IRS Issues Maximum FBAR Non-Willful Penalty ($3M) – U.S. vs Bittner
The IRS has 4 main options (absent other mitigation factors) for a non-willful FBAR Penalty:
- Penalty Waiver
- One Total FBAR Penalty for the compliance period.
- An annual FBAR Penalty for each year in the compliance period.
- An annual per account FBAR Penalty for each year in the compliance period.
It is rare for the IRS to issue the FBAR penalty #4 above — but it happened to Mr. Bittner.
*Before making any proactive representation to the IRS, you should enagage a Board Certified Tax Lawyer Specialist (who specializes in Offshore Disclosure matters) to best assist you.
Non-Willful FBAR — How Far is Too Far?
How far is too far when it comes to the IRS and non-willful FBAR Penalties? If you ask the IRS, the sky is the limit — but if you ask Alexandru Bittner, he would tell you $3,000,000 in non-willful penalties (with less than $650 in outstanding tax liability) is egregious.
We would agree with Mr. Bittner.
Bittner, the IRS, and a Grain of Salt
For non-Offshore Disclosure Tax Specialist Attorneys who have not reviewed this case, they will try to scare you by authoring articles that say:
“Hey, you better hurry up and hire us ASAP before you end in prison…”
This is not the reality of situation.
5-Important Bittner FBAR Specific Facts
- Taxpayer had upwards of 50+ accounts
- Taxpayer had a CPA
- Taxpayer wrote NO for Schedule B
- When Taxpayer did report the FBAR, they were incomplete
- Taxpayer still escaped Willful Penalties
What is an FBAR?
An FBAR filing is the annual reporting of foreign accounts on an “FBAR” (Report of Foreign Bank and Financial Account Form aka FinCEN 114
What are Non-Willful Penalties for FBAR?
As provided by the IRS:
– For violations occurring after October 22, 2004, a penalty, not to exceed $10,000 per violation, may be imposed on any person who violates or causes any violation of the FBAR filing and recordkeeping requirements. 31 USC 5321(a)(5)(B).
– The penalty should not be imposed if:
– The violation was due to reasonable cause, and
– The person files any delinquent FBARs and properly reports the previously unreported account.
– Examiners have discretion in determining the penalty amount and should use the mitigation guidelines in making their determinations. See the discussion of the mitigation guidelines below. See Exhibit 4.26.16-1. Examiners should take the facts and circumstances of each case into account when determining if a warning letter or penalties that are less than the mitigation guidelines are appropriate. The purpose of FBAR penalties is to promote compliance with the FBAR reporting and recordkeeping requirements.
After May 12, 2015, in most cases, examiners will recommend one penalty per open year, regardless of the number of unreported foreign accounts. The penalty for each year is limited to $10,000. Examiners should still use the mitigation guidelines and their discretion in each case to determine whether a lesser penalty amount is appropriate.
For multiple years with nonwillful violations, examiners may determine that asserting nonwillful penalties for each year is not warranted. In those cases, examiners, with the group manager’s approval after consultation with an Operating Division FBAR Coordinator, may assert a single penalty, not to exceed $10,000, for one year only.
For other cases, the facts and circumstances (considering the conduct of the person required to file and the aggregate balance of the unreported foreign financial accounts) may indicate that asserting a separate nonwillful penalty for each unreported foreign financial account, and for each year, is warranted. In those cases, examiners, with the group manager’s approval after consultation with an Operating Division FBAR Coordinator, may assert a separate penalty for each account and for each year. The examiner’s workpapers must support such a penalty determination and document the group manager’s approval.
In no event will the total amount of the penalties for nonwillful violations exceed 50 percent of the highest aggregate balance of all unreported foreign financial accounts for the years under examination.
What Happened with Mr. Bittner and the IRS?
Included are portions of the U.S. Complaint and Mr. Bittner’s Answer to the IRS seeking $3M in penalties.
Mr. Bittner Resided Overseas and Had No Knowledge of Reporting
Mr. Bittner was a U.S. person who resided in Romania for many years. He had many foreign accounts, and stands firm on the position that he was non-willful when it came to any knowledge of filing the annual FBAR.
“Denies that Bittner intentionally or knowingly failed to disclose that he had foreign bank accounts on his 2007 through 2011 original Form 1040 federal income tax returns filed in May 2012.
Mr. Bittner had Several Foreign Accounts
Prior to May 21, 2012, Mr. Bittner had never filed an FBAR despite having signature authority or control over in excess of 50 accounts from 2007 through 2011 as follows:
|Year||Total Number of Mr. Bittner’s Foreign Accounts|
Mr. Bittner had a CPA who Ill-Advised him about Reporting Foreign Accounts
Mr. Bittner received bad advice about FBAR Requirements.
“Admits, and alleges that the FBARs were prepared by CPA Beckley who incorrectly advised Bittner about his reporting obligations with respect to those FBARs.”
Schedule B was Filed, and Marked “No”
This is one of the biggest problems.
Why? Because Schedule B simply asks if the Taxpayer has foreign accounts. It does not ask type of accounts, number of accounts, when the accounts were opened, etc.
“Mr. Bittner also failed to disclose on his 2007 through 2011 federal income tax returns that he had foreign bank accounts. Bittner included a Schedule B as part of his income tax return for every year from 2007 through 2011.
Yet, Bittner answered “no” to the question on Schedule B regarding whether he had a financial interest in, or signature authority over, a financial account located in a foreign country.”
Mr. Bittner Learned about the FBAR Reporting Subsequent To His Non-Compliance
Mr. Bittner sought to get FBAR Compliant.
“Alleges Bittner did not have any knowledge regarding the existence of FBARs or his obligation to file them until after he returned to the United States from Romania in 2011, and that upon learning of his obligation he promptly took steps to file any required forms. Further alleges that any mistakes made with respect to the FBARs are attributable to the negligence of CPA Beckley.
IRS Sought Maximum Non-Willful Penalties
The IRS can, in some instances, seek a penalty of $10,000 per account, per year.
For violations involving the non-willful failure to report the existence of a foreign account, the maximum amount of the penalty that may be assessed is $10,000 per account. 31 U.S.C. § 5321(a)(5)(B)(i).
As of October 22, 2018, Mr. Bittner owed the United States $2,981,343.56 in penalties assessed under 31 U.S.C. § 5321, including interest and other statutory additions that have accrued, and will continue to accrue, as provided by law.
Getting Into IRS Offshore Compliance
It is human nature to want to avoid making a proactive submission to a government agency such as the IRS before the IRS ever discovers the non-compliance. But, typically that is best path forward.
Moreover, if you realize you are out of compliance and begin researching online, you may begin to feel as though it is hopeless. Some of these attorneys and CPAs make it appear that everyone with unreported assets or income is going to be severely penalized and shipped off to prison.
That is simply not the case.
You have options, and depending on the facts and circumstances of your situation, your options may include the streamlined program, reasonable cause, or the delinquency procedures – which may result in significantly reduced fines and penalties (and may even receive a penalty waiver).
Golding & Golding, A PLC
We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.