Tuesday, April 7, 2015

Court Approves FBAR Penalty and Raises Important Administrative and Constitutional Law Issues

According to Procedurally Taxing - There are only a handful of court cases considering the procedures and substance relating to penalties imposed for failing to file a foreign bank account reporting form, the notorious FBAR.

As most observers know, IRS has been active in offshore compliance, and the penalties for failing to file the FBAR can add up. Despite the attention to the issue, the procedures associated with the imposition of civil penalties are not well-established. This is in part due to the penalties’ provenance in the Bank Secrecy Act and Title 31, rather than the Internal Revenue Code and Title 26.

Last week, in response to a summary judgment motion, in Moore v US the district court for the western district of Washington reviewed the procedures and standards that apply to penalties for non-willful failure to file the FBAR.

In the opinion, the district court held that the taxpayer violated the law by not filing FBARs and did not have reasonable cause for the nonfiling but that the record before it was inadequate for it to determine whether the amount of the penalties was appropriate.

The opinion is interesting for many reasons, including its extensive discussion of the Administrative Procedure Act and the constitutional challenges Moore raised in opposition to the IRS’s assessing FBAR penalties. In addition, the opinion discusses the merits of Moore’s reasonable cause defense, a defense with considerable law in the context of civil tax penalties but not much law in the world of FBAR penalties.

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