If you have foreign accounts or income you never reported, the right path depends on one question: was the failure willful? Answer it carefully, and with the right professional, before you choose a program.

People with ties abroad often learn about U.S. reporting rules late. A family moves from another country and keeps its old bank accounts. An American takes a job overseas and never hears of the annual account report. An heir receives an account in a country where the family has always banked.

The IRS treats these situations differently from one another, and the difference can be large. This article explains the main options and the question that separates them. It is meant to help you ask better questions, not to replace advice on your own facts.

What may have gone unreported

Two things are easy to confuse. The first is the account itself. A U.S. person with a financial interest in, or signature authority over, foreign financial accounts must file an FBAR with the Treasury Department if the combined value of those accounts exceeded $10,000 at any time during the year. The report is due April 15 after the year it covers, with an automatic extension to October 15.1

The second is the income. Interest, dividends, rent, and gains from foreign assets belong on your U.S. return whether or not a foreign institution reports them to anyone. Depending on the assets, other information returns may also apply, such as those for foreign companies, foreign trusts, and certain foreign financial assets.

Those returns carry their own penalties, and the figures differ by form. For a foreign corporation or partnership, the initial penalty is $10,000 per failure, with further penalties if the failure continues after the IRS sends notice.2 A late Form 8938 starts at $10,000 and can also grow.4 Form 5472 carries a $25,000 penalty.3 Some reports about foreign trusts can reach the greater of $10,000 or 35 percent of the amount involved.5 Ten thousand dollars is a starting point for certain filings, not a ceiling.

The question that decides the path

The IRS separates people whose failure to report was willful from people whose failure was not, and the line carries real weight. For a willful violation of the account-reporting rule, the maximum civil penalty is the greater of a set dollar amount, adjusted for inflation, or 50 percent of the account balance.6

Non-willful conduct, in the IRS’s words, is conduct due to negligence, inadvertence, or mistake, or the result of a good-faith misunderstanding of the law.8

Willfulness is broader than many people expect. For the civil account-reporting penalty, the IRS manual treats a person as willful if the person knowingly violated a legal duty, recklessly violated it, or acted with willful blindness by making a conscious effort to avoid learning about it. Recklessness is judged by an objective standard.7 That means you can face a willful civil penalty without ever having decided to hide an account.

Two other questions sit beside that one. The Voluntary Disclosure Practice is designed for intentional, deliberate conduct, which the IRS describes as the purposeful act of hiding income or assets.9 The civil standard reaches further than that. Criminal liability is a separate question with its own, higher standard. A person can fall on the willful side of the civil line without fitting the Voluntary Disclosure Practice, which is one reason the choice of path takes professional judgment.

Consider three hypothetical people with the same account. One moved from Vancouver years ago, kept a retirement account there, and was never told it had to be reported. A second moved money abroad because it would not appear on a return. A third knew about the account, signed returns without reading the foreign account question, and never asked anyone. The balances might match. The facts do not, and the third person’s case is the hard one, because recklessness and willful blindness can count.

Those examples are illustrations, not predictions of how the IRS would view any case. Willfulness turns on what you knew, what you were told, what you did once you learned the rules, and what you chose not to find out.

Option one: the streamlined procedures

The streamlined procedures are for individuals whose conduct was not willful. You must certify that, and you are not eligible if the IRS has begun a civil examination of your returns for any year, or if you are under criminal investigation.8

There are two versions, and which one applies depends on the IRS’s nonresidency test, not simply on where you live today. For a U.S. citizen or green card holder, the foreign version generally requires that in at least one of the most recent three years you had no U.S. abode and were outside the United States for at least 330 full days. Other individuals have their own test, based on the substantial presence rules.11

The domestic version generally requires that you have already filed any required return for each of the three most recent years. You then file amended returns for those three years with all required information returns, file delinquent account reports for the most recent six years, and pay the tax, interest, and a penalty equal to 5 percent of the highest aggregate balance or value of the foreign financial assets subject to the penalty.10

How that base is built matters. The IRS adds up the year-end balances and values of the assets subject to the penalty for each covered year and uses the highest year. An asset is subject to the penalty if it should have been reported on an account report or on Form 8938 and was not. It is also subject if it was reported but the income it produced was not.10

Under the foreign version, the covered periods are the same. An eligible taxpayer who follows the instructions will not be subject to failure-to-file, failure-to-pay, accuracy-related, information return, or account-report penalties. The tax and interest due on the filings must still be paid.11

Neither version is an amnesty. Returns filed this way are processed like any other return. They may be selected for audit, checked against information from banks and other sources, and if the IRS later finds that the conduct was willful, additional penalties and even criminal liability remain possible.8

Option two: the Voluntary Disclosure Practice

The Voluntary Disclosure Practice is run by IRS Criminal Investigation. It is for people who failed willfully to comply and who want to resolve the problem before facing possible criminal prosecution. A voluntary disclosure does not guarantee immunity, but it may result in prosecution not being recommended.9

To count as voluntary, a disclosure must be timely, truthful, and complete. It is timely only if the IRS receives it before the agency has started a civil examination or criminal investigation, received information about your noncompliance from a third party, or obtained directly related information from a criminal enforcement action.9 Waiting can therefore cost you eligibility.

The process has two parts. Part I of Form 14457 asks Criminal Investigation to preclear you. If you are precleared, you submit Part II within 45 days. If you receive preliminary acceptance, a civil examiner takes over, and you must cooperate, provide a statement acknowledging your willful failure to comply, and pay the tax, interest, and penalties in full or secure a payment arrangement.9

The IRS has proposed changes to this practice. Its page describes a proposed framework with a three-month deadline to file all required returns and pay in full, a disclosure period that generally covers the most recent six years, and a standard penalty structure. The page says eligibility will be set by the procedures in effect when changes are finalized.9 Confirm the current terms before you rely on any description of penalties, including this one.

Other routes for narrower problems

Not every case needs one of these programs. If you made a non-willful error, the IRS points to amended returns and delinquent returns, among other options. It also lists separate delinquent international information return procedures.8, 9 Which of these fits depends on what was missed and whether any income went unreported.

Information about foreign accounts can also reach the IRS from other sources. Foreign financial institutions report certain accounts held by U.S. persons under the Foreign Account Tax Compliance Act.12 That is one more reason not to assume an unreported account will stay unnoticed.

Who should lead

Because willfulness is a legal question, and because the Voluntary Disclosure Practice asks you to acknowledge willful conduct in writing, many people involve a tax attorney early. Section 7525 gives limited protection to communications with a federally authorized tax practitioner about tax advice, and only in noncriminal tax matters before the IRS or in federal court.13 It is not a general CPA-client privilege, and attorney involvement does not automatically protect accounting work or return preparation.

That is a reason to sequence the work carefully. Where there is any real question about willfulness, speak with a tax attorney early, and ask how the engagement should be structured, because protection depends on the structure and the kind of work. Your CPA can work alongside the attorney to assemble the records and prepare the returns.

What to gather

Whichever path you take, the work begins with records. A useful first set includes:

  • Account records: opening dates, statements, and the highest balance in each year for every foreign account.
  • Who had access: the names on each account and who held signature authority.
  • Income detail: interest, dividends, rent, and gains from each foreign asset, by year.
  • Prior returns: copies of the returns you filed, and the preparer’s name for each year.
  • Your timeline: when you opened each account, when you moved, and when you first learned of the reporting rules.
  • Other filings: any report or form you did file, even if you now think it was incomplete.

What to do first

Before you submit a corrective filing, or any statement about willfulness, get advice from a tax attorney and a CPA who handle international cases. Gather the records above in the meantime. Do not let that delay what is already due: file current-year returns and reports on time, make required payments, and use extensions where they apply.

The IRS also asks some people to move quickly on late account reports. If it has not contacted you about a late FBAR and you are not under civil or criminal investigation, it says to file late FBARs as soon as possible to keep potential penalties to a minimum, or to follow the instructions of a compliance option if you are using one.1 Ask which situation is yours.

Decide which path fits only after the question of willfulness has been answered with care. At O’Brien & Panchuk, we help clients assemble the records and prepare the returns and reports, and we work with your attorney when the facts call for one.

Sources and research notes

Sources reviewed October 13, 2026, and revised the same day after a technical review. The Voluntary Disclosure Practice is the subject of a proposal the IRS announced in December 2025, so its terms may have changed since this was written. Penalty amounts are statutory and some are adjusted for inflation. The examples are hypothetical.

  1. Internal Revenue Service, Report of Foreign Bank and Financial Accounts (FBAR). Who must file, the $10,000 aggregate threshold, the April 15 due date with automatic extension to October 15, and the guidance on filing delinquent FBARs. ↩
  2. U.S. Code, 26 U.S.C. section 6038. Information reporting for certain foreign business entities: a $10,000 initial penalty per failure and continuation penalties of $10,000 for each 30-day period after notice, up to $50,000. ↩
  3. U.S. Code, 26 U.S.C. section 6038A. Reporting by foreign-owned U.S. corporations (Form 5472): a $25,000 penalty for each year, with continuation penalties. ↩
  4. U.S. Code, 26 U.S.C. section 6038D. Specified foreign financial assets (Form 8938): a $10,000 penalty with continuation penalties, up to $50,000, and a reasonable cause exception. ↩
  5. U.S. Code, 26 U.S.C. section 6677. Failure to file information with respect to certain foreign trusts: the greater of $10,000 or 35 percent of the gross reportable amount. ↩
  6. U.S. Code, 31 U.S.C. section 5321. Civil penalties for willful violations of the foreign account reporting requirement, subsection (a)(5)(C). The dollar amount is adjusted for inflation. ↩
  7. Internal Revenue Service, Internal Revenue Manual 4.26.16, Bank Secrecy Act: Report of Foreign Bank and Financial Accounts. Section 4.26.16.5.5.1: the civil test for willfulness covers knowing violations, reckless violations, and willful blindness. ↩
  8. Internal Revenue Service, Streamlined filing compliance procedures. Eligibility, the non-willful certification, and the statement that submissions may be audited. Page last reviewed July 11, 2026. ↩
  9. Internal Revenue Service, IRS Criminal Investigation Voluntary Disclosure Practice. Who may disclose, what makes a disclosure timely, the two-part Form 14457 process, the statement of willful conduct, and the December 2025 proposal. Read October 13, 2026. ↩
  10. Internal Revenue Service, U.S. taxpayers residing in the United States (streamlined domestic offshore procedures). Prior returns for the three covered years, six years of account reports, and how the 5 percent penalty base is built. ↩
  11. Internal Revenue Service, U.S. taxpayers residing outside the United States (streamlined foreign offshore procedures). The non-residency tests, the covered periods, the penalty statement, and the requirement to pay tax and interest. ↩
  12. Internal Revenue Service, Foreign Account Tax Compliance Act (FATCA). Reporting of U.S. persons’ foreign accounts by foreign financial institutions. ↩
  13. U.S. Code, 26 U.S.C. section 7525. The limited privilege for tax advice from federally authorized practitioners, confined to noncriminal matters in subsection (a)(2). ↩

Related: cross-border tax planning for individuals and IRS tax resolution for individuals.

This article provides general information, not individualized tax or legal advice. Rules, forms and procedures change, and the right answer depends on your facts. Speak with a qualified professional before you act.