In previous blogs, Freeman Law discussed recent federal cases related to 31 U.S.C. § 5321—specifically, whether Section 5321 authorizes the IRS to impose multiple non-willful penalties for the untimely filing of a single accurate FBAR that includes multiple foreign accounts. In United States v. Bittner,[1] the District Court for the Eastern District of Texas held for the taxpayer (i.e., non-willful FBAR penalties should be assessed on a per-reporting basis, not a per-account basis). For more information, see the following Insight Blogs: The Largest Non-Willful FBAR Penalty Case Ever? and Court Strikes Down Largest Non-Willful FBAR Penalty Ever. Now, that case is currently pending with the Fifth Circuit Court of Appeals.
Across the country, in United States v. Boyd,[2] the District Court for the Central District of California came to a different conclusion. The District Court paved the way for the government to extract multiple penalties from a taxpayer based on a single FBAR filing. For more information on that case, see the following Insight Blog: Recent FBAR Case Allows Multiple Penalties for Single Failure to File FBAR. Fortunately for the taxpayer, Ms. Boyd appealed, and the Ninth Circuit Court of Appeals reversed.
FBAR Violations, Generally
Generally, a person must comply with certain records and reporting requirements of foreign financial agency transactions. Those records and reporting requirements are based on Section 5314:
(a) Considering the need to avoid impeding or controlling the export or import of monetary instruments and the need to avoid burdening unreasonably a person making a transaction with a foreign financial agency, the Secretary of the Treasury shall require a resident or citizen of the United States or a person in, and doing business in, the United States, to keep records, file reports, or keep records and file reports, when the resident, citizen, or person makes a transaction or maintains a relation for any person with a foreign financial agency. The records and reports shall contain the following information in the way and to the extent the Secretary prescribes:
(1) the identity and address of participants in a transaction or relationship.
(2) the legal capacity in which a participant is acting.
(3) the identity of real parties in interest.
(4) a description of the transaction.[3]
Any person that violates Section 5314 may be subject to certain civil monetary penalties imposed by the Secretary of Treasury:
(5) Foreign Financial Agency Transaction Violation.—
(A) Penalty authorized.—The Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314.
(B) Amount of penalty.—
(i) In general.—
Except as provided in subparagraph (C), the amount of any civil penalty imposed under subparagraph (A) shall not exceed $10,000.
(ii) Reasonable cause exception.—No penalty shall be imposed under subparagraph (A) with respect to any violation if—
(I) such violation was due to reasonable cause, and
(II) the amount of the transaction or the balance in the account at the time of the transaction was properly reported.[4]
United States v. Boyd[5]
As a quick summary, Ms. Boyd failed to timely file a Report of Foreign Bank and Financial Accounts form (“Form”)—Form TD F 90-22.1—disclosing her foreign financial accounts located in the United Kingdom. The Internal Revenue Service imposed several penalties on Ms. Boyd pursuant to Section 5321(a)(5)(A) based on a single FBAR. The government sued in district court to obtain a money judgment against Ms. Boyd. Both Ms. Boyd and the government moved for summary judgment. The District Court for the Central District of California granted the government’s motion, holding that Section 5321(a)(5)(A) authorized the government to impose multiple non-willful penalties for each foreign bank account required to be listed on the FBAR. Ms. Boyd appealed the district court’s decision. The Ninth Circuit Court of Appeals reversed and held, in part, as follows:
Boyd argues that the statutory language does not support a separate penalty for each account she should have listed on the FBAR she failed to timely file. Rather, according to Boyd, the statutory and regulatory schemes provide that a non-willful, untimely but accurate FBAR filing constitutes a single violation subject to a maximum penalty of $10,000. Boyd also contends that the rule of lenity applies to statutes imposing penalties and, therefore, § 5321 should be construed strictly against the government.
The government argues that multiple non-willful violations may spring from a single late but accurate FBAR, because 31 U.S.C. § 5314 and its implementing regulations create reporting requirements that extend to each foreign account. In the government’s view, Boyd’s reading of § 5321 is incompatible with the statutory scheme as a whole, particularly when viewing the statute’s “reasonable cause” exception and willful penalty provisions, both of which, the government claims, are directed to accounts and not the FBAR form.
We agree with Boyd. The statute, read with the regulations, authorizes a single non-willful penalty for the failure to file a timely FBAR. Accordingly, we reverse the district court and remand for further proceedings consistent with this opinion.[6]
Conclusion
The Ninth Circuit Court of Appeals was ultimately not convinced by the government’s arguments—particularly those related to the regulations and the statute’s overall history and construction. In fact, the Court went so far as to state that the government’s reading of Section 5321 was unreasonable. Accordingly, the Court’s opinion is a positive outcome for taxpayers with multiple foreign accounts (assuming the FBAR violation is unwilful). Moreover, at least for the time being, the Ninth Circuit Court of Appeals has harmonized its rendering of Section 5321 with the Fifth Circuit. Assuming Bittner is affirmed on appeals, at least two circuits will be aligned in their taxpayer-friendly interpretations of FBAR penalties.
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[1] United States v. Bittner, 469 F. Supp. 3d 709 (E.D. Tex. 2020).
[2] United States v. Boyd, No. CV 18-803-MWF (JEMx), 2019 WL 1976472, at *1 (C.D. Cal. Apr. 23, 2019).
[3] 31 U.S.C. § 5314(a).
[4] 31 U.S.C. § 5321(a)(5)(A)-(B).
[5] United States v. Boyd, No. 19-55585, 2021 WL 1113531 (9th Cir. Mar. 24, 2021).
[6] Id. at *2.
