The Financial Crimes Enforcement Network (FinCEN) announced in December 2021 that it has amended a regulation under the Bank Secrecy Act (BSA) to remove obsolete civil penalty language related to willful failures to file FinCEN Report 114, “Report of Foreign Bank and Financial Accounts” (FBAR).
Under the BSA and the Internal Revenue Code, every U.S. person who has a financial interest in or signature or other authority over a financial account or accounts in a foreign country must report the account(s) annually using an FBAR if the aggregate value of the foreign financial account(s) exceeds $10,000 at any time during the calendar year.
In addition, specified financial institutions must file a foreign financial agency transaction report to notify the FinCEN of certain transactions with designated foreign financial agencies.
Willful failure to file either an FBAR or a foreign financial agency transaction report is subject to a civil monetary penalty. In 2004, a regulation under the U.S. Code was amended to increase the maximum amount of the penalty for willful failure to file either report. However, the regulation under the BSA wasn’t amended to reflect the statutory change.
According to the FinCEN, the BSA reg, which provides civil penalty language for willful failure to file an FBAR or foreign financial agency transaction report, is obsolete and superseded by the 2004 statutory amendments. Therefore, the FinCEN has rescinded the BSA reg and redesignated paragraphs (h) and (i) as (g) and (h).
Although this development doesn’t change the penalties in play, it does serve as a reminder of the importance of annually filing an FBAR carefully and properly if one is required to do so. Willful failures trigger the most onerous monetary penalty, the maximum of which is the greater of $100,000 or 50% of an amount determined under specific tax rules.
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