Under 31 USC § 5314(a), every U.S. person that has a financial interest in, or signature or other authority over, a financial account, or accounts, in a foreign country must report the account, or accounts, to IRS annually on a FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR) if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year and one FBAR is used to report multiple accounts.
The amount determined under 31 USC § 5321(a)(5)(C) is:
(i) in the case of a violation involving a transaction, the amount of the transaction, or
(ii) in the case of a violation involving a failure to report the existence of an account or any
identifying information required to be provided with respect to an account, the balance in
the account at the time of the
violation. (
In this case the taxpayer was
born in Romania. He moved the U.S. in the early 1980’s and became a naturalized
U.S. citizen in 1987. In 1990, Taxpayer returned to Romania and resided there
until returning to the U.S. in 2011. During that time, Taxpayer was a
successful businessman and investor, maintaining signature authority or control
over multiple accounts.
Taxpayer asserts that while he lived in Romania, he had no knowledge of FBAR requirements. He emphasizes that after returning to the U.S. and learning about the requirements, he acted promptly to comply, and that any mistakes made were the result of his CPA’s gross negligence.
The government contends that from 2007 through 2011, Taxpayer failed to report more than 50 accounts. The government assessed $10,000 per account per violation in arriving at almost $3 million in penalties and accruals. On the other hand, Taxpayer argues that the statutory penalty applies per year.
The United States District Court for the Central District of California, in United States v. Boyd, held that the IRS correctly assessed a taxpayer, who non—willfully failed to timely report her 14 accounts in the U.K., on a per account basis. In other words, each account not listed on a timely filed FBAR was a non—willful violation; thus, more than one FBAR violation per year may be assessed, according to the court.
The Internal Revenue Manual (IRM) language also arguably supports a “per year” approach, providing that the FBAR “must be filed for each calendar year that the person has a financial interest in, or signature authority over, foreign financial account(s) whose aggregate balance exceeds the $10,000 threshold at any time during the year.” and, per the IRM, most examiners will impose one penalty per year for non—willful violations.
The district court looked to the language of
the willful penalty and found that 31 USC § 5321(a)(5)(D) mentions
"account" three times. The court said, "Congress clearly knew
how to make FBAR penalties account specific."
The court said since "account" is
not mentioned in 31 USC § 5321(a)(5)(B)(i), the non-willful
penalty only applies to the violation of the FBAR rules. The FBAR rules only
talk about filing a return. Thus, the non-willful penalty only applies to the
return, not to the number of accounts not mentioned on the return.
The district court recognized that Boyd came
to an opposite conclusion. But the court found that the Boyd court's
analysis fails to provide adequate guidance as to how it reached the conclusion
it did. The district court also said that Boyd is in a
different district in a different circuit.
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