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How The IRS Penalizes FBAR Non-Filling: $10K Penalty Per Bank Account Not Reported

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The son of Prince Harry and Meghan Markle is seventh in line to the British throne, but because his mother in American, the young prince is automatically a dual citizen and he will not be able to get rid of his U.S. Citizenship for a very long time.

The bad news for Prince Archie is that like all U.S. citizens, he is subject to FBAR filing requirements. In the industry, it is joked that the birth of Archie might signal the birth of a new boutique tax market – cross border royal baby tax compliance!.

 

U.S. vs Boyd Tax Case and FBAR Penalties

Facts of the case

On April 23rd, 2019 the court granted summary judgment to the IRS against a taxpayer named Jane Boyd.  Boyd failed to file an FBAR form for every single account she held in the U.K. The IRs filed for 13 FBAR penalties against her, one for each account.

The IRS penalized Boyd for a separate non-willful violation for each account that was not listed on an FBAR filing. For calculation of the 13 FBAR penalties, the IRS used the highest balance reflected in the account during the 2010 calendar year.

The argument of Jane Boyd

The defendant insisted that the plain language supports her view that the limits applied per year.  She argued that Congress would have made it clear that they meant it to be limited per account, by adding it explicitly into the language of the act; which they did not.

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The view of the court

The language of the FBAR rules now seems to have been unclear.  It limits the penalty for noncompliance to a penalty of not more than $10,000.

The language did not make clear whether the limits applied ‘per year’ or ‘per account’ although consensus had it that it meant per year. The IRS however, reserved the right to apply it on a ‘per account’ basis, which they now did.

In its ruling, the court rejected Jane Boyd’s contention that plain language supported her version.  It agreed that the language might be slightly ambiguous but concluded that the government provided the court with a more reasonable interpretation, which was to uphold the ‘per account’ interpretation.

The view of tax professionals

The majority of tax practitioners disagree with the court’s decision.  In light of the complexity of the tax code in general, the court’s penalty is not only harsh, but it settles ambiguity in favor of the IRS, and not the taxpayer.

Jane Boyd’s actions were not purposeful. In today’s world, multiple foreign bank accounts are becoming more and more common.  Many people with multiple accounts will be affected by the ruling.  However, the decision does seem consistent with growing global trends towards improved financial transparency.

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Action required as a result of this ruling

The severity of the penalties, in this case, is a call to arms. Practitioners will have to make sure that their clients take heed and report all their foreign accounts annually.  Failure to do so can now become a severely detrimental mistake to make.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services.  This article cannot serve as a substitute for such professional services or advice.  Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation.  This article is subject to change at any time and for any reason.

We look forward to helping you get the most benefit from these tax law changes. Please contact us for more information, in FAS CPA & Consultants are ready to assist you with all of your offshore tax matters. You can call us or email at support@fascpaconsultants.com and request a free consultation that will answer your most pressing tax questions.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA is a Certified Public Accountant, specialized in Tax Planning for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution and Offshore Strategies. You can email him to fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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