The Tax Times: TC Holds That FBAR Penalties Are Not Taxes and Are Not Subject to Collection Due Process Rights

Wednesday, December 4, 2024

TC Holds That FBAR Penalties Are Not Taxes and Are Not Subject to Collection Due Process Rights

In Jenner v. Commissioner, 163 T.C. No. 7 (2024), the United States Tax Court ruled on the applicability of Collection Due Process (CDP) requirements to Foreign Bank Account Reporting (FBAR) penalties. The case, decided on October 22, 2024, involved Stephen C. Jenner and Judy A. Jenner as petitioners against the Commissioner of Internal Revenue.

The Jenners were assessed FBAR penalties for allegedly failing to timely file foreign bank account reports from 2005 to 2009.

The Treasury's Bureau of the Fiscal Service informed the Jenners that funds would be withheld from their monthly Social Security benefits to satisfy these debts.

The Jenners requested a CDP hearing, which was denied by the IRS.

The Tax Court held that FBAR penalties are not subject to the requirements of I.R.C. §§6320 and 6330. The court ruled that it lacked jurisdiction in this case.

The Tax Court's decision was based on several key factors:

Nature of FBAR Penalties: The court determined that FBAR penalties are not taxes imposed by the Internal Revenue Code.
Scope of CDP Requirements: Sections 6320 and 6330 of the Internal Revenue Code, which govern CDP rights, apply specifically to unpaid taxes.
Jurisdiction: Since FBAR penalties are not taxes, the Tax Court concluded it did not have jurisdiction over the case.
Collection Mechanism: The court noted that the collection mechanism for FBAR penalties is not lien or levy, which are the methods typically subject to CDP procedures.

Query can the IRS execute a levy on their Social Security Income without first going the District Court to obtain an FBAR judgment?

This ruling clarifies the distinction between tax penalties and FBAR penalties in terms of procedural rights. It emphasizes that FBAR penalties, while administered by the IRS, are not subject to the same collection due process protections as tax liabilities under the Internal Revenue Code.

The decision limits the avenues for contesting FBAR penalty collections and underscores the separate legal framework governing these penalties compared to regular tax assessments.

You have to also ask yourself whether this District Court has the power to enjoin the government from enforcing the CTA, in that it only has jurisdiction over the parties who filed. So, is in enjoining the enforcement against everyone except the parties, within this District Court's jurisdiction?

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