The concept of “willfulness” is an important one in the FBAR civil penalty context. Indeed, a taxpayer’s willful failure to file a timely and accurate FBAR may result in significant penalties: the higher of 50-percent of the unreported account balance at the time of the violation or $100,000 (adjusted for inflation). Take this simple example:
Mark is a dual citizen of the United States and Australia. Mark routinely travels to Australia to visit his family. In one year, Mark chooses to live and work in Australia, making $300,000 as an independent contractor. Mark deposits the funds from his work in an Australian bank account.
When tax time comes, Mark files an income tax return reporting the $300,000 of income. However, he fails to file an FBAR reporting the maximum account balance in the foreign account, which was $200,000. If the IRS determines that Mark’s failure to file an FBAR was willful, the IRS may assess a $100,000 willful FBAR penalty against him.
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