Thursday, July 13, 2023

IRS To Cease Reducing Non-willful FBAR Penalties Below $10,000 Per Year Based on Bittner


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."  

This decision comes at a time that the US is currently dropping many of its lawsuits for non-willful penalties based upon number of accounts - see: 

Have an FBAR Penalty Problem?  

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