We previously posted on July 22, 2021 that the Increased Willful FBAR Statutory Penalty Overrides Prior Regulations Maximum $100,000 Per Account Penalty, where we discussed that a DC Magistrate Ruled That Willful FBAR Regulations are Invalid, where we discussed that on July 31, 2018 in Norman v. United States, Ct. Fed. Cl. Dkt 15-872, the Court held that the taxpayer Norman was liable for the FBAR willful penalty and this Court rejected the Colliot holding that the FBAR willful penalty was limited to a maximum of $100,000, because the regulations had not been changed to reflect the statutory amendment increasing the maximum FBAR willful penalty and that another DC court has also rejected Colliot & Wadhan and concluded that the Willful FBAR Penalty Not Limited to $100,000 in Rum, (DC FL 8/2/2019) 124 AFTR 2d ¶2019-5113.
Now according to Law360, the 1st Circ. Affirms that there is no $100,000 annual Cap on woman's $3.1M FBAR Penalty and when Congress passed the 2004 amendment "to permit the IRS to impose a penalty in excess of $100,000, the 1987 regulation was superseded because the regulation, as merely a regulation parroting a then-operative statutory maximum, could have no effect once a new statutory maximum had been set," the opinion said.
The IRS Can Collect $3.1 Million For A Woman's Failure To Disclose Her Swiss Account After The First Circuit Joined Other Appeals Courts Friday In Rejecting Assertions That A 1987 Regulation Is Active And Caps Her Penalty At $100,000.
A Massachusetts federal court correctly affirmed the $3.1 million penalties and interest initially assessed by the Internal Revenue Service against Monica Toth for her failure to disclose her Swiss bank account for 2007, the First Circuit said in a unanimous, published opinion. It rejected her argument that a 1987 regulation from the U.S. Department of the Treasury that had capped the penalty amount is still valid, saying a 2004 statutory amendment increased the maximum penalty and takes priority over the decades-old regulation.
When Congress passed the 2004 amendment "to permit the IRS to impose a penalty in excess of $100,000, the 1987 regulation was superseded because the regulation, as merely a regulation parroting a then-operative statutory maximum, could have no effect once a new statutory maximum had been set," the opinion said.
The First Circuit's Decision Joins Those From Other Appeals Courts Determining That The 1987 Regulation Was Essentially Voided By The 2004 Amendment, Despite The Fact That The Older Rule Is Still Technically On The Books. It Also Rejected Toth's Constitutional Challenges To Her Penalty.
The federal government brought Toth to court in 2015 seeking to collect the penalties for her failure to comply with her foreign bank account reporting requirements for 2007, according to court filings. That failure was willful, the U.S. contended, meaning she would be liable for more severe penalties than those who unintentionally fail to disclose their overseas accounts to the IRS.
Toth didn't comply with deadlines in those proceedings or with discovery requests and was sanctioned by the court, filings said. It eventually determined that the 2004 amendment to increase the amount of penalties for violating the foreign bank account reporting requirements, created by the Bank Secrecy Act was in effect, rather than that 1987 regulation capping the willful penalty for failing to file a report of foreign bank account, or FBAR.
That 2004 amendment increased the maximum penalty to $100,000 or half of the value of the bank account, whichever is greater, according to filings. The agency's initial $2.1 million assessment was half of the $4.3 million balance of her UBS account when she committed the FBAR violation, according to filings.
The First Circuit on Friday affirmed that penalty, finding that the 1987 regulation was "clarifying rather than substantive," meaning the rule wasn't intended to depart from whatever Congress intended to be the maximum penalty at any given point in time, according to its opinion. The rule was instead intended to replicate whatever Congress intended the penalty to be, the appeals court said.
The First Circuit also cited a recent Second Circuit decision that also found the 1987 regulation was no longer in effect, saying that Treasury didn't even have the authority to issue a regulation setting a more modest penalty than the one dictated by Congress.
Toth's constitutional challenges to the penalty amount also don't pass muster, the First Circuit found. That penalty doesn't count as a fine that can be challenged under the Eighth Amendment's excessive fines clause, according to the court, which also tossed her due process arguments under the Fifth Amendment.
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