad. Filed electronically with FinCEN, not with the tax return.

FATCA — Form 8938

Filed with the tax return, covering “specified foreign financial assets,” which is broader than FBAR — it reaches foreign stock and securities held outside an account, interests in foreign entities, and certain foreign financial instruments.

Thresholds vary by filing status and residence, from $50,000 for a single filer living in the U.S. measured at year-end, up to $600,000 for married taxpayers living abroad, with lower thresholds also satisfied by peak-year values.

Most people who file one file both, because the assets overlap. The forms are not substitutes.

Related Forms

• Form 3520 — foreign gifts and inheritances above threshold, and transactions with foreign trusts. The penalty is a percentage of the amount received, which makes an unreported inheritance expensive.
• Form 5471 — ownership in a foreign corporation
• Form 8865 — interests in foreign partnerships
• Form 926 — property transfers to foreign corporations

The Penalties

Violation	2026 penalty
FBAR — non-willful	Up to $16,536 per report
FBAR — willful	Greater of $165,353 or 50% of the account balance
FBAR — criminal	Up to $250,000 and 5 years; $500,000 and 10 years in aggravated cases
Form 8938	$10,000, rising $10,000 per 30 days after notice to a $50,000 maximum
Underpayment from undisclosed foreign assets	Additional 40%

One decision substantially reduced exposure for honest mistakes. In Bittner v. United States (2023), the Supreme Court held that the non-willful FBAR penalty applies per report, not per account. A taxpayer who missed four years of FBARs listing fifteen accounts each faces at most four penalties, not sixty.

The willful penalty remains severe and is assessed per account per year, and it can exceed the balance of the account itself.

There is also no comfort in waiting: if an FBAR was never filed, the limitations period never begins to run.

Willful or Non-Willful

Everything turns on this classification, and it is not simply a question of whether you intended to cheat.

Non-willful covers genuine unawareness, misunderstanding, and oversight — someone who did not know the requirement existed.

Willful includes knowing violations and, critically, reckless disregard or willful blindness. Courts have found willfulness where a taxpayer checked “no” on the Schedule B question about foreign accounts, or signed a return without reading it while knowing accounts existed. The Schedule B question is the single most common route to a willfulness finding, because it is an affirmative statement rather than an omission.

Factors weighed include concealment, use of nominees or entities, moving funds after learning of the requirement, sophistication and education, professional advice received, and cooperation.

Coming Into Compliance

The right program depends on the facts, and choosing wrongly can make matters worse.

Delinquent FBAR Submission Procedures. For taxpayers who reported all income and paid all tax but simply did not file FBARs. File the missing reports with a reasonable-cause statement. Penalties are generally not imposed where income was properly reported and the IRS has not already made contact.

Streamlined Filing Compliance Procedures. For non-willful taxpayers with unreported income. Requires three years of returns and six years of FBARs, plus a certification of non-willfulness. The domestic version carries a 5% penalty on the highest aggregate balance; the foreign version, for those meeting the non-residency requirement, carries no penalty.

These procedures remain available as of 2026, though administrative programs can be modified or ended, which argues against waiting once you know you are behind.

Voluntary Disclosure Practice. For taxpayers whose conduct may have been willful. Penalties are higher and negotiated case by case, but it generally provides protection from criminal prosecution. Eligibility requires acting before the IRS begins an examination or receives the information elsewhere.

What not to do: a quiet disclosure — filing amended returns or late FBARs without using a program — provides none of the protection and can itself be treated as an affirmative act. And the streamlined certification is signed under penalties of perjury. Using it where conduct was willful adds a false statement to the original problem. That single decision is why willfulness should be assessed by counsel, with privilege, before any filing is made. See IRS fraud accusations.

How the Government Finds Out

FATCA requires foreign financial institutions to report U.S. account holders directly to the IRS, and intergovernmental agreements cover most of the world’s banking system. Add the Common Reporting Standard among other jurisdictions, whistleblower awards, and information developed in other examinations.

Assuming an account is invisible is no longer a reasonable premise. In practice the question is usually when the information arrives, not whether — and arriving before it does is what preserves every favorable option.

What Actually Needs Reporting

A recurring source of both over- and under-reporting is uncertainty about which holdings count. The categories that most often cause confusion:

Generally reportable on the FBAR: foreign bank and brokerage accounts, foreign mutual funds, most foreign pension and retirement accounts, foreign life insurance and annuity policies with cash value, and accounts held through a foreign entity you control.

Generally not reportable on the FBAR: foreign real estate held directly, foreign stock certificates held directly rather than in an account, precious metals held personally, and accounts in a U.S. bank’s domestic branch even where the funds originated abroad.

Directly held foreign real estate is the most common point of confusion — it is not an FBAR asset, though a foreign account holding rental proceeds is, and rental income is separately reportable on the return.

Foreign pensions deserve particular attention. Many are reportable on both forms, and some do not receive tax-deferred treatment under U.S. law the way a domestic retirement account would, which can create current taxable income on growth inside the plan. Treaty provisions sometimes change that result, and the analysis is specific to the country and the plan type.

Digital assets held on foreign exchanges have been an evolving area. FATCA reporting may apply above the applicable threshold, and all transactions remain reportable for income tax purposes regardless.

Frequently Asked Questions

Do I file an FBAR if the account is not in my name?

Yes, if you have signature authority over it. That reaches employees managing employer accounts and adult children added to a parent’s account abroad.

My account is small. Does the threshold apply per account?

No — it is aggregate. Several small accounts totaling more than $10,000 at any point during the year trigger the requirement.

Does filing an FBAR mean I owe tax?

Not by itself. It is an information report. Income earned in the account is separately reportable, and foreign tax credits often offset the U.S. tax.

I never knew about this. How bad is it?

Often manageable. Non-willful penalties are capped per report after Bittner and are frequently waived for reasonable cause, and the delinquent and streamlined procedures exist for exactly this situation.

Should I just file the late forms myself?

Not before the willfulness question is assessed. Quiet disclosure forfeits program protection, and the streamlined certification is made under penalties of perjury.

Do I need to report an inheritance from abroad?

Generally on Form 3520 if it exceeds the threshold. The receipt itself is usually not taxable, but the penalty for not reporting is a percentage of the amount received.

What if I live outside the United States?

Citizens and green card holders file regardless of residence. The foreign streamlined procedures carry no penalty for those meeting the non-residency requirement.

Assess Willfulness Before You File Anything

Almost every bad outcome in this area comes from filing into the wrong program or filing quietly. The threshold question — whether the conduct was non-willful — determines which door to use, and it should be answered under privilege before any form is submitted.

Pietro Canestrelli holds an LL.M. in Taxation and advises on foreign account reporting, streamlined and voluntary disclosures, penalty defense, and examinations involving offshore assets. Schedule a consultation, or review our IRS representation and income tax services.