Tax Talk Thursday: Foreign Bank Accounts & Crypto: FBAR and FATCA in Practice

Foreign financial reporting is no longer just about Swiss bank accounts. Today, U.S. taxpayers may have foreign brokerage accounts, international retirement plans, and cryptocurrency held on offshore exchanges — all of which can trigger complex reporting obligations under FBAR and FATCA.

While many taxpayers assume these filings are minor disclosures, recent court cases make clear that the penalties for late or missing FBAR filings can be significant — even when no tax was owed.

Understanding how these rules operate in practice is critical.

FBAR: The Legal Framework Behind the Form

FBAR (FinCEN Form 114) stems from the Bank Secrecy Act and requires U.S. persons to report foreign financial accounts if the aggregate maximum value exceeds $10,000 at any point during the calendar year.

The reporting obligation applies regardless of whether income was generated, and regardless of whether tax was owed. FBAR is filed separately from your tax return through the Financial Crimes Enforcement Network (FinCEN).

The legal exposure arises not from tax underpayment — but from failure to disclose.

What Courts Have Said About FBAR Penalties

Recent federal court decisions have reshaped how penalties are calculated and enforced.

In Bittner v. United States (2023), the U.S. Supreme Court held that non-willful FBAR penalties apply per annual report, not per account. This significantly limited penalty exposure for taxpayers with multiple foreign accounts in a single year. The Court rejected the government’s argument that penalties should multiply per account, per year.

However, willful violations remain severe.

In United States v. Boyd (9th Cir. 2021), the court clarified that non-willful penalties apply per form, but also reinforced that penalties can still be substantial even without proof of intentional wrongdoing.

In United States v. Horowitz (4th Cir. 2020), the court upheld significant willful FBAR penalties, emphasizing that reckless disregard of filing requirements can satisfy the willfulness standard. The court confirmed that the government does not need direct evidence of intent — reckless conduct may suffice.

Perhaps most notably, in United States v. Williams (4th Cir. 2012), the court held that signing a tax return under penalty of perjury while failing to disclose foreign accounts could support a finding of willfulness.

These cases collectively show three important realities:

• Courts are willing to uphold large FBAR penalties.

• “Willful” includes reckless disregard, not just intentional concealment.

• The Supreme Court has limited non-willful exposure, but not eliminated serious risk.

Late FBAR Filings: Is There Relief?

If you failed to file FBAR in prior years, penalty exposure depends heavily on whether the failure was willful or non-willful.

Taxpayers who can certify non-willful conduct may qualify for Streamlined Filing Compliance Procedures, which can significantly reduce or eliminate penalties. Those who simply missed filing but reported all income may be eligible to file delinquent FBARs without penalties, depending on facts and circumstances.

However, once the IRS initiates an examination, voluntary correction options may narrow considerably.

The lesson from litigation trends is clear: proactive correction is safer than waiting for enforcement.

FATCA: A Separate but Related Obligation

FATCA requires certain taxpayers to report specified foreign financial assets on Form 8938 with their tax return. Unlike FBAR, FATCA penalties begin with a fixed dollar amount for failure to file and can increase if noncompliance continues after IRS notification.

Importantly, FBAR and FATCA are separate regimes. Filing one does not satisfy the other. Courts have consistently treated these as distinct statutory obligations.

Cryptocurrency and Foreign Reporting Risk

Digital assets complicate foreign reporting.

Cryptocurrency itself is treated as property for income tax purposes. However, when digital assets are held on foreign exchanges or custodial platforms, the account structure — not the token — determines potential FBAR exposure.

If crypto is held through a foreign financial account and aggregate foreign balances exceed $10,000 at any time during the year, FBAR filing may be required.

Because many crypto investors use multiple exchanges across jurisdictions, aggregation rules can unexpectedly trigger reporting thresholds.

As enforcement tools expand and data-sharing agreements increase globally, the assumption that crypto accounts remain invisible is increasingly risky.

Practical Risk Management

Taxpayers with foreign accounts or offshore crypto exposure should:

Maintain clear records of account ownership and balancesDocument maximum annual values, not just year-end figuresSeparate self-custodied wallets from custodial exchange accountsEvaluate prior filing history before the IRS contacts youSeek professional review if unsure whether reporting applied

The evolving case law makes clear that courts support enforcement — particularly where taxpayers ignored clear reporting signals.

FBAR and FATCA compliance is no longer theoretical. Federal courts have reinforced the government’s authority to impose substantial penalties, while the Supreme Court has clarified limits in non-willful situations.

For taxpayers with foreign bank accounts or cryptocurrency held abroad, the safest approach is informed, proactive compliance — not reactive defense. International reporting is technical, and the cost of getting it wrong can far exceed the cost of proper guidance. If you need help with your FBAR filings, email us at info@mkhstaxgroup.com.