Page 2 - Penalties.The Government’s New Stance That the Non-Willful Civil FBAR Penalty Applies to.JTPP_22-02_Rule

PeNaLties

held unequivocally that the civil FBAR penalty applies focus is on the filing of these reports rather than on each
to failure to timely file a single FBAR, without regard separate “relation.” The government has admitted that the
to the number of accounts reported on that form: “A BSA statute “does not delineate precisely how compliance
person who fails to file a required FBAR may be assessed with the reporting obligation occurs.” Moreover, the
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a civil monetary penalty …. The amount of the penalty BSA statute provides absolutely nothing about penalties.
is capped at $10,000 unless the failure was willful.” The regulation promulgated under this statute provides,
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These decisions are clear—a single non-willful civil FBAR in relevant part:
penalty of $10,000 penalty applies to a single non-willful
failure to file a single FBAR. Each United States person having a financial interest
in, or signature or other authority over, a bank, secu-
rities, or other financial account in a foreign country
The government’s argument that shall report such relationship to the Commissioner of
Internal Revenue for each year in which such rela-
the non-willful civil FBAR penalty of tionship exists and shall provide such information
$10,000 applies per account that is not as shall be specified in a reporting form prescribed
under [the BSA statute] to be filed by such persons.
reported on a single untimely FBAR is The form prescribed under [the BSA statute] is the
very new. Report of Foreign Bank and Financial Accounts
[then filed on June 30 of the year following the year
in connection with which foreign accounts should
be reported.] 14
Nevertheless, starting in 2019, a few cases have par-
roted the novel conclusion reached by the District Court The government again relies on the singular word “rela-
in Boyd—that the non-willful civil FBAR penalty applies tionship” to argue that the non-willful penalty FBAR
to each account not reported on an untimely-filed applies per account. However, the regulation requires
FBAR—but these cases have so held without any analysis information about each “relationship” to be reported on a
whatsoever. 10 single “reporting form” i.e., the FBAR. A related regulation
confirms that the focus of the BSA is on the filing of each

B. the Statutory and regulatory annual FBAR form, providing that required information
about foreign accounts must be “filed on forms prescribed
Scheme demonstrates the fallacies by the Secretary and must include all information called
in the Government’s New Position for in such forms.” 15
Most importantly, of course, the statute that actually
According to the Bank Secrecy Act of 1970 (“BSA”) : imposes civil penalties for failure to timely file FBARs
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provides for two very different penalties: the non-
[T]he Secretary of the Treasury shall require a resident willful penalty that is clearly based on a single failure
or citizen of the United States or a person in, and to file a timely FBAR, and is not based on each foreign
doing business in, the United States, to keep records, account that a taxpayer owned in the prior year; and
file reports, or keep records and file reports, when the the willful penalty that is based on the balances in the
resident, citizen, or person … maintains a relation … foreign account(s) that should have been reported on
with a foreign financial agency. 12 an FBAR.
The statute begins by providing for a baseline maximum
The government’s new contention is that, by using the civil penalty of $10,000 for a violation of the FBAR filing
singular “relation … with a foreign financial agency” in requirements. While it does not mention non-willfulness,
this statute (the “BSA statute”), Congress meant that this provision, by default, is the only provision that can
non-willful penalties for untimely filed FBARs should apply to a non-willful violation:
be imposed per “relation,” i.e., per account reported on
an FBAR. But this statute, which obviously precedes the (B) Amount of penalty—
more-specific FBAR form, only broadly defines the infor-
mation to be included in the required “reports” and its (i) In general—

30 Journal of taX praCtICe & proCedure Summer 2020