District Court Rules FBAR Penalties are Assessed by Form

Failing to file an FBAR can result in civil penalties. The civil penalty for non-willful violations is $10,000.

Common consensus was that the penalty would apply for each failure (i.e., for each unfiled or delinquent FBAR). In recent years, however, the government has sought to impose a separate $10,000 for each account.

Fortunately, this nonsense was put to a halt recently in United States v. Bittner.

FBAR penalty statute

§ 5321 of the BSA authorizes the Secretary of the Treasury to penalize United States residents or citizens who violate the regulations implementing § 5314.

The statute states that “the Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314.” And for non-willful penalties, “the
amount of any civil penalty imposed…shall not exceed $10,000.”

The government’s position

The taxpayer in this case was a U.S. citizen who had foreign accounts between 1996-2011. He failed to report those accounts until 2012.

He had between 50 and 60 accounts. In 2017, the IRS assessed a $10,000 penalty for each account over a 5 year period. The amount was a staggering $2,720,000.

The Government advances two primary arguments for why non-willful FBAR violations relate to specific financial accounts rather than to FBAR forms.

First, the Government argues that, because the reasonable cause exception forgives the penalty for a non-willful FBAR violation and references the “balance in the account,” the non-willful violation itself must relate to each account. That is, if the exception applies on an account-by-account basis, then the violation that the exception forgives must also apply on an account-by-account basis.

The Government also argues that, because the penalty for willful violations simply modifies the penalty for non-willful violations, the underlying violation must also be the same.

Court’s ruling

The Court concludes that non-willful FBAR violations relate to each FBAR form not timely or properly filed rather than to each foreign financial account maintained but not timely or properly reported.

The Court refused to add a word into the statute by interpretation. It reasoned that if Congress had intended to insert “account” into the statute, it could have done so. And indeed it did to willful violations.

Congress therefore had a template for how to relate an FBAR reporting penalty to specific financial accounts, and the fact that it did not do so for non-willful violations is persuasive evidence that it intended for the nonwillful penalties not to relate to specific accounts.

Congress used the word “account” or “accounts” over one hundred (100) times throughout the BSA. But remarkably, it omitted any mention of “account” or “accounts” in § 5321(a)(5)(A) and (B)(i). At the end of the day, the Court will not insert words into statutes that are not there.

The Court stated that another virtue of adopting Mr. Bittner’s proposed interpretation of § 5321(a)(5)(A) and (B)(i) is that it would avoid absurd outcomes that Congress could not have intended in drafting the statute.

If the Court were to follow the Government’s reasoning, non-willful FBAR penalties could in some cases be more than willful penalties for the same violation.

Ultimately, the Court declines to find persuasive the outcome in U.S. v. Boyd. In Boyd, the IRS assessed the defendant thirteen (13) separate FBAR penalties after it determined that she had non-willfully failed to report her financial interest in fourteen (14) foreign financial accounts.

The Boyd court, without any explanation, held that “given the relevant language the Government highlights above, the Court determines that the Government has advanced the more reasonable explanation.” Id. The Boyd court did not elaborate on why the Government’s interpretation was the more reasonable one, which is quite unfortunate, as this Court is evaluating the same arguments here as the parties made in Boyd. It goes without saying that the outcome in Boyd is not binding precedent on this Court. But beyond that, the Court respectfully disagrees with the  reasoning and outcome in Boyd.

Court is weary of creating conflicts with its sister district courts—even those in other circuits. It is particularly hesitant to do so when interpreting a federal statute, which theoretically should have uniform meaning nationwide. But the Boyd court’s analysis fails to provide adequate guidance as to how it reached the conclusion it did. After a careful analysis of the statute’s text and purpose, the Court is left with no choice but to respectfully disagree with the outcome in Boyd and reach the opposite conclusion.

Leave a Comment