How Long Does the IRS Have to Sue for FBAR Penalties?

It can sometimes feel like an IRS audit or tax assessment can take forever, leaving taxpayers to wonder how long the IRS has to sue for FBAR penalties. A recent case coming out of the federal District Court in the Eastern District of New York shows that the details matter when the courts consider statute of limitation issues, even in cases where taxpayers represent themselves without an attorney’s help.

IRS Pursues Widow for Husband’s FBAR Penalties Over a Decade Later

United States v Veeraswamy is a recent decision issued by the United States District Court for the Eastern District of New York. That case, decided on February 10, 2025, involved the tax year 2010. But the District Court said the IRS hadn’t waited too long to assess its penalties. Mr. Veeraswamy was a licensed real estate broker, who maintained a bank account at the Bank of India, making deposits into the accounts after completing real estate transactions between $10,000 and $1.2 million in 2010 and 2011.

However, when he hired a tax preparer to help him file his individual tax returns in 2011, he did not disclose the Bank of India account, or the earned interest of $18,503.19 he made on the account the year before. That meant his Schedule B form for that tax year indicated he had no foreign financial accounts. Nor did he file an FBAR disclosing his ownership interest in the account. The IRS assessed willful FBAR penalties against Mr. Veeraswamy on January 8, 2018.

He then filed for bankruptcy on April 12, 2018, as a Chapter 13 petition, which was later converted to a Chapter 7 bankruptcy. Then, on February 6, 2019, Mr. Veeraswamy passed away. His widow, Ms. Veeraswamy was issued letters of administration over his estate, and the bankruptcy continued. It was closed without a discharge on November 21, 2023. Then on December 20, 2023, the IRS sued Ms. Veeraswamy for her husband’s unpaid willful FBAR penalties. The question the District Court considered in its February 10, 2025 decision was whether that case was filed too late.

The IRS’s Deadline for FBAR Penalties

Under the Bank Secrecy Act, taxpayers who own or control foreign financial accounts with an aggregate balance of at least $10,000 must file a separate FBAR form, in addition to their annual tax returns. Until recently, FBARs were due on June 30 following the tax year at issue. (Now, FBARs are due on April 15 of the following year instead).

But that describes when taxpayers are required to file their FBARs. How long does the IRS have to determine they did not do so and assess penalties for the willful failure to file an FBAR for any given year?

Federal law says that the Secretary of the Treasury, and by extension the IRS, may assess penalties “any time before the end of the 6-year period beginning on the date of the transaction with respect to which the penalty was assessed.” Ms. Veeraswamy said that date meant December 31, 2010. Unfortunately for her, the transaction in question was not the end of the tax year, but the day the report was due. The Court said that the six year statute of limitations started running on June 30, 2011. When the IRS issued FBAR penalties on January 8, 2018, it did so within the 6-year statute of limitations period.

How Long After Assessment Can the IRS File a Lawsuit for FBAR Penalties?

An assessment of FBAR penalties isn’t the end of the case. In fact, it isn’t even the beginning. If a taxpayer fails to pay an FBAR assessment, the IRS can file a lawsuit to collect the assessment. The complaint in a case to collect FBAR penalties must be filed within two years after the date of the assessment. Ordinarily, that would mean the IRS would have had to file its complaint against Ms. Veeraswamy within two years of January 8, 2018, that being January 8, 2020.

Can a Bankruptcy Change When an FBAR Lawsuit Can be Filed?

The deadlines in Ms. Veeraswamy’s case were made more complicated by the fact that Mr. Veeraswamy had filed for bankruptcy on April 12, 2018, three months after the IRS assessed FBAR penalties. Some, but not all, tax assessments and penalties can be discharged in bankruptcy. However, when a bankruptcy petition is filed, it triggers an automatic stay that pauses any efforts to collect debts and liabilities outside of the bankruptcy proceeding itself.

The Bankruptcy trustee in the Veeraswamy bankruptcy case addressed Mr. Veeraswamy’s outstanding tax assessments and deficiencies as part of his petition. However, the Chapter 7 bankruptcy proceedings were closed on November 21, 2023, without any discharge being issued. That meant that the bankruptcy did not excuse any of Mr. Veeraswamy’s tax obligations, including the willful FBAR penalties that were part of the lawsuit.

The automatic stay from a bankruptcy period ended when the dismissal was entered, but under bankruptcy law, the statute of limitations for collections of liabilities are tolled – extended – for an additional 30 days after the bankruptcy case closed to give creditors time to protect their claim. That meant that the IRS had until December 21, 2023 to sue for FBAR penalties against the Veeraswamy estate. Its complaint was filed on December 20, 2023, one day before the deadline.

Self-Represented Taxpayer Fails to Have FBAR Penalties Dismissed

Ms. Veeraswamy represented herself and her husband’s estate herself, both in the bankruptcy proceedings and in the IRS’s FBAR penalty lawsuit. While the District Court interpreted her legal arguments liberally, the issues raised demonstrated that she did not have a clear understanding of the laws and court procedures around IRS collections cases. The Court’s decision against her shows the importance of working with an experienced tax attorney when defending against an IRS lawsuit to collect FBAR penalties or other assessments. Rather than going it alone, taxpayers should contact a tax attorney as soon as they receive a notice of assessment to defend their interests and minimize the amount they must pay to the IRS at the end of the case.

Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 35 years experience. If you have questions about IRS FBAR penalty lawsuits, contact Joe Viola to schedule a free consultation.