Penalties for failing to report foreign assets can be some of the most severe in the U.S. tax system. In many cases, penalties apply even when no tax is owed and even when the failure was unintentional.

This guide explains the most common foreign asset reporting penalties, how they are assessed, and what options may exist to reduce or eliminate them.

Common Foreign Asset Reporting Penalties

Foreign asset penalties may arise from missing FBAR filings, failing to file Form 8938 (FATCA), or not reporting foreign gifts and trusts on Forms 3520 and 3520-A.

FBAR Penalties Explained

FBAR penalties differ based on whether violations are considered non-willful or willful. Willful penalties can be extraordinarily high and may exceed the value of the account.

FATCA (Form 8938) Penalties

Failure to file Form 8938 can result in significant penalties and extended statutes of limitations for IRS examination of the entire tax return.

Form 3520 and 3520-A Penalties

Penalties related to foreign gifts and trusts are often calculated as a percentage of the asset value, making them particularly punitive.

How the IRS Assesses Penalties

The IRS evaluates facts such as taxpayer knowledge, intent, prior compliance history, and professional advice when determining penalties.

Options to Reduce or Eliminate Penalties

Taxpayers may qualify for penalty abatement, Streamlined Filing Compliance Procedures, or other relief options depending on the circumstances.

Why Early Action Matters

Once the IRS initiates contact, options for relief become more limited. Proactive disclosure generally results in better outcomes.

When Professional Representation Is Critical

Foreign asset penalties involve legal interpretation and negotiation. Professional representation can significantly affect the outcome.