Ninth Circuit Holding Caps Assessed Non-Willful FBAR Penalty

Ninth Circuit Holds Non-Willful FBAR Penalty Assessed per Form

Ninth Circuit Holding Caps Taxpayer Non-Willful FBAR Penalty

Ninth Circuit Court of Appeals Limits FBAR Penalty: The Ninth Circuit Court of Appeals in Boyd issued a great ruling for Taxpayers who are considered non-willful in their FBAR noncompliance and possibly subject to penalties. In US v. Boyd, the Court disagreed with the “per violation” standard assessed by the IRS and US Government – and instead limited the non-willful FBAR Penalty to a “Per Form” Penalty. This follows a recent trend set by other courts in Girladi and Kaufman.

 Let’s review the basics of US vs. Boyd.

US v Boyd (D.C. No. 2:18-cv-00803- MWF-JEM)

There are two very important facts to consider when reviewing this Court’s opinion:

• Boyd Previously made a submission to OVDP (Before the stand-alone Streamlined Procedures were available) so she proactively sought to get into compliance; and
• Her late filed FBARs were accurate.

Therefore, there was no issue that Boyd wanted to get compliant, and that she took the necessary step to get into compliance. Had she been audited before submitting to OVDP, the outcome may have been different.

We have reproduced key parts of the ruling below:

What is the Boyd Case About?

• • • “The relevant facts are undisputed. Jane Boyd, 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.

      Boyd 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. In 2012, Boyd asked to participate in the IRS’s Offshore Voluntary Disclosure Program—a program that allows taxpayers to voluntarily report undisclosed offshore financial accounts in exchange for predictable and uniform penalties.

    • After the IRS accepted Boyd into the program, she submitted, in October 2012, an FBAR listing her fourteen foreign accounts for 2010 and amended her 2010 tax return to include the interest and dividends from these accounts. Boyd was granted permission by the IRS to opt out of the program in 2014.

    • The IRS then examined Boyd’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 late-submitted FBAR was complete and accurate. The IRS concluded that Boyd’s violations were non-willful, and it assessed a total penalty of $47,279. 

Non-Willful FBAR Noncompliance Penalties at Issue

• • • “This case presents an issue of first impression for this court. We must decide whether 31 U.S.C. § 5321 authorizes the IRS to impose multiple non-willful penalties for the untimely filing of a single accurate FBAR that includes multiple foreign accounts.

    • Specific Issue as Framed by the Court

    • The salient question is: Did Boyd commit one non-willful violation for her single failure to timely file the FBAR, or did she commit thirteen (or fourteen) non-willful violations for her single failure to timely file an FBAR listing her fourteen relevant accounts?”

Government Seeks Penalties Per Account and not Per Form

• • • “The government argues that multiple non-willful violations may spring from a single late but accurate FBAR, because 31 U.S.C. § 5314 and its implementing regulations create reporting requirements that extend to each foreign account.

    • In the government’s view, Boyd’s reading of § 5321 is incompatible with the statutory scheme as a whole, particularly when viewing the statute’s “reasonable cause” exception and willful penalty provisions, both of which, the government claims, are directed to accounts and not the FBAR form.”

Non-Willful FBAR Penalties are Relatively New

• • • “Before 2004, § 5321 only penalized willful violations. See 31 U.S.C. § 5321(a)(5) (2004). Congress amended the statute to allow for non-willful penalties and did so by establishing a new generally applicable penalty provision, 31 U.S.C. § 5321(a)(5)(B), while placing willful violations and the associated penalty provision in different subparagraphs, 31 U.S.C. § 5321(a)(5)(C)–(D). See American Jobs Creation Act of 2004, Pub. L. No. 108-357, § 821(a), 118 Stat. 1418, 1586.

    • The new penalty provision in § 5321(a)(5)(B)(i) does not expressly authorize (or forbid) multiple non-willful penalties on a per account basis for a late-filed but accurate FBAR—“[T]he amount of any civil penalty imposed [for a non-willful violation of any provision of § 5314] . . . shall not exceed $10,000.” 31 U.S.C. § 5321(a)(5)(B)(i).

    • The willful-violation provisions, on the other hand, are not silent as to multiple account penalties; they state that a penalty amount is determined “in the case of a violation involving a transaction, [by] the amount of the transaction, or . . . 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, [based on] the balance in the account at the time of the violation.” 31 U.S.C. § 5321(a)(5)(D)(i)–(ii).”

Ninth Circuit Caps Taxpayer Penalties to a “Per Form” Standard

• • • “We agree with Boyd.

    • The statute, read with the regulations, authorizes a single non-willful penalty for the failure to file a timely FBAR. Accordingly, we reverse the district court and remand for further proceedings consistent with this opinion.”

Case Holding

• • • “Boyd was required to file one FBAR for the 2010 calendar year by June 30, 2011. She failed to do so. Accordingly, she committed one violation, and the IRS concluded that her violation was non-willful. Thus, the maximum penalty for such a violation “shall not exceed $10,000.”

    • The non-willful penalty provision allows the IRS to assess one penalty not to exceed $10,000 per violation, and nothing in the statute or regulations suggests that the penalty may be calculated on a per-account basis for a single failure to file a timely FBAR that is otherwise accurate.

    • Thus, the IRS may impose only one penalty not to exceed $10,000 for Boyd’s single failure to file a timely FBAR.”

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