An Analysis of the FBAR High-Penalty Regime

2011 IRS Research Bulletin

37 Pages Posted: 15 Oct 2009 Last revised: 14 Nov 2012

Susan C. Morse

University of Texas at Austin - School of Law

Date Written: October 28, 2009

Abstract

Report of Foreign Bank and Financial Accounts (“FBAR”) requirements seek to solve a pressing information asymmetry problem relating to U.S. persons’ investment in non-U.S. financial accounts. FBAR reporting requires U.S. taxpayers themselves to disclose offshore account information to the U.S. government.

Noncompliance with FBAR requirements carries high potential penalties. These high penalties could serve some or all of the goals of deterrence, separation or signaling. To maximize the chance that a high-penalty regime will succeed at one or more of these goals, taxpayers should perceive that they actually face painful penalties for noncompliance and/or worthwhile rewards for compliance. They should lack close-substitute choices not subject to penalties. Finally, they should believe that the government has an effective mechanism for detecting noncompliers who attempt to masquerade as compliers. The FBAR reporting regime could include all of these features. Publicity and audit efforts have enhanced and can continue to enhance taxpayers’ perception of the likelihood of penalty imposition and noncompliance detection, and it is possible to remove the problematic close substitute of quiet disclosure.

Keywords: FBAR, offshore account, tax compliance

JEL Classification: H24, H26, K34

Suggested Citation

Morse, Susan C., An Analysis of the FBAR High-Penalty Regime (October 28, 2009). 2011 IRS Research Bulletin. Available at SSRN: https://ssrn.com/abstract=1489026

Susan C. Morse (Contact Author)

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

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