Page 4 - Penalties.The Government’s New Stance That the Non-Willful Civil FBAR Penalty Applies to.JTPP_22-02_Rule

PeNaLties

failure … , no penalty will be imposed. A person who each for foreign accounts with balances of $30, $50, $64,
willfully fails to report an account … may be subject $83, $393, $437, and $816.
to a civil monetary penalty equal to the greater of Prior to 2004, the only FBAR penalty was for willful
$100,000 or 50 percent of the balance in the account violations. The government relies on the Federal Circuit’s
at the time of the violation. 20 decision in Norman for the proposition that the 2004
amendment to the FBAR penalties somehow brought
Clearly, the proper analysis is that failure to timely about a non-willful per account penalty. However, Norman
file an FBAR, without willfulness, gives rise to a single states clearly that the non-willful civil FBAR penalty not
annual civil penalty not to exceed $10,000. The issue to exceed $10,000 applies to failure to file a timely FBAR,
giving rise to the maximum $10,000 non-willful pen- without regard to the number of accounts reported on
alty is the filing of the FBAR, not the reporting of “an that FBAR:
account” on that FBAR. An “account” only comes into
play with the willful penalty, and the reasonable cause [T]he Secretary of the Treasury has the authority
exception. 21 to impose civil money penalties on any person
Practically, it makes no sense to impose a “per who fails to file a required FBAR. From 1986 to
account” penalty for non-willful failure to timely file an 2004, [the FBAR penalty statute] only authorized
FBAR, given that the number of foreign accounts that penalties for willful violations of [the BSA statute]
a taxpayer controls is not what determines whether the and capped such penalties at $100,000. In 2004,
FBAR must be filed in the first place; this is determined Congress amended [the penalty statute] to authorize
by the aggregate balance of all foreign accounts if it penalties up to $10,000 for non-willful violations of
exceeds $10,000. An FBAR must be filed by a person [the BSA statute, which requires the filing of “reports”]
who controls one foreign bank account the value of and to increase the maximum penalty for willful
which exceeds $10,000 in the prior year, but no FBAR violations to the greater of $100,000 or fifty per-
is required from a person who has control over 15 for- cent of the balance in the account at the time of
eign accounts the aggregate value of which does not the violation. 22
exceed $10,000. This confirms that the heart of the
statutory and regulatory non-willful penalty scheme The non-willful civil FBAR penalty thus applies to failure
is the filing of the FBAR, regardless of the number of to file a required FBAR form. Taxpayers’ potential argu-
accounts involved. ments against the government’s new position are also
In addition, when two taxpayers are equally non-willful, supported by Crawford v. United States Department of
it is arbitrary and discriminatory to impose a $10,000 Treasury, a District Court decision that was affirmed by
penalty on one taxpayer who untimely files an FBAR the Sixth Circuit, and which held clearly that: “A person
reporting one account worth $10,100, and yet to impose who fails to file a required FBAR may be assessed a civil
a $50,000 penalty on another taxpayer who untimely monetary penalty. The amount of the penalty is capped
reports five accounts that each held $2,020. Each of these at $10,000 unless the failure was willful.” In affirm-
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taxpayers controlled exactly the same sum of foreign-held ing, the Sixth Circuit wrote: “[W]illful failure to file an
funds, yet one would be assessed a penalty five times that FBAR invites a penalty of 50% of the value of the report-
of the other. Congress surely cannot have intended such able accounts or $100,000, whichever is greater[,]” but
an inequitable penalty scheme for non-willful failures to “[t]he ordinary penalty (absent a showing of willfulness)
timely file FBARs. … is $10,000 per violation,” i.e., each non-willful fail-
The inequities resulting from the government’s posi- ure to timely file a single FBAR form. The non-willful
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tion are not only illustrated in Boyd, but also in Bittner, civil penalty for failure to file that one form is capped at
which involved four voluntarily-filed delinquent accurate $10,000 per year.
FBARs. The IRS assessed penalties of $1,770,000, myriad The government points out that different accounts
multiples of the $40,000 penalty that would have applied may need to be reported in different ways on an
if the non-willful civil FBAR penalty of $10,000 had FBAR, for example, when a U.S. person has control
properly been imposed once for each of the four untimely over three accounts at a foreign bank, one account
filed FBARs. In Patel, the difference between a penalty per owned individually, one account owned jointly, and
account and a penalty per FBAR was astounding; for one one account for which she only has signature author-
of the years involved, the IRS assessed a $10,000 penalty ity. Or a person may own two accounts, each held at a

32 Journal of taX praCtICe & proCedure Summer 2020