It seems strange. All U.S. Taxpayers are required to report foreign income on their tax returns. So why does the IRS require an additional FBAR form to be filed? If you were going to fail to disclose one, you would fail to disclose the other, right? What possible purpose does the FBAR serve, except to create another hurdle in an already hyper-regulated economy?

The answer lies with the title of the chapter of the various law. You see, the Tax Code is located in Chapter 26 of the US Code. But the strange thing is that all FBAR-related law is located in Chapter 31: Bank Secrecy.

Congress passed the Bank Secrecy Act not only to reduce tax evasion, but other crimes as well — money laundering, terrorism financing, and narcotics and gun trafficking. The FBAR is really for bank secrecy purposes, not tax compliance. The FBAR forms filed let the government know who has money, how much, and where….well, legal money, at least. One would assume that a person involved in money laundering, terrorist financing, narcotic and drug trafficking may not be especially concerned about missing FBAR filing requirements.

Even Washington figured that it would be somewhat onerous to create an IRS equivalent to administer the Bank Secrecy Act. So for many (but not all) provisions, the Secretary of the Treasury (who is the head of the IRS) is in charge  of collecting the FBAR information and then assessing penalties, and beginning criminal investigations, if needed.

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