The Recent FBAR Case Allows Multiple Penalties for Single Failure to File FBAR

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Jason B. Freeman

Jason B. Freeman

Managing Member

214.984.3410
jason@freemanlaw.com

Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine , a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

Recent FBAR Case Allows Multiple Penalties for Single Failure to File FBAR

A recent FBAR case held that non-willful failures to report foreign bank accounts can give rise to a $10,000 penalty per account—per year.  In United States v. Boyd, a federal district court upheld the IRS’s assessment of multiple penalties for non-willful failures to file a FBAR.  A $10,000 penalty per account creates substantial exposure for taxpayers with multiple unreported accounts.  (Taxpayers, of course, face even steeper penalties for willful violations – see The Willful FBAR Penalty)

 

In the Boyd case, the taxpayer (Boyd) had or controlled 14 financial accounts outside the United States.  Although these accounts generated interest and dividends, Boyd failed to report the interest and dividends on her federal income tax return and failed to otherwise report the accounts to the IRS.

Several years later, Boyd applied to participate in the IRS’s Offshore Voluntary Disclosure Program (“OVDP”).  As part of that process, Boyd submitted a delinquent FBAR and amended her 2010 federal income tax return to reflect the interest and dividends she received from the accounts.

But later, Boyd requested to opt out of the OVDP, and the IRS agreed.  After opting out of the OVDP, the IRS examined Boyd’s income tax returns for the years for which no FBAR was submitted.  In addition, the IRS determined that it would assert FBAR penalties against Boyd.

In doing so, the IRS assessed thirteen separate FBAR penalties—treating each account that was not listed on a timely-filed FBAR as a separate non-willful violation.

31 U.S.C. 5321(a)(5)(A) provides for a civil money penalty against “any person who violates, or causes any violation of, any provision of section 5314.” Id.  Title 31 further provides that “the amount of any civil penalty imposed under subparagraph (A) [for non-willful violations] shall not exceed $10,000.” Id. § 5321(a)(5)(B)(i).

Section 5314(a) provides that “the Secretary of the Treasury shall require [U.S. citizens and others] … to keep records, file reports, or keep records and file reports, when the [U.S. citizen or other person] makes a transaction or maintains a relation for any person with a foreign financial agency.” Id.  The regulations under section 5314(a) provide that a United States person is required to report annually any “financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country” exceeding a specified threshold on a FBAR form. 31 C.F.R. § 1010.350(a); 31 C.F.R. 1010.306; 31 U.S.C. § 5314(a).

In 2004, the Treasury Secretary delegated to the IRS the authority to assess and collect FBAR penalties. See 31 C.F.R. § 1010.810(g). These penalties come in two types: willful or non-willful. A penalty for a non-willful violation is limited to $10,000. 31 U.S.C. § 5321(a)(5)(B)(i). The IRS maintains that a penalty for a willful violation can be the greater of $100,000 or 50% of the balance in the account at the time of the violation. 31 U.S.C. § 5321(a)(5)(C)-(D).  (This position, however, has been called into question – see The Colliot Decision: The Government Loses an FBAR Case that May Change International Reporting Penalties)

The penalty at issue in Boyd was the $10,000, non-willful variety. The case stands for the proposition that failing to file a single FBAR form can give rise to multiple penalties—13 separate penalties of $10,000 each in Boyd’s case.  Boyd is a reminder that taxpayers with unreported foreign accounts face steep potential penalties.  Taxpayers with unreported accounts, however, often have options to minimize—and in many cases even eliminate—their penalty exposure, and should consider contacting legal counsel as soon as possible to discuss those options, which may be time sensitive.

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