A California district court recently ruled that the non-willful penalty for failing to timely file an FBAR is imposed on a per account basis rather than on a per-year basis.
United States citizens that have a financial interest in or signature authority over foreign financial accounts, in Israel or anywhere around the world, must file an FBAR if the collective value of the foreign financial accounts exceeds $10,000 at any time during a calendar year. The due date for filing the FBAR is April 15th of the year immediately following the calendar year being reported, with an automatic extension to October 15th for taxpayers that fail to meet the April 15 due date. The penalty for a non-willful failure to file the FBAR is up to $10,000 per violation.
To illustrate the severity of this new update, in the United States of America v. Jane Boyd, the defendant, Jane Boyd, had a financial interest in and/or signatory authority over 14 financial accounts in the United Kingdom. The 14 U.K. accounts had an aggregate balance in excess of $10,000, thus requiring Boyd to file an FBAR. Boyd did not file an FBAR and, on audit, the IRS assessed 13 separate FBAR penalties, treating each account that was not listed on a timely filed FBAR as a separate non-willful violation (one account was not penalized based on IRS mitigation rules).
Boyd refused to pay the assessment and the US Government filed suit in federal district court. Both parties filed motions for summary judgment. In its motion, the Government argued that the up to $10,000 penalty for non-willful violations related separately to each foreign financial account that should have been listed on an FBAR. Boyd, on the other hand, argued that the penalty for a non-willful failure to file an FBAR cannot exceed $10,000 per calendar year regardless of the number of bank accounts required to have been listed on the FBAR.
The court ruled in favor of the Government and held that the failure to report each of the UK financial accounts is a separate violation that can be penalized. The court based its decision on the statutory language relating to the reasonable-cause exception to the FBAR penalty, which provides: “No penalty shall be imposed … with respect to any violation if …
(I) such violation was due to reasonable cause, and
(II) the amount of the transaction or the balance in the account … was properly reported.”
The court was persuaded by the Government’s contention that Congress made clear that each violation relates to each “account” since Congress used the singular form of the word.
This case clearly illustrates the danger of not filing an FBAR, particularly for someone with multiple foreign accounts.
If you are a US taxpayer with foreign financial accounts and you have not been filing an FBAR, contact our office and we would be happy to discuss your situation and explore your options for returning to compliance, often times with no or substantially reduced penalties.
