FBAR Penalty for Non-Willful Violation Applied to Each FBAR, Not Each Account

FBAR Penalty for Non-Willful Violation Applied to Each FBAR, Not Each Account

Penalties for non-willful failure to file FBAR (Foreign Bank Account Reports) apply on a per-form basis, rather than a per-account basis, according to the Ninth Circuit Court of Appeals. This was a case of first impression for the court, and the decision in J. Boyd, CA-9, 2021-1 USTC ¶50,112, is the first on this issue from an appellate court.

FBARs and Civil Penalties

An FBAR is required when a U.S. person has, at any point during the year, financial interests or signature authority over foreign financial accounts with an aggregate value over $10,000. The FBAR is formally known as FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

A U.S. person who fails to file a timely and accurate FBAR may be subject to two civil penalties:

• The penalty for a willful violation is the greater of $100,000, or 50% of the amount of an unreported transaction or the balance of an unreported account. However, the willful violation penalty cannot exceed $100,000.
• The maximum penalty for a non-willful violation is $10,000.

14 Accounts Reported on One Late-Filed FBAR

Jane Boyd had interests in 14 foreign bank accounts, but she failed to file an FBAR for 2010 or report interest and dividends on her 2010 tax return. However, in 2012, she participated in the IRS Offshore Voluntary Disclosure Program, filed a late FBAR for 2010, and amended her 2010 return to include her unreported income from the accounts.

Boyd’s FBAR was accurate, but it was late. The IRS concluded that she had committed 13 non-willful violations of the FBAR reporting requirements (it did not impose the penalty for one account that she used only to fund other accounts). The government sued her for more than $42,000 in civil penalties, plus related interest and other late-filing penalties. She filed suit to challenge the penalty.

Each Form, Not Each Account, is Non-willful Violation

Boyd argued that the FBAR non-willful violation penalty applied to each form, rather than to each account. The district court, and then the Ninth Circuit agreed.

The statute imposed the civil penalties for FBAR violations used different language for the willful and non-willful penalties:

• The willful violation penalty applied to a failure to report a transaction or a report. Thus, it applied to each failure.
• However, the statutory language of the non-willful violation penalty did not clearly apply the penalty to each FBAR or each account.

The court’s task was to figure out what this differing language meant.

Congress Intended Penalty to Apply to Each Form

Congress could clearly provide that a penalty applied to each account, as it had done with the penalty for willful violations. In addition, an amendment to the statute in 2004 added both the non-willful violation penalty and a reasonable cause exception to the willful violation penalty. One condition of the exception was based on the amount of the transaction or the balance of the account. Thus, it also explicitly applied with respect to each transaction or account.

This all meant that Congress could clearly provide language that applied the statute to each transaction or account, but it had not done so with respect to the non-willful violation penalty. Since Congress did not intend for the non-willful violation penalty to apply to each account, it must apply to each form instead.

District Courts Agree—Non-willful Violation Penalty Applies to Each Form

Before the Boyd decision was released, two district courts also concluded that the non-willful violation penalty applies to each FBAR, in opinions issued:

• Z. Kaufman, DC Conn., 2021-1 USTC ¶50,102
• A. Bittner, DC Tex., 2020-2 USTC ¶50,144

By Kelley Wolf, JD, LLM

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