Maximum penalties for willful failure to report foreign bank accounts on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), for multiple years are limited under new IRS procedures in IRS memo SBSE-04-0515-0025, issued in May.
Under 31 U.S.C. Section 5321(a)(5)(C), the maximum penalty is the greater of $100,000 or 50% of the balance in all subject accounts on each FBAR filing date, June 30. The memo instructs examiners to determine a single penalty for all years combined and then allocate it to each year. The single penalty is 50% of the highest aggregate balance in any of the years under examination.
The memo gives an example of highest balances for 2010, 2011, and 2012 of $50,000, $100,000, and $200,000, respectively. The highest balance during the three years is $200,000, of which 50% is $100,000. That amount is then allocated by a ratio of the highest balance for each year to the combined highest balances for all years, in this case, $350,000. So for 2010, the allocation is ($50,000 ÷ $350,000) × $100,000 = $14,286; for 2011, ($100,000 ÷ $350,000) × $100,000 = $28,571; and for 2012, ($200,000 ÷ $350,000) × $100,000 = $57,143.
Otherwise, the maximum penalty would have been $100,000 for each year.