FBAR Penalties Are Constitutional

If you have certain foreign financial accounts, you must report them annually to the U.S. Treasury. This is done electronically through BSA E-Filing System (https://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html). If you fail to do so and the violation is willful, substantially penalties may ensue. Each willful violation can result in a penalty of $100,000 or 50% of the amount in the foreign account on the date of the violation (which is the deadline for filing the FBAR report).

One taxpayer who was assessed $12.9 million in penalties for his willful failure to make such reports for 2007 through 2009 challenged the constitutionality of the penalties. He argued that they violated the 8^th Amendment against “cruel and unusual punishment,” which includes excessive fines. A district court rejected his argument (Isac Schwarzbaum, DC-FL, 5/18/20 at https://www.govinfo.gov/content/pkg/USCOURTS-flsd-9_18-cv-81147/pdf/USCOURTS-flsd-9_18-cv-81147-3.pdf). As the U.S. Supreme Court explained more than 80 years ago, tax penalties are meant for remedial purposes and are not for punitive purposes covered by the 8^th Amendment. Tax penalties are for the protection of revenue and to reimburse the government for the heavy expense of investigation resulting from a taxpayer’s fraud.

The IRS has an FBRA Reference Guide (https://www.irs.gov/pub/irs-utl/irsfbarreferenceguide.pdf) detailing who must file annual reports.