The Tax Court has concluded, Whistleblower 22716-13W, (2016) 146 TC No. 6, that penalties for failing to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (Foreign Bank Account Report or FBAR) under 31 U.S.C. sec. 5321(a) are not “additional amounts” for purposes of the $2,000,000 nondiscretionary award threshold under Code Sec. 7623(b)(5)(B). Accordingly, FBAR payments must be excluded in determining whether the $2,000,000 amount in dispute requirement has been satisfied. Whistleblower 22716-13W, (2016) 146 TC No. 6.Under Code Sec. 7623(b), individuals are entitled to receive an award of 15% to 30% (or lower amounts in cases of less substantial contribution) of the collected proceeds resulting from an action based on information provided by the whistleblower in any action:
- . . . against any taxpayer, but in the case of any individual taxpayer, only if such individual's gross income exceeds $200,000 for any tax year subject to such action, (Code Sec. 7623(b)(5)(A)) and
- . . . if the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2 million. (Code Sec. 7623(b)(5)(B))
Therefore, a whistleblower is eligible for a nondiscretionary award under Code Sec. 7623(b) only “if the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000.”
The Whistleblower ("WB") filed Form 211, Application for Award for Original Information, with the IRS Whistleblower Office (Office). On the application, "WB" asserted that he was cooperating with the Department of Justice and the IRS Criminal Investigation Division in connection with the ongoing investigation of two Swiss bankers, Martin Lack and Renzo Gadola, and that his cooperation had led to, and would lead to more, information about these bankers' involvement in tax evasion by U.S. persons having undeclared offshore financial accounts.
"WB" filed another claim for an award after he learned that a taxpayer who dealt with Gadola had agreed to pay a substantial penalty in conjunction with a guilty plea for filing a false tax return, an FBAR penalty substantially in excess of $2,000,000, and restitution. This taxpayer admitted that Gadola had helped him open Swiss bank accounts to conceal his income and assets from U.S. authorities.
"WB" claimed entitlement to an award based upon the aggregate amount paid by the taxpayer, including the FBAR penalty, given his alleged involvement in Gadola's arrest, which allegedly led to the taxpayer's arrest.
The IRS informed "WB" that it had received a legal opinion from the IRS Office of Chief Counsel concluding that FBAR penalty payments, because they are made pursuant to Title 31 rather than Title 26 of the U.S. Code, are not collected proceeds eligible for a nondiscretionary award under Code Sec. 7623(b)(1).
The Tax Court held that the term “additional amounts” as used in Code Sec. 7623(b)(5)(B) means the civil penalties set out in chapter 68, subchapter A, of the Internal Revenue Code, captioned “Additions to the Tax and Additional Amounts.” Rejecting the argument that the term “additional amounts” as used in Code Sec. 7623(b)(5)(B) means, “other sums of money,” the Court noted that it has consistently held that “additional amounts,” particularly when it appears in a series that also includes “tax” and “additions to tax,” is a term of art that refers exclusively to the civil penalties enumerated in chapter 68, subchapter A.
Accordingly, the Tax Court concluded that FBAR civil penalties aren't “additional amounts” within the meaning of Code Sec. 7623(b)(5)(B). Such amounts aren't “assessed, collected...[or] paid in the same manner as taxes” under Code Sec. 6665(a)(1). As a result, FBAR payments must be excluded in determining whether the $2,000,000 amount in dispute requirement has been satisfied.
Read more at: Tax Times blog
