This article applies to those who have been assessed the $10,000 non-willful penalty for failure to file a FinCEN Report 114 and may be of interest to any U.S. person who has a financial interest in or signature authority over a financial account or accounts in a foreign country that exceeds $10,000 USD at any time during the calendar year.
Abstract: In an important development in the much-discussed case of U.S. v. Boyd, the U.S. Court of Appeals for the Ninth Circuit recently reversed a district court’s decision. This article takes a closer look at the case, which addresses whether a non-willful FBAR penalty should apply per FBAR form or per account reported on that form.
U.S. v Boyd, No. 19-55585, March 24, 2021 (U.S. Ninth Circuit); U.S. v. Bittner, No. 4:19-cv-415, June 29, 2020 (Eastern District of Texas); U.S. v. Kaufman, No. 3:18-CV-00787 (KAD), Jan. 11, 2021 (District of Connecticut); U.S. v. Giraldi, No. 20-2830, March 16, 2021 (District of New Jersey)
In the Courts: Ninth Circuit Reverses Decision on FBAR Penalty
In an important development in the much-discussed case of U.S. v. Boyd, the U.S. Court of Appeals for the Ninth Circuit recently reversed a district court’s decision.
The question at issue: Does the $10,000 non-willful penalty for failure to file a FinCEN Report 114, “Report of Foreign Bank and Financial Accounts” (FBAR) apply per FBAR form or per the number of financial accounts required to be reported on that form?
Under the Internal Revenue Code, every U.S. person who has a financial interest in or signature or other authority over a financial account or accounts in a foreign country must report the account(s) annually using an FBAR if the aggregate value of the foreign financial account(s) exceeds $10,000 at any time during the calendar year. One FBAR is used to report multiple accounts.
The U.S. Secretary of the Treasury may impose a civil money penalty on any person who violates or causes a violation of the FBAR filing requirements. The maximum amount of the penalty depends on whether the violation was non-willful or willful.
The maximum penalty for a non-willful violation is $10,000. In the case of any person willfully violating, or willfully causing a violation, the maximum penalty is the greater of $100,000 or 50% of an amount determined under specific tax rules.
District Court’s Decision
In Boyd, the plaintiff held a financial interest in multiple financial accounts in the United Kingdom during 2010. She was required to report these accounts on a timely filed FBAR but didn’t.
The IRS found that she’d committed 13 non-willful violations of the FBAR reporting requirements — that is, one for each account she’d failed to report. The IRS assessed a penalty totaling more than $10,000 for the violations. The plaintiff challenged the penalty.
The district court hearing the case held that the penalty for a non-willful FBAR violation relates to each account required to be shown on the FBAR. Thus, the court declared that the IRS could impose the statutory maximum penalty of $10,000 for each of the taxpayer’s 13 accounts that she should have reported on one FBAR.
Appeals Court’s Reasoning
Following the district court’s decision in Boyd, three other district courts came to the opposite conclusion in three other cases: Bittner, Kaufman and Giraldi. They each found that the $10,000 non-willful penalty applies only to the FBAR form itself, not the number of accounts required to be shown on an FBAR.
The Ninth Circuit applied reasoning similar to that of the other three jurisdictions and reversed the decision of the Boyd district court. The appeals court also found that the FBAR non-willful penalty applies per form, not per account. Therefore, “the maximum penalty for such a violation shall not exceed $10,000,” stated the court.
A Continuing Trend
The Ninth Circuit’s finding continues the trend against “stacking” non-willful penalties against taxpayers who fail to disclose multiple foreign financial accounts on a single FBAR. Nonetheless, it’s better to properly handle the filing of this form rather than go to court to defend yourself against an onerous penalty. Consult your tax advisor for help with an FBAR if you’re required to file one.
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