According to Law360, the Internal Revenue Service will no longer reduce the penalty for taxpayers who non-willfully fail to file Reports of Foreign Bank and Financial Accounts, according to an agency memorandum.
The IRS has eliminated mitigation provisions for calculating non-willful FBAR penalties following the U.S. Supreme Court's judgment earlier this year in Bittner v. U.S limiting those fines to $10,000 for each year an FBAR isn't properly filed instead of $10,000 for each account undisclosed, according to the memo, published Tuesday and dated July 6.
The memo sets the nonwillful FBAR penalty at $10,000 but notes that the IRS' internal guidance for calculating willful FBAR penalties is unaffected by the change stating:
"While the Court’s holding pertained only to the calculation of penalties for non-willful reporting violations, the Court noted:
The statute then adds an even more specific rule for a subclass of willful violations-those that involve “a failure to report the existence of an account or any identifying information required to be provided with respect to an account.” In cases like that, the law authorizes the Secretary to impose a maximum penalty of either $100,000 or 50% of the “balance in the account at time of the violation”-whichever is greater. So here, at last, the law does tailor penalties to accounts.”
Penalties for willful reporting violations apply per-account and guidance in IRM 4.26.16 regarding the calculation of penalties for willful reporting violations remains unchanged. The Court’s decision does not address FBAR recordkeeping violations"
“Violation” for purposes of 31 USC 5321(a)(5) is not defined in the statute. The IRS has historically interpreted “violation” to mean the failure to report a given account properly. The Supreme Court, however, held that the failure to file a legally compliant FBAR constitutes a single violation, regardless of the number of unreported or improperly reported accounts."
We personally don't see how the penalty for willful failure to file an FBAR, which Statutorily allows for penalty of up to 50% of the "balance in the account at the time of the violation, can be used as an analogy for non-willful penalty which is per year and does not Statutorily provide for $10,000 penalty per account.
We Think That Taxpayers Should Challenge Subsequent
Non-willful Penalties, Based On This Memo, As It's Not Statutorily Supported by the Nonwillful Penalty
Provisions of 31 USC 5321(a)(5)!
This decision is also inconsistent as it comes at a time that the US is currently dropping many of its lawsuits for non-willful penalties based upon number of accounts - see:
- Yes Yet Another FBAR Penalty Being Dropped Based Upon Bittner
- Another In a Series of Taxpayer FBAR Penalty Being Reduced Based on Bittner
Read more at: Tax Times blog
