FBAR Timeline: 'How we got here'
- By staff writer
Back in the 1960s, before Richard Nixon became U.S. president (in 1969), few "ordinary" Americans who lived abroad gave much, if any, thought to filing U.S. tax returns, let alone Foreign Bank Account Reports. Nor did the U.S. government seem much interested in finding out whether such expats might have overseas bank accounts, unless these expats were known to be wealthy.
Fast forward to 2023, and things could hardly be more different – although there are still a surprising number of expatriate Americans, typically who have been abroad for decades if not all of their lives, who continue to get caught out by their U.S. tax-filing obligations. Others, though, have become so knowledgeable about the subject that they sometimes need to be reminded to talk about something else at dinner parties...
As our FBAR Timeline (below) shows, the change began in 1970 with President Nixon’s Bank Secrecy Act, though it was decades before most American expats began to learn about their little-known obligations to report to Uncle Sam about their non-U.S. financial accounts if, at any point during the tax year, they reached or exceeded US$10,000.
Today, as FBARs have been making headlines for the past week, beginning with last Tuesday's U.S. Supreme Court decision that found that penalties for "non-willful" FBAR violations are to be calculated on a "per-form" rather than "per account" basis, we thought it would be worth looking back at how, exactly, we got here...
(Editor's note: This Timeline is an updated version of one that was originally published last year by the Association of Americans Resident Overseas, as part of a special section on FBARs. It may be viewed by clicking here.)
1970: Bank Secrecy Act created
U.S. President Richard Nixon signs the Bank Secrecy Act, also known as the “Currency and Foreign Transactions Reporting Act,” into law, in an effort to boost the oversight of large bank deposits of illicit money. It’s one of the earliest of what soon became a series of measures introduced by governments and intergovernmental organizations around the world, aimed at detecting and preventing cross-border crime, terrorism, tax evasion and money-laundering.
1976: Foreign bank account reporting begins
The U.S. IRS formally begins, for the first time, to ask individual taxpayers if they had ownership of, and/or signature authority over, any foreign financial accounts, during the previous year (to be included alongside these taxpayers’ annual tax returns, via what is known as Form 8938).
1987: Penalty limit introduced
The U.S. government introduces a US$100,000-per-account limit on the penalties that courts are permitted to assess individuals for willful foreign bank account reporting violations.
April 25, 1990: FinCEN established
FinCEN (the Financial Crimes Enforcement Network) was established on April 25, 1990, by the then-U.S. Treasury Secretary, to boost the government’s financial crimes intelligence network and resources. Its mission was expanded in May, 1994, and in October 1994, it was merged with the Treasury Department’s existing Office of Financial Enforcement, where its mission was expanded to include regulatory authority.
Today FinCEN is an official bureau of the Treasury, with its base of operations in Vienna, Virginia.
October, 2001: Patriot Act
President George W. Bush signs the Patriot Act into law in the immediate aftermath of the Sept. 11 terrorist attacks, with the intention that it help to boost U.S. defenses, particularly in areas having to do with surveillance and counter-terrorism, by introducing new regulations and reinforcing others – including those requiring foreign bank accounts data reporting.
October 22, 2004: Non-willful penalties introduced
As of this date, non-willful FBAR violations begin to come with a potential penalty, capped at US$10,000. Until now, non-willful violators of foreign bank account-reporting regulations weren’t subject to any penalties.
The new non-willful FBAR regulations don’t specify, however, as to whether this penalty is to be applied for each year (“form”) that the alleged FBAR violation(s) occurred, or per account held by the taxpayer in question – an ambiguity that remained in place until February 28, 2023 (see below).
Also in 2004, an amendment to the existing FBAR regime increases the maximum penalty for willful violations – to the greater of US$100,000 or 50% of the taxpayer’s account in question on the date it should have been reported.
Prior to this, penalties for such willful violations had been capped at US$100,000 per account.
June 11, 2007: Whistle-blowing Geneva-based banker makes disclosures
American private banker Brad Birkenfeld, who had resigned in 2005 from UBS Switzerland AG – the Geneva offices of which he’d been based in – voluntarily discloses to the U.S. Justice Department, IRS, SEC and the U.S. Senate his knowledge of the bank’s efforts to attract wealthy Americans looking to hide money from the IRS as clients.
May 7, 2008: Geneva-based banker arrested
Brad Birkenfeld is arrested in the U.S. after arriving by plane from Switzerland. He is eventually charged with a single charge of conspiracy to defraud the U.S., for his work in connection with a single UBS client.
He eventually serves 31 months – from January 2010 to August 2012 – in a federal prison in Pennsylvania, and pays a US$30,000 fine.
March 2009: First offshore disclosure program
The IRS launches what is to become the first in a series of “offshore voluntary disclosure programs” (OVDPs). This first Offshore Voluntary Disclosure Program runs until Oct 15, 2009, and offers taxpayers a chance to avoid criminal prosecution for failing to disclose their overseas financial wealth by paying a single penalty charge.
The penalty under this OVDP is set at 20% of the highest aggregate value of the taxpayer’s unreported offshore accounts, between 2003 to 2008.
This OVDP is later reported to have raised US$3.4 billion in back taxes, interest and penalties, and, IRS officials said, led to an additional 3,000 disclosures after the closing date.
2009 Filing Year: New exact peak amount requirement
Before 2009, FBAR filers had only to report the value of their offshore accounts within various ranges, but beginning in 2009, they are now required to report the exact maximum dollar amount they held at any point during the year in question.
March 18, 2010: FATCA signed
President Barack Obama signs the Foreign Account Tax Compliance Act (FATCA) into law – buried inside a domestic jobs bill known as the “HIRE Act.” No major media organizations reported this at the time, but FATCA would eventually change everything for Americans resident outside of the U.S.
Because FATCA requires non-U.S. financial institutions to report to the U.S. authorities the names and taxpayer-identification numbers of all their “U.S. person” clients, it has provided the U.S. authorities with a detailed list of those who might be expected to file FBARs.
February 2011: 2nd IRS disclosure initiative
The IRS unveils its second voluntary disclosure program, this one called the Offshore Voluntary Disclosure Initiative (OVDI), which runs until Sept. 9 of 2011, and is eventually declared to have brought in a reported US$1.6 billion in back taxes, interest and penalties.
Under this program, participants paid a 25% miscellaneous offshore penalty on the highest aggregate value of previously-unreported offshore accounts that they’d held between 2003 and 2010. In addition, some participants were eligible for special 5% or 12.5% penalties, depending on the severity of their noncompliance.
January 2012: Permanent voluntary disclosure program
Citing continued strong interest in its voluntary disclosure programs, the IRS decides to revise the terms of its 2011 OVDI, and make it permanent until further notice. Under this “2012 Offshore Voluntary Disclosure Program” (OVDP), participants are obliged to pay a penalty of 27.5% of the highest aggregate balance or value of previously-undeclared offshore assets they’d held during the prior eight years.
The 5% or 12.5% penalties remained in effect for certain taxpayers.
At the same time, seeing a case for an alternative to the OVDP – for “ordinary” U.S. expats who wish to get caught up on their taxes, and whose cases of non-filing are “non-willful” and relatively straightforward – the IRS also introduces its first “Streamlined Filing Compliance Procedures.” As the name suggests, the “Streamlined” process is simpler and requires less from taxpayers than the OVD program.
August 1, 2012: IRS awards Birkenfeld US$104 million
Upon completion of 31 months of his 40-month prison sentence, and owing to the quality of his “whistleblower” information – which the government said was “exceptional in both its breadth and depth,” and which therefore enabled the U.S. government to pursue thousands of Americans who had been using UBS bank accounts to avoid their U.S. tax obligations – the IRS awards Brad Birkenfeld US$104 million, as a percentage of the US$400 million in taxes that the government said it had received as a result of his actions.
June 2014: Program changes
The IRS announces major changes in the (at this point still-running) 2012 offshore account compliance program, while adding some new options to help taxpayers residing in the United States and overseas. Along with expanding some so-called streamlined procedures for non-willful taxpayers, the IRS also adjusts the terms for taxpayers in the OVDP whose conduct, it says, might “reflect willful non-compliance.”
The IRS explains that these changes were being introduced to make the OVDP program better suited for taxpayers “seeking relief from potential criminal prosecution.”
The IRS also introduces changes to its Streamlined Filing Compliance Procedures program, as there had been problems with some expats being rejected from it, after being deemed not as “low-risk” as initially thought, and the goal was to be able to accommodate a broader audience of compliant-taxpayer-wanna-bes.
The Streamlined Filing Compliance program is still in effect. Information about it may be found by clicking here.
October 2016 – Lucifer’s Banker published
U.S. whistleblower Brad Birkenfeld’s tell-all book about his experiences looking after American clients at UBS in Geneva, Lucifer's Banker, is published.
Nov. 15, 2019: significant amicus brief
The American College of Tax Counsel files a significant “friend of the court” brief in the Ninth Circuit Court of Appeal in California in connection with an FBAR case (United States v. Boyd), arguing that the $10,000 penalty for failing to file a Report of Foreign Bank and Financial Accounts in a timely manner should apply “per annual report” rather than “with respect to each foreign financial account”.
September 28, 2020: Deceased receives ‘willful’ penalty
In a case known as U.S. vrs. Wolin, the IRS assesses a civil “willful” penalty against the estate of a taxpayer who had died – after he died.
The fiduciary representing the taxpayer’s estate had attempted to dismiss the case before this ruling, but was unsuccessful, and ultimately, the court found against the deceased taxpayer, finding that he’d committed a willful violation.
Dec. 31, 2020 – Cryptocurrencies to be reported on FBARs
On the last day of 2020, the IRS quietly releases a statement saying that it intended to begin including “virtual currency accounts” as “reportable accounts” under FBAR rules. It doesn’t specify many details, including when the new reporting regime is set to begin.
January 15, 2021 – FinCEN deadline for comments
FinCEN deadline for comments on “the proposed renewal, without change” of the way FBARs are filed, relative to "the Paperwork Reduction Act of 1995.” Some 93 responses are recorded, not all of which focus specifically on the Paperwork Reduction Act.
July 2021: FBAR regulations renewed
FinCEN declares that it has renewed its FBAR regulations “without change,” notwithstanding the suggestions it received during its recent comment period. It adds that it continues to review and consider the comments on the matter that it’s received.
November 30, 2021: Court setback
The U.S. Fifth Circuit Court of Appeals, in New Orleans, reverses a lower court’s decision in a closely-watched and complex FBAR case involving a U.S.-based Romanian-American citizen, who sought to challenge FBAR penalties assessed against his 177 overseas accounts of US$1.77 million. The ruling was seen as a setback for those who had been thinking that the U.S. courts were moving in the direction of less harsh, “per form” rather than “per account” penalty assessments.
December 26, 2021: Willful penalties clarified
FinCEN changes certain language in its regulations having to do with willful FBAR penalties, which has had the effect of eliminating potential confusion over a 2004 amendment to these penalties. The 2004 amendment provided for a maximum penalty of the greater of US$100,000 or 50% of the amount in the account in question on the reporting date, replacing a previous maximum penalty of US$100,000 only; the tweak ensures that the 2004 amendment is officially in force now.
January 23, 2023: Supreme Court declines
to hear grandmother's 'willful' FBAR plea
In a decision that surprises many advocates of a fairer treatment of allegedly-willful FBAR violators, the U.S. Supreme Court declines to hear an 82-year-old American grandmother's challenge of a US$2.17 million fine she'd received for having failed to file FBARs (Foreign Bank Account Reports). The plaintiff in the case, Monica Toth, had always maintained that she had been unaware of her FBAR obligations prior to 2010, at which point she sought to come into compliance as required.
Until this point, according to the Institute for Justice, an Arlington, Virginia-based public interest law firm that's been represented Toth in her legal battle, she'd been filing her taxes regularly, by hand, herself, using forms obtained at her local library.
February 28, 2023: Supreme Court
(at last) rules on non-willful penalties
In a long-awaited landmark FBAR ruling, the U.S. Supreme Court rules that the US$10,000 maximum penalty for "non-willful" non-disclosure of overseas accounts should be applied on a per-form, rather than per-account, basis -- ending years of confusion.
While the decision in Alexandru Bittner v. United States (No. 21-1195) was enthusiastically welcomed by many Americans, in the U.S. as well as abroad, some experts said it could cause U.S. officials to change the way they prosecuted future FBAR cases, in such a way that would ultimately be less fair, and significantly more costly, going forward.
- Dems Abroad, to House subcommittee hearing: 'substantial adjustments needed' to FBAR regs
- 'FBAR escape hatch' for Green Card holders seen in little-noticed FBAR ruling last month
- Richardson, La Torre Jeker podcast: 'The morning after the U.S. Supreme Court FBAR decision in Bittner'
- FBAR experts: SCOTUS Bittner decision could see shift towards more ‘willful’ charges, greater 'rule of lenity' awareness
- In long-awaited landmark FBAR ruling, Supreme Court finds in favor of Bittner, and 'per form/year' accounting of penalties