A Court Just Upheld a $2.3 Million FBAR Penalty — and “I Didn’t Mean To” Wasn’t a Defense

The FBAR is the Report of Foreign Bank and Financial Accounts, filed on FinCEN Form 114, and you have to file it if you are a U.S. person whose foreign financial accounts together held more than 10,000 dollars at any single moment during the calendar year. That dollar figure is the whole test. It is not 10,000 dollars per account and it is not an average across the year. If you had three accounts that each peaked at 4,000 dollars on different days, your combined high point can still clear the threshold, and you file.

A U.S. person means more than a citizen living in New York. It covers green card holders, people who meet the substantial presence test, and many corporations, partnerships, trusts, and estates formed in the United States. The accounts that count include checking and savings accounts at a foreign bank, foreign brokerage and securities accounts, certain foreign retirement and pension accounts, foreign life insurance with a cash value, and accounts you do not own but can sign for. People miss that last category constantly. A daughter who can sign on her elderly father’s account in Lisbon has a filing duty even though not one dollar is hers. The IRS international taxpayers pages collect the related rules for people whose finances cross a border.

The FBAR is filed electronically through the FinCEN BSA E-Filing System, separate from your Form 1040. It is due April 15, with an automatic extension to October 15 that you do not have to request. The IRS overview of the FBAR lays out the same rules, and the agency examination framework lives in Internal Revenue Manual 4.26.16. There is also a tax-return tie-in. Schedule B asks directly whether you have a foreign account, so the question is in front of most filers every year whether they notice it or not.

Here is a worked example. Maria moved from Madrid to Manhattan in 2021 and kept a Spanish savings account that peaked at 7,000 dollars in 2025, plus a Spanish brokerage account that peaked at 6,000 dollars. Neither account alone tops 10,000 dollars. Combined, her highest aggregate exposure during the year passed 13,000 dollars, so she files a single FBAR listing both accounts. She owes no extra tax for filing. The form is informational. The cost of skipping it is the part that hurts. The same total test catches a founder who opened a foreign brokerage account as a convenience and never thought of it as a filing trigger.

The common mistake is treating the FBAR as part of the tax return. It is not. You can file a perfect 1040, report every dollar of foreign interest, and still owe an FBAR penalty because the separate FinCEN form never went in. An edge case worth flagging is the joint account held with a non-U.S. spouse. The U.S. spouse generally reports the full account value, not half, because the FBAR asks about accounts you have a financial interest in or authority over, not your fractional ownership. Another edge case is an account that closed mid-year. You still report it, because the test looks at the peak balance during the year, not the year-end balance. If you are unsure whether your situation crosses the line, that question is worth a short conversation as part of your individual tax return work before the deadline rather than after a notice arrives. Start that review at our tax compliance desk or through our new client inquiry page.

Willful does not mean you set out to cheat. For FBAR penalties the courts use an objective standard, and reckless conduct qualifies. The 2026 Eleventh Circuit decision in United States v. Niksich restated the rule plainly. Willfulness covers knowing violations and reckless ones, where reckless means action that carries an unjustifiably high risk of harm that you either knew about or that was so obvious you should have known. A sincere belief that you did not have to report will not rescue you if a reasonable person in your position would have seen the risk.

That is a hard standard for ordinary filers, and the Niksich facts show why. The taxpayer held accounts in Zurich and Panama, answered the Schedule B foreign-account question wrong on a self-prepared return, and argued that he misunderstood the law and relied on advice. The court looked past what he told himself and at the objective record. His business background, his own testimony that he knew about FATCA, and a foreign-account box he left blank by his own hand showed willfulness regardless of his stated intent. Reckless was enough. The lesson reaches people who never hid anything, because the same low bar that catches a concealer can catch a careless filer who ignored the question on the form.

The practical line between willful and non-willful runs through your conduct and your records, not your feelings. Signing a return that asks about foreign accounts and ignoring the question points toward willful. Genuinely not knowing a small foreign account existed, or reasonably relying on a preparer you gave complete information to, points toward non-willful. The Internal Revenue Manual 4.26.16 sets out the factors examiners weigh, and the IRS FBAR page describes the two penalty tiers. The broader set of cross-border duties sits on the IRS international taxpayers pages.

A worked example makes the stakes concrete. Two taxpayers each forget a foreign account that peaked at 400,000 dollars. The first never focused on the Schedule B question, used a preparer, and disclosed everything he was asked. He has a strong non-willful argument, where the 2026 cap is roughly 16,536 dollars per account per year. The second checked No on Schedule B himself while knowing the account existed. He faces the willful penalty, the greater of 165,353 dollars or 50 percent of the balance, so 200,000 dollars on that one account for one year. Same forgotten account. The difference in posture is worth 183,000 dollars.

The common mistake is assuming you control the label by describing your own intent. You do not. The examiner and the court reconstruct it from the paper. An edge case is willful blindness, where someone deliberately avoids learning whether a duty applies. Courts treat that as willful too. Another edge case is the taxpayer who got accurate advice but never acted on it, which tends to read as reckless rather than reasonable reliance. If you have a foreign account and any doubt about how prior years were handled, get the willfulness question analyzed before you act, because it drives which correction program fits. We do that review through our IRS audit and notice assistance and tax strategy consulting work, and you can open it with our new client inquiry page.

Large enough to exceed the account. For a willful violation in 2026 the penalty is the greater of 165,353 dollars or 50 percent of the account balance, and it applies per account, per year. For a non-willful violation the figure is far lower, up to 16,536 dollars per violation in 2026. Both numbers are adjusted annually for inflation, which is why the exact dollar amount drifts upward each year. The per account, per year structure on the willful side is what turns a single foreign account into a seven-figure exposure.

Walk through the arithmetic the way an examiner would. Take one foreign account that held 800,000 dollars and went unreported on willful terms for four years. Fifty percent of the balance is 400,000 dollars, which beats the 165,353 dollar floor, so the per-year penalty is the percentage figure. Across four years that is 1.6 million dollars from one account. Add a second account and the total climbs again. In Niksich the willful penalties across seven years and multiple accounts reached 2,286,954 dollars. The number was not an outlier. It was the formula doing what the formula does.

The non-willful side behaves very differently, and the Supreme Court is the reason. In the FBAR framework the IRS administers, non-willful penalties were once assessed per account, which let the government stack them. That changed in 2023. The penalty caps and inflation mechanics are summarized in the Internal Revenue Manual, and the related FATCA disclosure sits at the IRS Form 8938 guidance. The full set of cross-border obligations lives on the IRS international taxpayers pages.

A worked example on the non-willful side. A taxpayer non-willfully failed to report five foreign accounts for two years. After the 2023 change, the penalty attaches to each annual report rather than each account, so the exposure is roughly two report-level penalties, not ten account-level ones. At up to 16,536 dollars per report for 2026, that is a maximum near 33,000 dollars rather than 165,000 dollars. The distinction between per form and per account is the single biggest dollar lever in the whole area, and it is the first thing to pin down when a notice arrives.

The common mistake is assuming the penalty cannot top your balance. On the willful side it can, because the 165,353 dollar floor applies even to a modest account. An edge case is the small willful account, say 50,000 dollars, where the floor of 165,353 dollars dwarfs the 25,000 dollar half-balance figure. That is precisely the kind of disproportion now open to challenge under the Excessive Fines Clause. Another edge case is the dormant account nobody touched for years, which still draws a per-year penalty for every year it sat unreported, so a forgotten account can carry more penalty than it ever held in cash. The figure that controls is the highest balance during each year under review, not the balance on the day the IRS opens the file. If you are staring at a proposed assessment, the math and the defenses both deserve professional eyes through our IRS audit and notice assistance team, and forward questions can start at our tax compliance desk or our new client inquiry page.

Yes. In Bittner v. United States, decided February 28, 2023, the Supreme Court held that the non-willful FBAR penalty applies per report, not per account. The vote was five to four. That single holding reshaped the math for taxpayers who missed filings without willful conduct, because it stopped the government from multiplying one annual penalty by the number of accounts on the form.

The facts show the size of the swing. Alexandru Bittner, a dual citizen of the United States and Romania, filed late FBARs covering 2007 through 2011. Across those years his reports listed dozens of accounts, 272 in total across the five years. The government took the position that the up-to-10,000-dollar non-willful penalty applied to each account, which produced a demand of 2.72 million dollars. Bittner argued the penalty attached to each annual report instead, which would cap his exposure at five penalties, one per year. The Court agreed with Bittner. The statute penalizes the failure to file a report, and a report is a single annual form, so the unit of penalty is the form.

This matters only for the non-willful tier. Willful penalties were always assessed per account, and Bittner did not touch them, which is why the willful exposure in cases like Niksich still climbs into the millions. You can read the holding through the IRS FBAR overview, and the examiner-level treatment in the Internal Revenue Manual 4.26.16. The related disclosure form sits at the IRS Form 8938 guidance for FATCA, and the wider cross-border picture is on the IRS international taxpayers pages.

A worked example shows the dollars. Suppose a non-willful taxpayer missed FBARs for three years, with 20 foreign accounts each year. Under the government’s old per-account theory at roughly 16,536 dollars for 2026, that is 60 account penalties, more than 990,000 dollars. After Bittner the count is three report penalties, roughly 49,608 dollars. Same facts. A 940,000 dollar difference, all from how you count. The ruling did not change who has to file or what the threshold is. It changed how the penalty is multiplied once a non-willful failure is found.

The common mistake is assuming Bittner helps in a willful case. It does not. If the conduct is willful, the per-account structure and the 50 percent figure come back into play. An edge case is a taxpayer whom the government tries to recast as willful precisely to escape the Bittner cap, which is why the willfulness analysis became even more contested after 2023. Another edge case is the mixed file, where some years look non-willful and one year looks reckless, so the per-form cap protects most of the exposure while one year carries the heavier formula. Sorting which years sit on which side of that line is the work that decides the total, and it is rarely obvious from the bank statements alone. If your prior years involved multiple accounts and you are weighing a correction, the per-form rule changes the cost calculus, and we map it before filing through our tax strategy consulting and tax compliance work. A short call through our new client inquiry page is the place to start.

Do not fix it quietly. The instinct to slip the account onto a quiet amended return without explanation is exactly the move the IRS watches for, and it can convert a fixable problem into evidence of willfulness. The cleaner paths run through formal programs. For taxpayers whose conduct was non-willful, the IRS Streamlined Filing Compliance Procedures let you file the missing FBARs and amended returns with a certification of non-willfulness. Where the foreign income was already reported on your returns and only the FBAR was missed, the Delinquent FBAR Submission Procedures let you file the late forms with a reasonable-cause statement, often with no penalty.

Choosing between those programs turns on the willfulness question the Niksich ruling made harder to win, so the analysis happens before anything gets filed. The Streamlined program requires a sworn statement that your failure was non-willful, and signing that statement when the facts point the other way creates its own exposure. That is why the order of operations is fixed. Assess the conduct, pick the program, then file. Not the reverse. The underlying duty and the penalty tiers are described at the IRS FBAR overview, with the examiner framework in Internal Revenue Manual 4.26.16. Where the facts are genuinely willful, the route is instead the IRS Voluntary Disclosure Practice, which is a different program with different protections.

A worked example. David, a green card holder, had a foreign brokerage account that averaged 120,000 dollars and never filed FBARs for 2021 through 2024. He did report the dividends on his 1040s every year, because his preparer had the statements. Because the income was already on the returns and only the FBAR was missed, David is a strong candidate for the Delinquent FBAR Submission Procedures, which can resolve four missing years with a reasonable-cause statement and no penalty. Had he omitted the income too, the Streamlined program would have been the likelier route, with a miscellaneous offshore penalty figured on the account balance.

The common mistake is the quiet disclosure, the amended return that drops the account in without a program or an explanation. The IRS treats those as a warning flag rather than a cure. An edge case is the taxpayer whose facts are genuinely willful, for whom neither streamlined program is appropriate and the Voluntary Disclosure Practice is the only safe path. Another edge case is the taxpayer who already received a notice, because once the IRS contacts you the streamlined door tends to close, which is why timing drives everything here. A taxpayer who moves first keeps the cheaper programs open. A taxpayer who waits for the letter often loses them, and the only routes left after contact are slower and more expensive.

That determination is not a do-it-yourself exercise. We run it as part of your individual return and tax compliance work, and the cheapest year is always the one fixed through the right program before the IRS finds it. Start that conversation through our new client inquiry page while the move is still yours to make.

It might cap one, not erase one. The Eleventh Circuit held in 2026 that FBAR penalties can be challenged as unconstitutionally excessive under the Eighth Amendment’s Excessive Fines Clause, reversing a lower court that had ruled these penalties were outside constitutional review entirely. The court sent the Niksich case back to develop a factual record on whether 2.29 million dollars is out of proportion to what the taxpayer actually did. So the willfulness fight is finished, and a new fight over the size of the penalty is just starting.

The distinction matters for anyone facing a large assessment. The argument is no longer only that the taxpayer was not willful, which courts in this circuit rarely accept after the objective-recklessness standard. The live argument is now that the penalty is unconstitutionally excessive given the balance and the conduct. That does not wipe out a penalty. It puts a ceiling on the most disproportionate ones, the cases where the 165,353 dollar floor or a 50 percent figure dwarfs the actual harm. The framework follows the Eleventh Circuit’s 2025 reasoning in the Schwarzbaum case, which first opened FBAR penalties to Excessive Fines review.

The reach is widest exactly where the willful penalty is harshest relative to conduct. The Internal Revenue Manual 4.26.16 and the IRS FBAR overview describe how the base penalty is computed, but neither addresses the constitutional ceiling, because that comes from the courts, not the agency. The related FATCA disclosure framework is at the IRS Form 8938 guidance, and the broader cross-border duties sit on the IRS international taxpayers pages.

A worked example. Consider a willful penalty of 165,353 dollars assessed on a foreign account that peaked at 50,000 dollars, where the taxpayer’s conduct was reckless rather than deliberate concealment. The penalty is more than three times the account balance. That ratio is the heart of an Excessive Fines argument. A court weighing proportionality looks at the balance, the conduct, the harm to the government, and the relationship between the penalty and the offense. A penalty more than triple the account, on facts short of active hiding, is the kind of case where the new doctrine has teeth.

The common mistake is treating the Eighth Amendment argument as a way out of the willfulness finding. It is not. It assumes willfulness and contests the amount. An edge case is the large, deliberately concealed account, where a court is unlikely to find a 50 percent penalty excessive at all, because the conduct and the harm line up with the size of the fine. Another edge case is the multi-year assessment, where the proportionality test may trim some years harder than others depending on each year’s balance. A high-balance year may survive the test while a low-balance year with the same flat floor gets cut, so the constitutional argument is run year by year, not as a single total. If you are facing a proposed willful assessment, the proportionality argument is now part of the defense, and we build it alongside the underlying penalty challenge through our IRS audit and notice assistance and tax strategy consulting work. A short call through our new client inquiry page is the right first step.