In a case of first impression, the Court of Appeals for the Ninth Circuit ruled that the IRS can impose only one non-willful penalty under 31 USC 5321(a)(5)(A) when an untimely, but accurate, Report of Foreign Bank and Financial Accounts (FBAR) is filed, no matter the number of foreign financial accounts. The circuit court reversed and remanded a district court’s judgment in an action for tax penalties and interest involving an individual’s failure to report foreign financial accounts.
The taxpayer had fourteen financial accounts in the United Kingdom from which she received interest and dividends. However, the taxpayer failed to report the interest and dividends from these accounts on her tax return for the tax year at issue or disclose the accounts to the IRS. Subsequently, the taxpayer participated in the IRS’s Offshore Voluntary Disclosure Program and submitted an FBAR listing her multiple foreign accounts. The taxpayer also amended her tax return for the tax year at issue to include the interest and dividends from those accounts.
The IRS concluded that the taxpayer had committed thirteen non-wilful violations of the reporting requirements—one for each account she failed to timely report for the tax year at issue—and sued the taxpayer for civil penalties. The district court agreed with the government that the relevant statutes and regulations authorized the IRS to assess one penalty for each non-reported account.
The Ninth Circuit examined the statutory and regulatory scheme for reporting a relationship with a foreign financial agency under 31 USC 5314, and found that it authorizes a single non-willful penalty for the failure to file a timely FBAR. The court held that under the statutory and regulatory scheme, the taxpayer’s conduct in failing to timely file the FBAR amounted to one non-willful violation.
The government argued that, based on the statutory scheme as a whole and legislative intent, the amount of the penalty can be assessed on a per-account basis. The court was not persuaded: it found nothing in the statute or regulations to suggest that the penalty can be calculated on a per-account basis for a single failure to file a timely FBAR that is otherwise accurate.
Another 2021 case from the U.S. District Court of New Jersey, U.S. v. Giraldi, also upheld the per FBAR due penalty assessment, not the IRS position of per account.