What Counts as a “Willful” FBAR Violation in 2026?

In 2026, a willful FBAR violation means more than deliberately hiding foreign accounts from the IRS. Under the January 2026 ruling in United States v. Reyes (Second Circuit), the court confirmed that “reckless disregard” of the FBAR filing requirement is enough to trigger the maximum willful penalty: the greater of $165,353 or 50% of the highest account balance, per year.

At the same time, a September 2025 ruling in United States v. Sagoo (Northern District of Texas) gave taxpayers a new constitutional shield, holding that the IRS violated the 7th Amendment by imposing a $1 million FBAR penalty without first giving the taxpayer a jury trial.

These two rulings create a “tug-of-war” in FBAR enforcement:

The IRS got a sharper sword (Reyes): You do not need to intend to break the law. If a reasonable person in your position should have known about the FBAR requirement, that is enough.
Taxpayers got a stronger shield (Sagoo): The IRS may no longer be able to act as “prosecutor, jury, and judge” when imposing willful FBAR penalties.

If you have unreported foreign accounts, here is why both rulings matter and what you should do now.

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The Sword: US v. Reyes Lowers the Bar for “Willful” (January 2026)

On January 7, 2026, the U.S. Court of Appeals for the Second Circuit ruled in United States v. Reyes that “willfulness” for civil FBAR penalties includes reckless conduct, not just intentional wrongdoing.

What Happened

Dr. Juan Reyes and Catherine Reyes, both U.S. citizens, held a joint Swiss bank account containing over $2 million. From 2010 through 2012, they did not file FBARs, did not disclose the account to their accountant, and used “hold mail” services at the foreign bank to keep statements from reaching the U.S. When they later tried to argue they did not know about the FBAR requirement, the court rejected the defense.

The Legal Standard: “Objective Recklessness”

The Second Circuit relied on the Supreme Court’s decision in Safeco Insurance Co. v. Burr, which held that, in a civil context, “willfulness” encompasses both knowing and reckless violations. The court applied an objective test: the question is not what you personally believed, but what a “reasonable person” in your situation should have known.

What This Means for Expats

The “I didn’t know” defense is effectively on its deathbed. Under the recklessness standard, the IRS can argue willfulness if you:

Checked “no” on Schedule B when asked about foreign accounts, even carelessly
Used “hold mail” or nominee services at a foreign bank
Failed to mention foreign accounts to your tax preparer
Ignored questions from your CPA about overseas assets
Read about FBAR requirements, but did not follow through

The Second Circuit joins the Third, Fourth, Sixth, Ninth, Eleventh, and Federal Circuits in adopting this standard. There is now a near-unanimous consensus among U.S. appellate courts that recklessness is sufficient for willful FBAR penalties.

The Shield: US v. Sagoo Requires a Jury Trial (September 2025)

On September 19, 2025, the U.S. District Court for the Northern District of Texas ruled in United States v. Sagoo that the IRS violated the 7th Amendment when it assessed over $1 million in willful FBAR penalties without first giving the taxpayer a jury trial.

What Happened

Sharnjeet Sagoo, a U.S. citizen, held accounts in Kenya, India, and England totaling between $1.4 million and $1.7 million from 2011 to 2013. She did not file FBARs. The IRS assessed a penalty of $1,020,922.50 for willful violations. When Sagoo refused to pay, the government sued to collect. Sagoo moved to dismiss, arguing the IRS had acted as “prosecutor, jury, and judge.”

The Constitutional Argument

The court relied on the Supreme Court’s 2024 decision in SEC v. Jarkesy, which held that the SEC could not impose civil penalties “in-house” without a jury trial. Applying the same reasoning, the Texas court found that the IRS’s FBAR penalty process was unconstitutional because the agency investigated, determined liability, and imposed the penalty all without a neutral factfinder.

The government conceded that Sagoo was entitled to a jury trial but argued that the trial could happen after the penalty was assessed. The court rejected this, holding that requiring taxpayers to “defy a multi-million-dollar penalty” and wait for the government to sue before they can access a jury trial is unconstitutional.

What This Means for Expats

If Sagoo is upheld on appeal, the IRS may need to obtain a jury verdict before it can finalize willful FBAR penalties. This would dramatically slow enforcement and give taxpayers more leverage to challenge aggressive penalty assessments.

Important caveats: This is a single district court ruling, and other courts (notably HDH Group and Silver Moss) have reached opposite conclusions on similar 7th Amendment questions. The legal landscape is unsettled, and the government is expected to appeal. Do not assume Sagoo will protect you from penalties you are currently facing.

How Much Is a Willful FBAR Penalty?

The financial consequences of a willful violation are severe. For a complete breakdown, see our FBAR penalties guide.

Violation Type	Penalty Amount (2025)	How It Is Calculated
Non-willful	Up to $16,536 per form	Per FBAR form, not per account (Bittner, 2023)
Willful (civil)	Greater of $165,353 or 50% of account balance	Per account, per year
Willful (criminal)	Up to $250,000 fine + 5 years prison	Per violation
Combined with other crimes	Up to $500,000 fine + 10 years prison	Per violation

Under Reyes, the 6% late payment penalty on unpaid FBAR assessments is mandatory and non-negotiable.

What Should You Do Right Now?

If you have unreported foreign accounts, the single most important action you can take is to come forward voluntarily before the IRS contacts you. Every compliance program available to you right now is designed to help people in exactly this situation.

If Your Failure Was Non-Willful

Use the Streamlined Filing Compliance Procedures to file three years of tax returns and six years of FBARs with no penalties for expats living abroad. You must certify on Form 14653 that your failure was non-willful. This is the most common path for Americans abroad who simply did not know about the FBAR requirement.

If You Only Missed FBARs (Taxes Are Current)

Use the Delinquent FBAR Submission Procedures to file up to six years of past-due FBARs with a reasonable cause statement. The IRS typically waives all penalties under this program.

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If Your Failure May Be Willful

The Voluntary Disclosure Program (VDP) provides a path to compliance while reducing criminal exposure. Penalties are higher (typically 75% fraud penalty and willful FBAR penalties), but the program protects against criminal prosecution. Consult with a tax attorney before proceeding.

The Clock Is Running

Under Reyes, the bar for “willful” is lower than most taxpayers realize. Actions that might have been considered careless or uninformed five years ago can now be classified as reckless and trigger the maximum penalty. Every year you wait adds another year of potential exposure and makes it harder to support a “non-willful” certification.

The Streamlined Filing Procedures may not be available forever. The IRS has periodically discussed modifying or eliminating the program. If you qualify now, act now.

Frequently Asked Questions

What is the difference between a willful and non-willful FBAR violation?

A non-willful violation is a failure to file due to negligence, mistake, or genuine lack of knowledge. The penalty is up to $16,536 per FBAR form (not per account). A willful violation involves knowingly failing to file or acting with reckless disregard for the requirement. The penalty is the greater of $165,353 or 50% of the account balance, per account, per year. Under Reyes, recklessness is sufficient for a willful finding. See our FBAR penalties guide for full details.

Can I still use the “I didn’t know” defense for missed fbar?

It is increasingly difficult. Under the recklessness standard established in Reyes and now adopted by seven federal circuits, the question is not what you personally believed but what a reasonable person in your position should have known. If there were signs you should have been aware of FBAR requirements (such as your CPA asking about foreign accounts, or a question on Schedule B), claiming ignorance may not protect you.

Does Sagoo mean the IRS cannot assess FBAR penalties?

Not yet. Sagoo is a single district court ruling, and other courts have disagreed. It is likely to be appealed. If upheld, it could require the IRS to obtain a jury verdict before finalizing willful FBAR penalties. But this does not affect your current filing obligations or the availability of compliance programs.

How do I know if I qualify for Streamlined Filing?

You qualify if you are a U.S. citizen or green card holder who has been outside the U.S. for at least 330 days in one of the past three years, your failure to file was non-willful, and you have not been contacted by the IRS about the missing filings. See our complete guide: Streamlined Filing for U.S. Expats

What if I have already been contacted by the IRS?

If the IRS has already contacted you, you may no longer qualify for Streamlined Filing. Consult with a tax attorney about the Voluntary Disclosure Program or other options. The sooner you respond, the better your outcome.

What evidence does the IRS use to prove willfulness?

The IRS looks for patterns such as using multiple foreign banks, “hold mail” services, nominee arrangements, moving money to avoid detection, failing to disclose accounts to a tax preparer, checking “no” on Schedule B about foreign accounts, and withdrawing from the Offshore Voluntary Disclosure Initiative after learning the penalty amount (as the Reyeses did). Under the recklessness standard, even passive conduct, such as failing to ask your CPA about reporting requirements, can be used as evidence.

Do Not Wait for the Law to Settle

The legal landscape for FBAR enforcement is shifting. Reyes makes it easier for the IRS to label you as willful. Sagoo may eventually make it harder for the IRS to collect, but that constitutional question is far from resolved.

What is certain right now: the IRS compliance programs that eliminate or reduce penalties are available today. They may not be available tomorrow.

If you are ready to be matched with a Greenback accountant, get started here. For general questions about FBAR compliance or working with Greenback, contact our Customer Champions.

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This article is for informational purposes only and does not constitute legal or tax advice. FBAR enforcement is an evolving area of law, and court rulings discussed here may be subject to appeal. Always consult with a qualified tax professional or attorney about your specific situation.