You Don't Have to Intend to Break the Law to Face the Maximum FBAR Penalty
The Second Circuit's January 2026 decision in United States v. Reyes confirmed what every other appellate court has already said: reckless disregard of FBAR filing requirements is enough to trigger the maximum willful penalty. If you have unreported foreign accounts, the window to act on your own terms is getting smaller.
By Tajma Qorri | April 12, 2026
I want to be direct about what this ruling means, because I've had several conversations about it with clients and colleagues since January, and the same misunderstanding keeps coming up.
Most people assume that "willful" means "intentional." That you sat down, knew about the FBAR requirement, and consciously decided not to file. That without some kind of deliberate scheme, the maximum penalty doesn't apply to them.
That has not been the law for years. And after Reyes, it is now settled in virtually every federal appellate court in the country.
What Happened in Reyes
Dr. Juan Reyes and Catherine Reyes, both U.S. citizens, held a joint Swiss bank account containing more than $2 million. The account represented the vast majority of their liquid assets. From 2010 through 2012, they did not file FBARs.
The facts that the court found decisive were not complicated. They were the kind of facts I see in consultations regularly:
- They did not disclose the Swiss account to their longtime accountant, despite using him for over 40 years.
- Their accountant sent them a client organizer each year that specifically asked about foreign accounts. They did not return it or otherwise mention the account.
- They checked "No" on Schedule B of their tax returns - the line that asks whether you have an interest in a foreign financial account.
- They paid the Swiss bank to hold their mail, preventing correspondence from reaching the United States.
- They directed credit card statements linked to the Swiss account to be sent to a friend in Spain, not to their U.S. address.
The IRS assessed willful penalties. After negotiation, the penalties were mitigated to approximately $420,000 per spouse. The Reyeses did not pay. The government sued.
On January 7, 2026, the Second Circuit affirmed summary judgment for the government. The court held that "willful" under 31 U.S.C. § 5321 includes reckless conduct - not just intentional wrongdoing. The Reyeses' argument that willfulness requires proof of subjective intent was rejected.
The Legal Standard: What "Reckless" Actually Means
The test is not whether you personally knew about the FBAR requirement. The test is whether a reasonable person in your position should have known there was a serious risk they had a reporting obligation - and whether you were in a position to easily find out.
This standard comes from the Third Circuit's decision in Bedrosian v. United States, and it has now been adopted by the Second, Third, Fourth, Sixth, Ninth, Eleventh, and Federal Circuits. There is no circuit split. This is as close to unanimous as federal appellate law gets on a penalty question.
The three-part test for recklessness is:
- You clearly ought to have known that there was a grave risk the FBAR filing requirement was not being met.
- You were in a position to find out very easily whether the requirement applied to you.
- You failed to do so.
Notice what is absent from that test: intent. Personal belief. Sophistication level. Dr. Reyes argued that he was not a sophisticated businessperson and that he relied on a newspaper column and conversations with international lawyers to conclude he didn't need to file. The court didn't care. A reasonable person holding $2 million in a Swiss account, whose accountant asked about foreign accounts every year, should have investigated further.
Why This Matters Beyond the Reyes Facts
The Reyes case involved mail-holding services and deliberate non-disclosure to an accountant. Those are extreme facts. But the recklessness standard does not require extreme facts. It requires a reasonable person analysis.
Here is why I'm writing about this now: the clients I worry about are not the ones hiding Swiss accounts. They are the ones who have been meaning to deal with their unreported accounts for years and haven't gotten around to it. They know - or at least suspect - that they have a filing obligation. They've seen the Schedule B question. Their accountant may have mentioned it. They just haven't acted.
Under the recklessness standard, that pattern of awareness-plus-inaction is exactly what the IRS needs.
Consider these situations, which I encounter regularly:
- A naturalized U.S. citizen who maintains bank accounts in their home country and has been checking "No" on Schedule B for years because their accountant never asked about it in detail.
- A dual citizen who knows about FBAR generally but assumed it didn't apply because the accounts are "small" - even though the aggregate exceeds $10,000.
- An expat who filed their 1040 but never filed an FBAR because they thought the two were the same thing, or that FBAR was handled automatically.
- A U.S. person who inherited a foreign account and has been meaning to figure out the reporting but hasn't taken any steps in two or three years.
None of these people set out to violate the law. But under the recklessness standard, the question is not what they intended. The question is whether they should have known - and whether they could have easily found out.
The Penalty Numbers in 2026
The distinction between willful and non-willful matters enormously in dollar terms.
For non-willful violations, the maximum civil penalty is $16,536 per report, per year. Following the Supreme Court's 2023 decision in Bittner v. United States, non-willful penalties are assessed per annual FBAR form, not per account. That was a significant win for taxpayers.
For willful violations, the penalty is the greater of $165,353 or 50% of the account balance, per account, per year. The Bittner per-form limitation does not apply to willful penalties. And these amounts are adjusted annually for inflation.
To put that in context: a U.S. person with $300,000 across two foreign accounts who is found to have willfully failed to file for three years faces potential exposure of $900,000 in civil penalties alone - 50% of $300,000 times two accounts times three years. For a non-willful violation, the same person faces a maximum of $49,608 - $16,536 times three years.
That is the difference the recklessness standard makes. And after Reyes, the IRS has a clear path to the higher number in every circuit.
One Development Worth Watching: Sagoo
While Reyes gave the IRS a sharper enforcement tool, a September 2025 district court decision in Texas pushed back.
In United States v. Sagoo, the U.S. District Court for the Northern District of Texas held that the IRS violated the Seventh Amendment by assessing over $1 million in willful FBAR penalties without providing the taxpayer a jury trial. The court applied the Supreme Court's reasoning from SEC v. Jarkesy (2024), which held that the SEC could not impose civil penalties through its own administrative process without a jury.
If Sagoo is upheld on appeal, the IRS may need to obtain a jury verdict before finalizing willful FBAR penalties. That would slow enforcement and give taxpayers more leverage to negotiate.
But Sagoo is a single district court decision. Other courts may disagree. And it does not change current filing obligations or the availability of compliance programs. Relying on Sagoo as a reason to delay action would be a mistake.
Another Development: Proposed VDP Reform
In December 2025, the IRS proposed significant changes to its Criminal Investigation Voluntary Disclosure Practice. The proposed framework would replace the existing 75% civil fraud penalty and 50% willful FBAR penalty with a 20% accuracy-related penalty per year in the disclosure period.
The comment period closed in March 2026, and final guidance is expected later this year. If adopted, this could make voluntary disclosure substantially less punitive - but the program is designed for taxpayers with potential criminal exposure, and it requires full payment of all taxes, penalties, and interest within three months of conditional approval.
For most taxpayers with unreported accounts and non-willful conduct, the Streamlined Filing Compliance Procedures or the Delinquent FBAR Submission Procedures remain the better path. But the VDP reform signals that the IRS is actively recalibrating its penalty framework - which makes acting now, while favorable programs still exist in their current form, even more important.
What You Should Do
If you have unreported foreign accounts, the single most important thing you can do is act before the IRS contacts you. Every compliance program available - Streamlined Domestic, Streamlined Foreign Offshore, Delinquent FBAR Submission, Delinquent International Information Return Submission - requires that you come forward voluntarily. Once the IRS initiates an examination or contacts you about a violation, these programs are off the table.
Here is what I tell every client in this situation:
- Do not file delinquent FBARs on your own without professional guidance. The way you come into compliance matters. Filing through the wrong channel, or without proper documentation, can create more problems than it solves.
- Do not assume your situation is "too small" to matter. The $10,000 aggregate threshold is low. Two modest accounts in your home country can trigger the requirement. And the recklessness standard means that knowing you have foreign accounts and not investigating your obligations is itself a risk factor.
- Do not wait for the law to change in your favor. Sagoo is interesting. The VDP reform is promising. Neither is a reason to delay. The programs available today may not exist tomorrow - the Streamlined Procedures have been rumored to sunset for years.
- Gather your records now. You will need peak-balance statements for each foreign account for the relevant years. Start pulling those from your foreign institutions. Some banks take weeks to produce historical statements, and you do not want that delay to push you past a window.
The Bottom Line
Reyes did not change the law. It confirmed what has been building across the federal circuits for years: the IRS does not need to prove you intended to violate the FBAR requirement. It only needs to show that a reasonable person in your position should have known about the obligation and could have easily confirmed it.
If you have foreign accounts and you have not been filing, the recklessness standard means your window of "I didn't know" is functionally closed as a legal defense. But your window to come forward voluntarily and resolve this on favorable terms is still open.
I handle FBAR compliance and remediation work every week. If anything in this post describes your situation - or if you're not sure whether it does - I'd rather have that conversation now than after a notice arrives.
Book a consultation or email me directly at tajma@qorritax.com.
Tajma Qorri is the founder of Qorri Tax Service LLC, specializing in federal and international tax services for U.S. persons with foreign accounts, foreign-owned U.S. entities, and cross-border compliance remediation.