Supreme Court Gives Relief to Foreign Account Reporting

The Supreme Court in yesterday's opinion indicates that the $10,000 penalty for not reporting foreign bank accounts is per form not per account. This is good news for many farmers.

Farmers who maintain foreign bank accounts with certain balances are required to report this information to the IRS and the Financial Crimes Enforcement Network. If the farmer forgets to report these accounts, the penalty can be at least $10,000. The farmer will report this information for the IRS on Form 8938 and will file Form 114 with the Financial Crimes Enforcement Network.

There have been court cases in the last few years indicating the $10,000 penalty is either per the form or per account. The Ninth Circuit ruled these penalties are per form while the Fifth Circuit ruled they are per account. The Supreme Court in yesterday’s opinion indicated the penalty should be per form not per account. This limits the penalty to $10,000 in most cases instead substantially higher amounts for farmers with more than one foreign account. Let’s review an example:

Pete, who immigrated from Canada is a legal resident of the United States and is now a US citizen. He is required to file a report detailing all of his financial accounts in Canada. The total number of accounts in Canada is 13. If the penalty for not reporting all 13 of these accounts is based on per account, the penalty would be $130,000. Instead, the Supreme Court has ruled that the penalty should only be $10,000.

Penalties for willfully not reporting foreign bank accounts can be much higher than $10,000. If you willfully fail to file required report, the penalty can be the greater of $100,000 or 50% of the account balance. You never want to willfully not file these reports.

The good news is if you forget to do it, the penalty should be capped at $10,000.