Following a string of other similar decisions, the Ninth Court Court of Appeals in United States v. Boyd finds that the non-willful FBAR penalty is assessed by form and not by account. In doing so, it reversed the lower court’s decision. This ruling is especially significant because it is the first appellate court to examine this issue.
Background of the case
Taxpayer, an American citizen, had a financial interest in fourteen financial accounts in the United Kingdom with an aggregate balance in excess of $10,000.
The amounts in these accounts significantly increased between 2009 and 2011 after her father died in 2009 and she deposited her inheritance.
Taxpayer received interest and dividends from these accounts and did not report the interest and dividends on her 2010 federal income tax return or disclose the accounts to the IRS.
Taxpayer then entered the now-discontinued OVDP program in 2012. With the permission of the IRS, Boyd opted out of the program in 2014.
Clients who opt out of the OVDP are typically subjected to an audit. The IRS then examined Taxpayer’s income tax return and concluded that she committed thirteen FBAR violations – one violation for each account she failed to timely report for calendar year 2010.
The IRS found that the Taxpayer’s violations were non-willful and assessed a total penalty of $47,279. In 2018, the government sued Taxpayer seeking to obtain a judgment against her for the $47,279 plus additional late-payment penalties and interest.
Taxpayer argued before the district court that she had committed only one non-willful violation, not thirteen, and that the maximum penalty allowed by the statute for that single non-willful violation was $10,000.
The district court sided with the government on this issue and Taxpayer subsequently appealed the decision.
Appellate court’s findings
Essentially the Court finds that the late filing of an FBAR is a single violation of the underlying regulation C.F.R. § 1010.306 which requires the timely filing of an FBAR. Her FBAR for calendar year 2010 was due by June 30, 2011, and she did not file it until 2012.
Interestingly, the Court seems to leave the door open to multiple non-willful FBAR penalties where an inaccurate FBAR is filed in violation of C.F.R. § 1010.350 which is the regulation that delineates the content of the report (the FBAR) required by § 5314.
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