Fifth Circuit Reverses FBAR Judgment, Awards Penalties Per Account
Unfortunately, just as Taxpayers, Tax Practitioners, and Attorneys were getting the feeling that courts across the nation were going to limit non-willful FBAR Penalties to a per form amount — and not a per account, per form amount — the Bittner Court in the Fifth Circuit Court of Appeals threw a monkey wrench into the analysis and reversed and remanded back to the District Court. Rather than accept a per form penalty, the court in Bittner remanded the case in order to expand Foreign Bank and Financial Account noncompliance penalties for FBAR to a per account, per form basis — and not just a per form basis. Thus, for example, if a Taxpayer had 10 accounts per year, over a six-year compliance period — they could get hit with a $10,000 penalty per account per year for six years — totaling 60 penalties. Considering that non-willful FBAR penalties are relatively new and less than 20 years old (2004) — it seems like overkill to let the IRS wield such power in a non-willful scenario — but here is what the court said:
Bittner Court Holding
We affirm the denial of Bittner’s reasonable-cause defense but reverse with respect to application of the $10,000 penalty. We hold that each failure to report a qualifying foreign account constitutes a separate reporting violation subject to penalty.
The penalty therefore applies on a per-account, not a per-form, basis. On this point, we part ways with a recent Ninth Circuit panel, which split on this issue. See United States v. Boyd, 991 F.3d 1077, 1080–86 (9th Cir. 2021) (adopting per-form interpretation). But see id. at 1086–91 (Ikuta, J., dissenting) (taking per-account view).1 Accordingly, we affirm in part, reverse in part, vacate, and remand.
Here is the full Bittner Ruling.
What does this Mean for FBAR Penalties?
This means that in the 5th circuit, a taxpayer who was non-willful and is unable to establish reasonable cause may be subject to a per form, per year penalty for FBAR noncompliance.
FBAR Amnesty Programs
The FBAR Amnesty Programs are programs developed by the Internal Revenue Service to assist Taxpayers who are already out of compliance for non-reporting.
Some of the more common programs include:
Can I Just Start Filing FBAR This Year Instead?
No, unless the current year is the first year you had an FBAR Reporting requirement. If you had a prior year reporting requirement, but only begin to start filing in the current year (Filing Forward) it is illegal. In the world of offshore disclosure, this is referred to as an FBAR Quiet Disclosure. The IRS has warned taxpayers that if they get caught in an FBAR Quiet Disclosure situation, it may lead to willful penalties and even a criminal investigation by the IRS Special Agents.
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