Caution: Increased FBAR Enforcement

The last month or so has unfortunately seen a lot of FBAR enforcement court rulings against US taxpayers and in favor of the government. The Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury can levy high penalties for each year that a timely Form FinCEN 114 (also known as the FBAR) is not filed.

In United States v. Toth (2020 D. Mass. 2020 here), the Court granted the Government’s motion for judgment that Toth was liable for the FBAR civil willful penalty.  The court held that the maximum penalty is the greater 50% of the account(s) that should have been reported or $100,000 (instead of $100,000 maximum).  The Government successfully proved application of the FBAR willful penalty by a preponderance of the evidence that Toth’s failure to file FBAR was willful. 

In United States v. DeMauro (D. N.H. Dkt. 17-cv-640-JL 8/28/20 here), the Court approved of the government’s assessed FBAR willful penalty.  The willful FBAR penalty requires that the failure to report be willful. In the FBAR civil penalty context, the Courts have held willfulness is (i) specific knowing failure to file or (ii) willful blindness or reckless disregard of the obligation to report. The Government successfully proved application of the FBAR willful penalty by a preponderance of the evidence.

In United States v. Bernstein (E.D. N.Y. 2020 here), the Court granted the Government’s motion for judgment determining that the defendants, husband and wife (“Bernsteins”), were each subject to the willful FBAR penalty. For many years the Bernsteins had foreign accounts and did not file FBARs, answered “no” on the IRS Form 1040 Schedule B Part III foreign account signatory interest question, and did not report the income from the foreign accounts.  Over the years, they did not tell their accountant about the foreign accounts because they wanted to keep the accounts secret. The IRS assessed a willful FBAR penalty in the amount of $262,288. The Government successfully brought this penalty collection suit for the FBAR willful penalties.

The rulings should remind us all of the FBAR filing requirement and the government’s vigilant enforcement. The IRS has in its arsenal many ways to find out about Americans’ bank and or investment accounts they may have, how much money is in these accounts and where these people live. In addition, the US now also has tax information exchange agreements with many foreign governments. Therefore, all US persons should take the steps necessary to file your tax return(s) and report your foreign bank balances. If numerous years have not been filed, contact our office to become compliant before it is too late.

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