Between September 2025 and January 2026, two federal courts issued rulings that pull FBAR penalty enforcement in opposite directions. One makes it easier for the government to hit you with the maximum penalty. The other questions whether the government can impose those penalties the way it always has.
If you have foreign bank accounts and you’ve fallen behind on reporting, both rulings matter — but they matter in very different ways, and one of them is far from settled.
First, the thirty-second background
US persons with foreign financial accounts above a reporting threshold must file an annual disclosure — the FBAR — with the Treasury Department. Miss it, and the penalty depends on one word: willful.
A non-willful violation carries a capped penalty per form (after the Supreme Court’s 2023 Bittner decision, it’s per form, not per account). A willful violation is a different universe: the greater of a six-figure statutory amount or 50% of the account’s highest balance — per year. Three willful years on a large account can exceed the account itself.
So the entire game, in penalty terms, is what counts as willful. That’s where the first ruling lands.
The sword: Reyes (January 2026)
On January 7, 2026, the Second Circuit Court of Appeals decided United States v. Reyes. A married couple held a Swiss account worth more than $2 million — most of their liquid savings — and filed no FBARs for it over a three-year stretch. They used the bank’s hold-mail service so statements never reached their US address, routed credit card statements to a third party in Europe, and never mentioned the account to their accountant.
Their defense was the one almost everyone reaches for: we didn’t know we had to file.
The court rejected it — and not on the facts alone. It held that “willful” in the FBAR statute includes reckless conduct. You don’t need to have intended to break the law. If you ignored an obvious risk that you had a reporting obligation — what the court called an egregious refusal to see the obvious or investigate the doubtful — that can be enough for the willful penalty tier.
Here’s the part worth being honest about: this was not a surprise. The Second Circuit became the seventh federal appeals court to read willfulness this way. Reyes didn’t lower the bar — it confirmed that the bar was already low, and slammed the door on “I didn’t know” as a defense in one more major jurisdiction.
The court added one more unwelcome detail: the 6% late-payment penalty that accrues on unpaid FBAR assessments is mandatory. Judges have no discretion to reduce it.
The pattern to notice in Reyes isn’t the legal standard — it’s the facts the court found damning. Hold-mail services. Statements routed away from the US. An account never mentioned to the tax preparer. Courts read those behaviors as someone avoiding the obvious. If your situation is the opposite — you genuinely never knew, you’ve concealed nothing, and you act once you learn — your facts look nothing like the Reyes facts. That distinction is what the entire willful/non-willful line turns on.
The shield: Sagoo (September 2025)
Four months earlier, a federal district court in Texas went the other way — not on what willfulness means, but on who gets to decide it.
In United States v. Sagoo, the IRS had assessed just over $1 million in willful FBAR penalties against a taxpayer with accounts in three countries. She didn’t pay; the government sued to collect. Her response: the Seventh Amendment guarantees a jury trial in civil cases, and the IRS had investigated her, decided she was liable, and imposed a seven-figure penalty entirely on its own — acting, in the court’s words, as “prosecutor, jury, and judge.”
The court agreed and dismissed the government’s collection suit with prejudice. A jury trial offered after the agency has already found the facts and levied the punishment, the court held, doesn’t satisfy the Constitution. The reasoning builds on the Supreme Court’s 2024 Jarkesy decision, which required jury trials when the SEC seeks civil fraud penalties.
If that logic holds broadly, it would reshape FBAR enforcement: the IRS would need to win before a jury before a willful penalty exists, rather than assessing first and litigating later.
Why you should not build plans on Sagoo
This is the caution the headlines tend to skip, and it’s the most important paragraph on this page.
Sagoo is a single district court decision. The government appealed in November 2025, and the case is now before the Fifth Circuit. The Fifth Circuit precedent the ruling leaned on is itself being challenged at the Supreme Court. Other courts have already reached different conclusions on closely related questions. Sagoo could be affirmed, narrowed, or vacated — and any of those outcomes could arrive within the next year or two.
The same principle we apply to proposed legislation applies to unsettled litigation: you comply with the rules as they exist today, not the rules a pending case might create. Anyone who stops filing, or stops dealing with an existing penalty exposure, because one Texas courtroom questioned the assessment process is making a bet with their own balance sheet.
What the two rulings mean side by side
Read together, the rulings sharpen a divide that already existed:
The cost of being found willful is as high as it has ever been, and the path to a willful finding is wide — recklessness suffices in seven circuits, the penalty runs per account per year, and the late-payment add-on is non-negotiable.
The process of imposing those penalties is now under genuine constitutional pressure — which may eventually give people already facing assessed penalties new arguments, but does nothing for someone deciding today whether to come into compliance.
That asymmetry points in one direction. The factors courts use to separate willful from non-willful — concealment, avoidance, ignoring the obvious versus genuine unawareness followed by prompt correction — are largely about what you do once you know. Voluntary catch-up programs exist precisely for people whose facts look non-willful. Waiting until the government writes first is, among other things, how facts start to look worse.
We’ll keep this page updated as the Sagoo appeal moves — the “last reviewed” date above reflects the most recent check.
This article is general education, not legal or tax advice. Penalty exposure and willfulness determinations depend entirely on individual facts. If any of this resembles your situation, the right next step is a conversation with a cross-border tax professional — not a decision made from an article.