How FBAR Cases Are Selected for Criminal Investigation

Report of Foreign Bank and Financial Accounts, or FBAR, mistakes don’t all carry the same weight. Not all the FBAR mistakes have the same weight; some are simple and easy to fix, and the remaining raise red flags, which can turn into criminal inquiries. 

A few missed forms, large account balances, or repeated omissions can suddenly put someone under the radar. 

The government does not investigate every error that comes across equally, but when they do, it’s detailed, careful, and relentless.

Knowing what can trigger an FBAR criminal investigation, how the cases are evaluated by the IRS, and what can be done to get rid of this situation can really make a difference.

Let’s take a closer look at how FBAR cases get selected for criminal attention and what it means for anyone facing scrutiny.

What Is an FBAR, and Why Criminal Enforcement Matters

FBAR, or Foreign Bank Account Report, is a form called FinCEN Form 114 that U.S. citizens, residents, and certain entities must file when their foreign accounts exceed $10,000 at any point during the year. The purpose of the form is to report these accounts to the U.S. Department of the Treasury and ensure that all income is properly reported for tax purposes.

Criminal enforcement matters for several reasons:

• If someone intentionally fails to report or deliberately hides foreign accounts, the IRS can pursue criminal charges, not just civil penalties.
• FBAR criminal penalties for willful violations can be substantial, including fines up to $250,000 or 50% of the unreported account balance and imprisonment for up to five years.
• Criminal enforcement discourages the deliberate use of offshore accounts to evade taxes, which helps maintain fairness in the system.
• It ensures that all taxpayers are following reporting and FBAR filing requirements, which protects the integrity of the tax system.
• FBAR violations that result in criminal charges can affect more than finances, potentially influencing credit, business opportunities, and international travel or visa eligibility.

Civil vs Criminal FBAR Enforcement: Key Differences

When it comes to FBAR enforcement, there are basically two paths the IRS can take, and it really depends on whether the mistake was accidental or done on purpose. Understanding this civil vs. criminal FBAR is actually really important if you have foreign accounts because it can completely change what happens next.

When FBAR Violations Stay Civil

When the violations are considered non-willful FBAR penalties, it basically means the person didn’t mean to hide anything. It’s more about mistakes, oversights, or not knowing the rule. 

Here are the main things to know:

• Non-willful mistakes usually happen when someone misses a deadline, makes an honest error, or just doesn’t realize they need to file.
• For these cases, the IRS can hit you with a civil penalty of up to $10,000 per year, and that’s adjusted for inflation. 
• It’s worth noting that the Supreme Court made it clear that this penalty is per FBAR form per year, not per account, which actually matters a lot if you have multiple accounts.
• And the IRS can sometimes waive the penalty if it sees there was a legitimate reason or “reasonable cause” for the error. 

When FBAR Violations Become Criminal

When there is a willful FBAR violation, that’s when things get more serious. “Willful” basically means the person knew they were supposed to report their foreign accounts and either ignored them or tried to hide them. 

In these cases, there are a few key things the IRS usually looks for:

• Active concealment of accounts, hiding account details, or purposely leaving them off the FBAR.
• False tax statements to FBAR or omitted disclosures give wrong information or do not tell the full story.
• Large undisclosed foreign account balances are amounts that don’t match reported income or known financial activity.
• Repeated FBAR violations of non-compliance over multiple years show a pattern that goes beyond an honest mistake.
• Links to other criminal tax issues, like tax evasion offshore or fraudulent filings.

Even before criminal charges, civil penalties for willful violations are much higher than for non-willful mistakes, either a fixed dollar amount or 50% of the unreported account balance per year, whichever is greater.

If the IRS decides to pursue criminal action, potential fines can reach $250,000, with up to five years in prison. Criminal cases are less common, but when they happen, the government has to prove willfulness beyond a reasonable doubt. Someone can also face both civil and criminal penalties for the same violation, so the stakes can get really high very quickly.

How the IRS Selects FBAR Cases for Criminal Investigation

Before the IRS Criminal Investigation unit gets involved, there’s an IRS CI referral process that happens behind the scenes. It isn’t random or based on a single trigger alone; IRS examiners and specialists work together to see whether a case shows enough evidence of willfulness and criminal criteria to justify a referral.

• Review and risk analysis by examiners starts early; examiners look at FBAR cases and use risk‑based criteria to identify potential non‑compliance that might go beyond simple errors. They analyze internal and external data to decide which cases should be examined more closely.
• Coordination with a Fraud Enforcement Advisor (FEA) is a key step when there are signs the case might involve intentional violations; the FEA helps assess whether there are sufficient indicators of willfulness to consider criminal referral.
• Form 13639 (Fraudulent Intent Referral Memorandum) is used to document the assessment and recommendations from the examiner and FEA, including whether willful actions appear present. If the willful FBAR indicators are strong enough, the case moves toward formal referral.
• When the FEA and examiner agree that criminal criteria are met, the examiner prepares Form 2797 (Referral Report of Potential Criminal Fraud Cases) with details about the FBAR violation, the filer’s knowledge of requirements, compliance history, and evidence supporting willfulness.
• Once the IRS CI FBAR referral is sent, IRS Criminal Investigation evaluates it against its acceptance criteria; CI decides whether to accept or decline the case for FBAR criminal investigation based on the information provided.
• If accepted, CI opens a criminal investigation and may coordinate with other IRS units to protect evidence and statutory requirements as the case proceeds.

This selection process ensures that only cases with firm indicators of willfulness and sufficient supporting evidence are passed on for criminal investigation, rather than every FBAR error being escalated. 

The Role of IRS Criminal Investigation (CI) in FBAR Cases

When an FBAR case gets flagged as potentially criminal, it doesn’t automatically mean an IRS criminal investigation of the FBAR starts; the IRS CI division has a specific role and process once a referral arrives. CI is the part of the IRS responsible for handling serious tax violations, including willful FBAR violations, and they look at cases differently than regular examiners.

How FBAR Cases Are Referred to IRS CI

Before CI starts any deep investigation, the case has to be formally referred:

• Initial referral by examiners: When IRS examiners and Fraud Enforcement Advisors agree there’s strong evidence of willfulness, they prepare a referral using Form 2797 with details about the violation, compliance history, and reasons for criminal criteria.
• Documentation and review: The referral includes narratives, evidence summaries, and the filer’s knowledge of reporting requirements, showing why the examiner believes an FBAR criminal investigation may be needed.
• CI evaluates the referral: Once received, CI reviews the referral and meets with the referring team to decide within a set timeframe whether to accept the case for investigation.
• Acceptance or decline: If CI accepts the referral, the case becomes a subject of criminal inquiry; if CI declines, it returns to the examiner for possible civil resolution or further action.

What Happens After a CI Referral

Once CI takes on an FBAR case, its focus shifts to a deeper investigation:

• Case control and planning: When CI accepts the referral, it updates the IRS system with control codes and plans how the investigation will proceed alongside any civil components.
• Ongoing coordination: CI often holds periodic conferences with referring examiners or Fraud Enforcement Advisors to track progress and share findings during administrative investigations.
• Evidence development: Special agents gather evidence, follow procedural rules, and prepare the case for possible prosecution or negotiation with the Department of Justice.
• Outcome decisions: If the evidence supports criminal prosecution, CI may work with federal prosecutors to pursue charges; if not, the investigation may be dropped or returned to civil enforcement channels. 

FBAR Statute of Limitations for Criminal Cases

For criminal FBAR cases, the main thing to understand is that the government generally has five years from the date of the offense to bring charges. This comes from the standard federal criminal statute of limitations under 18 U.S.C. § 3282(a), which applies to willful FBAR violations prosecuted under 31 U.S.C. § 5322.

Under most circumstances, the five-year period begins from the FBAR deadline of April 15, with a filing extension of October 15. There are instances where the five-year period begins from the day of the last act of the offense, such as the year of the last event when the foreign account had no report. The government must file an indictment or information within the five-year period. The defendant can contest the case if the government fails, alleging the use of the statute of limitations.

What to Do If You’re at Risk of an FBAR Criminal Investigation

If you believe you may have willful FBAR exposure, or if the IRS has already contacted you about foreign account reporting, the most important thing is to approach the situation carefully. Criminal exposure changes the stakes, and the steps you take early on can significantly affect the outcome.

Here’s what generally makes sense:

• Do not ignore IRS notices. Even if the situation feels overwhelming, deadlines and responses matter.
• Do not attempt to fix past filings on your own without guidance. Filing amended returns or late FBARs improperly can sometimes create additional risk.
• Preserve documents and records. Foreign account statements, communications, and tax filings may become important evidence.
• Consult a tax attorney experienced in FBAR criminal defense as early as possible. Early advice often shapes the strategy moving forward.

When criminal exposure is even a possibility, the goal is not just compliance; it’s protection.

Why You Should Not Contact the IRS Without Counsel

It can be tempting to call the IRS and explain the situation, especially if you believe the issue was a misunderstanding. The problem is that once criminal exposure is on the table, anything you say can potentially be used against you.

A few important things to keep in mind:

• Statements made to IRS agents are not protected. If the case later becomes criminal, those statements may be reviewed by investigators or prosecutors.
• Civil examiners and criminal investigators can coordinate. You may believe you’re in a civil audit, but indicators of willfulness can trigger a referral.
• Attorney-client privilege FBAR protects legal strategy. Conversations with a qualified FBAR defense attorney are confidential in ways that discussions with accountants or the IRS are not.
• Premature contact can limit voluntary disclosure options. Once the IRS initiates contact or investigation, certain compliance programs may no longer be available.

Reaching out to counsel first allows you to understand your exposure, assess the statute of limitations, and evaluate disclosure options before making any statements that could complicate the situation.

Voluntary Disclosure Options Before Criminal Referral

If there’s even a chance your FBAR issue could be viewed as willful, waiting for the IRS to find it is usually a risky move. In many cases, there are FBAR voluntary disclosure options available before anything is referred for criminal investigation, and acting early can really reduce the chance of prosecution.

Timing, honestly, is everything here. Once the IRS starts an audit or an FBAR criminal investigation, some disclosure programs may no longer be on the table. That’s why looking at your options sooner rather than later truly matters.

Depending on the facts, these are the main paths that may be available:

• IRS Voluntary Disclosure Practice (VDP). This is generally used when there’s potential criminal exposure, including willful FBAR violations. It allows taxpayers to come forward, report previously undisclosed foreign accounts and income, pay the required tax, penalties, and interest, and, in most cases, avoid criminal prosecution.
• Streamlined Filing Compliance Procedures. These are meant for non-willful violations. Taxpayers must certify that the failure to file was not willful. If accepted, the penalties are significantly lower than willful FBAR penalties.
• Delinquent FBAR Submission Procedures. In more limited situations, where all income was properly reported, and only the FBAR itself was missed, taxpayers may be able to file late without penalties.

Each option comes with specific eligibility rules and documentation requirements, and the risks can vary depending on the facts. Choosing the wrong path, especially where willfulness could be an issue, can actually increase exposure instead of reducing it.

How Verni Tax Law Defends FBAR Criminal Investigations

When FBAR issues start getting serious, having someone experienced to guide you can really make a big difference. Anthony N. Verni handles every single case personally, and with over 25 years of experience as an MBA and CPA, he knows how to break things down clearly. He can analyze complex FBAR and tax situations, identify potential risks, develop a tailored strategy, and represent clients confidently in communications with the IRS.

Get in touch with Anthony N. Verni today to get the best FBAR defense services and see what steps make sense for you.

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