{"id":3674,"date":"2020-08-07T15:55:21","date_gmt":"2020-08-07T15:55:21","guid":{"rendered":"https:\/\/patellawoffices.com\/blog\/?p=3674"},"modified":"2020-08-06T15:57:23","modified_gmt":"2020-08-06T15:57:23","slug":"new-court-ruling-fbar-penalties-applied-per-form-and-not-per-account","status":"publish","type":"post","link":"https:\/\/patellawoffices.com\/blog\/planning-for-tax-minimization\/new-court-ruling-fbar-penalties-applied-per-form-and-not-per-account\/","title":{"rendered":"New Court Ruling: FBAR penalties applied per form and not per account"},"content":{"rendered":"\n

The FBAR rules require the filing of a FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR) to report for accounts of U.S. persons aggregating $10,000 or more. For a non-willful failure to disclose, the maximum penalty imposed is $10,000. Since one FBAR is used to report multiple accounts, a basic question is whether the non-willful failure to report several accounts results in only one $10,000 penalty (based on one\u00a0form<\/em>), or $10,000 multiplied by the number of unreported\u00a0accounts<\/em>. This can result in a big difference for taxpayers with multiple unreported accounts. <\/p>\n\n\n\n

U.S. residents and citizens who non-willfully failed to file a Report of Foreign Bank and Financial Accounts (FBAR) may now have some hope of substantially diminished penalties following a recent ruling from a federal trial court, where the taxpayer\u2019s number of unreported accounts ranged from 41 to 51 for 4 different tax years.\u00a0 <\/p>\n\n\n\n

Facts:<\/p>\n\n\n\n

Alexandru Bittner, a dual Romanian-American citizen, after belatedly consulting a CPA, discovered he owed penalties for not reporting his foreign accounts. (Bittner v. United States, No. 4:19-cv-0415 (E.D. Tex. 6\/29\/20))<\/p>\n\n\n\n

From 1996-2011, Bittner was a U.S. citizen and maintained an aggregate balance of more than $10,000 in foreign financial accounts. But he did not timely file FBARs for any of those years until May 2012. In June 2017, the IRS assessed penalties against Bittner for \u201cnon-willful\u201d FBAR violations. The government filed a motion for partial summary judgment seeking $1.77 million in penalties computed on the basis of the number of foreign accounts Bittner admitted to maintaining from 2007-2010. Bittner argued that the non-willful civil penalty provided under Section 5321(a)(5)(A) and (B)(i) applied per annual FBAR report not properly or timely filed, not per foreign financial account maintained. The government argued that the penalty applied per foreign financial account maintained but not properly or timely reported on an annual FBAR. <\/p>\n\n\n\n

Background:<\/p>\n\n\n\n

Congress enacted the Bank Secrecy Act (BSA) as 31 U.S.C.\nSection 5314, which provides that the Secretary of the Treasury shall require a\nresident or citizen to keep records, file reports when the resident or citizen\nmakes a transaction or maintains a relation for any person with a foreign\nfinancial agency, the court said. In other words, Section 5314 directs Treasury\nto require residents or citizens to file reports when they maintain foreign\nbank accounts.<\/p>\n\n\n\n

The Secretary promulgated regulations implementing Section\n5314: \u201cEach United States person having a financial interest in\u2026a\u2026financial\naccount in a foreign country shall report such relationship to the Commissioner\nof Internal Revenue for each year in which such relationship exists and shall\nprovide such information as shall be specified in a reporting form prescribed\nunder 31 U.S.C. 5314 to be filed by such persons. The form prescribed is the\n[FBAR], or any successor form.\u201d U.S. residents or citizens maintaining foreign\nbank accounts with an aggregate balance exceeding $10,000 must file an FBAR\nform by June 30 of the year following the year to be reported. 31 U.S.C.\nSection 5321 authorizes Treasury to penalize U.S. residents or citizens who\nviolate the regulations. <\/p>\n\n\n\n

But what defined as a Violation?  Subparagraph (A) of the statute begins by\nproviding that \u201cthe Secretary may impose a civil monetary penalty on any person\nwho violates\u2026any provision\u201d of Section 5314. The following subsection then\nprovides that \u201dthe amount of any civil penalty imposed under subparagraph (A)\nshall not exceed $10,000.\u201c See Section 5321(a)(5)(B)(i). Thus, the statute\nprovides for a singular penalty, capped at $10,000, that attaches to each\nviolation of Section 5314. The question then becomes: What constitutes a\n\u201dviolation\u201c within the meaning of the statute? It is violations of Treasury\u2019s\nimplementing regulations to which Section 5321(a)(5)\u2019s civil penalties attach.\nThose regulations provide that \u201dthe form prescribed under Section 5314 is the\nFBAR\u2026and that such form must be filed\u2026with respect to foreign financial\naccounts exceeding $10,000 maintained during the previous calendar year.\u201c So it\nis the failure to file an annual FBAR that is \u201dthe violation\u201c contemplated and\nthat triggers the civil penalty provisions of Section 5321.<\/p>\n\n\n\n

Court Ruling:<\/p>\n\n\n\n

The U.S. District Court for the Eastern District of Texas was not convinced that Bittner had reasonable cause for failing to report his accounts more than 16 years after he should have first filed an FBAR. However, the court also did not agree with the government\u2019s argument that he should be subject to the $10,000 penalty for every account that he failed to report for a total of $1.77 million. <\/p>\n\n\n\n

The court relied on the plain language that appears in the statute; because the penalty for willful violations includes explicit reference to the balance in the account while the penalty for non-willful violations does not, the court can infer that Congress intended the penalty for willful violations to relate to specific accounts and the penalty for non-willful violations not to. Non-willful FBAR reporting deficiencies constitute a single violation and carry a maximum annual $10,000 civil money penalty, irrespective of the number of foreign financial accounts maintained, the court said.<\/p>\n\n\n\n

This ruling is in contrast, in United States v. Boyd, the\nIRS assessed the defendant 13 separate FBAR penalties after it determined that\nshe had non-willfully failed to report her financial interest in 14 foreign\nfinancial accounts. The court, without any explanation, held that the\ngovernment \u201chas advanced the more reasonable explanation.\u201d The court here\ndisagreed with the reasoning and outcome in Boyd. Congress knew how to make the\nnon-willful FBAR penalty vary with the number of foreign financial accounts\nmaintained, but it did not do so. Hence the non-willful FBAR penalties are on a\n\u201cper-form,\u201d rather than \u201cper-account,\u201d basis.<\/p>\n\n\n\n

Bittner was therefore obligated to pay a maximum $10,000\npenalty for each year he non-willfully failed to timely or properly file an\nFBAR.<\/p>\n\n\n\n

Summary:<\/p>\n\n\n\n

The Bittner <\/em>decision is a win\nfor the taxpayer. However, it remains to be seen whether the government\nwill appeal the decision.  Both Boyd and this case are only District Court cases, which\nlimits their precedential authority. Moreover, the Bittner <\/em>decision now results in differing decisions on the\nnon-willful FBAR penalty in different circuits. So the issue is unsettled.\nAs a result, any taxpayers who are currently contemplating coming into\ncompliance should get expert advice with respect to their foreign bank accounts.<\/p>\n","protected":false},"excerpt":{"rendered":"

The FBAR rules require the filing of a FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR) to report for accounts of U.S. persons aggregating $10,000 or more. For a non-willful failure to disclose, the maximum penalty imposed is $10,000. Since one FBAR is used to report multiple accounts, a basic question is […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_daextam_enable_autolinks":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-3674","post","type-post","status-publish","format-standard","hentry","category-planning-for-tax-minimization"],"_links":{"self":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/3674","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/comments?post=3674"}],"version-history":[{"count":3,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/3674\/revisions"}],"predecessor-version":[{"id":3677,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/3674\/revisions\/3677"}],"wp:attachment":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/media?parent=3674"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/categories?post=3674"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/tags?post=3674"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}