Let’s assume you have a non-willful violation of filing the FBAR (Form 114, the Report of Foreign Bank and Financial Accounts). Is the maximum penalty ($10,000) per account or per report? The Circuit Courts of Appeal had split on this question; the Supreme Court decided this issue in Bittner v United States today.
[T]he question before us boils down to this: Does the BSA’s $10,000 penalty for nonwillful violations accrue on a per-report or a per-account basis? Mr. Bittner urges us to agree with the Ninth Circuit and hold that the law authorizes a single $10,000 fine for each untimely or inaccurate report. The government defends the judgment of the Fifth Circuit and asks us to hold that a new $10,000 penalty attaches to each account not timely or accurately disclosed within a report.
That’s the beginning of the Supreme Court opinion in Bittner. Justice Gorsuch’s majority opinion goes back to the days of Form TD F 90-22.1 (the original form number for the FBAR) and notes,
Instructions included with the FBAR form have cautioned that “[a] person who is required to file an FBAR and fails to properly file may be subject to a civil penalty not to exceed $10,000.” IRS, Form TD F 90–22.1, p. 8 (Mar. 2011). An IRS “Fact Sheet” has advised that, “[f]or the FBAR, the penalty may be up to $10,000, if the failure to file is non-willful.” IRS, Offshore Income and Filing Information for Taxpayers with Offshore Accounts, FS–2014–7 (June 2014). Ms. Boyd herself received a similarly worded letter alerting her that “‘[f]or the failure to file [the FBAR] . . . the penalty cannot exceed $10,000.’”…The drafting history of the nonwillful penalty provision undermines the government’s theory too…
On the government’s view, too, those who willfully violate the law may face lower penalties than those who violate the law nonwillfully. For example, an individual who holds $1million in a foreign account during the course of a year but withdraws it before the filing deadline and then willfully fails to file an FBAR faces a maximum penalty of $100,000. But a person who errs nonwillfully in listing 20 accounts with an aggregate balance of $50,000 can face a penalty of up to $200,000. Reading the law to apply non-willful penalties per report invites none of these curiosities; the government’s per-account theory invites them all. [citations omitted; emphasis in original]
There is good news: Logic and common sense prevailed, and:
Best read, the BSA treats the failure to file a legally compliant report as one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per-account basis.
This means the maximum non-willful FBAR violation is now $10,000 per year rather than per account per year. Of course, there’s an easy way of avoiding all penalties: Just file the FBAR!
Tags: FBAR