Non-Willful FBAR Penalties: Per Form or Per Account
Federal law requires certain U.S. persons to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”) if the aggregate value of such accounts exceeds $10,000 at any time during the tax year. Section 1010.350(a) of Title 31 of the US Code states that every “United States person having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country shall report such relationship” on an annual basis.
Section 5321 of Title 31 provides for civil penalties for non-willful FBAR violations. Such penalties cannot exceed $10,000. Unfortunately, Title 31 does not define whether a “violation” is the failure to file the FBAR form, which would be one violation, or the failure to report an account on the form, which could be multiple violations based on the number of accounts reports on the FBAR.
The IRS has taken the position that a “violation” is the failure to report an account. Thus, even if an FBAR has been filed, failure to include an account on the form would be considered a violation. Taxpayers have disagreed with this position and filed suit in several District Courts. In most cases, the District Courts have agreed with the taxpayers but a decision in the U.S. District Court for the Southern District of Florida (United States v. Solomon, No. 9:20-cv-82236 (Oct. 2021)) found for the IRS.
Two of the District Court cases were appealed to their respective Circuit Courts, which recently rendered decisions. In United States v. Boyd, 991 F.3d 1077 (Mar. 2021), the 9th Circuit held that the non-willful FBAR penalties applied per form, not per account. However, in United States v. Bittner, No. 20-40597 (Nov. 2021), the 5th Circuit held that the non-willful FBAR penalties apply per account, not per form.
With the uncertainty created by the conflicting views in the courts, it will be imperative to make sure that not only is an FBAR filed, but that all accounts have been accounted for when filing the FBAR form. Note that accounts are not required to be separately listed on the FBAR form if the taxpayer has a financial interest in 25 or more accounts, which raises the question of how penalties would be assessed if the taxpayer did not provide the correct number of accounts on the FBAR form. The best practice would be to include an attachment to the FBAR form that lists all of the financial accounts.
For questions about FBARs or other foreign financial accounts or assets, contact a member of the Cherry Bekaert International Tax team.