If the government offers you the chance to settle an investigation into a client’s failure to file FBARs (Report of Foreign Bank and Financial Accounts, FinCEN Form 114 (formerly Form TD F 90-22.1)) in exchange for imposition of the non-willful civil FBAR penalty, this may seem like a great deal, but you may be letting your client in for more than you realize. 31 U.S.C. § 5322 provides for imprisonment of up to five years and a fine of up to $250,000 for each criminal failure to file an FBAR, which must be filed by a U.S. person “who has a financial interest in or signature authority over foreign financial accounts” whose aggregate value “exceeds $10,000 at any time during the calendar year.” See 31 C.F.R. § 1010.350(a) & FinCEN Form 114. Under 31 U.S.C. § 3521(a)(5)(C), there is a civil penalty for willful failure to file an FBAR of $129,210, or 50 percent of the amount in the unreported foreign accounts per year. This is decreased to $12,921 per violation under 31 U.S.C. § 3521(a)(5)(B)(i), the non-willful civil penalty provision.
March 05, 2021 Practice Points
Don’t Be Fooled into Accepting the Non-Willful Civil FBAR Penalty Without Being Fully Informed
The government’s new position is that this penalty applies per account not reported on a single annual FBAR, rather than per FBAR form.
By Caroline Rule
But, depending on what jurisdiction you are in, hold on before you jump at the non-willful civil penalty. Until recently, courts recognized, without discussion, that this penalty applied per single untimely filed or unfiled annual FBAR form. See, e.g., Jarnagin v. United States, 134 Fed. Cl. 368, 370 (Fed. Cl. 2017); Whistleblower 22716–13W v. Comm’r, 146 T.C. 84, 90 (2016); United States v. Yermian, 2016 WL 1399519 at *4 (C.D. Ca. Mar. 18, 2016).
The government’s new position, however, is that this penalty applies per account not reported on a single annual FBAR, rather than per FBAR form. (For reasons beyond the scope of this practice point, I believe the government’s position is entirely incorrect!) Very recently, the Ninth Circuit in United States v. Boyd, No. 19-55585 (Mar. 24, 2021)—the first appellate court to address this issue—ruled that the government is indeed incorrect. One judge dissented, however, so the government may file a petition for rehearing en banc.
Some courts have agreed with the government, however, without discussion. See United States v. Ott, 2019 WL 3714491 at *2 (E.D. Mich. Aug. 7, 2019). Other district court opinions that agreed with the government were mainly from California, and so have been overruled by the Ninth Circuit. But, if you are not in the Ninth Circuit, by agreeing to a non-willful civil penalty, you may be agreeing to a penalty, not of $12,921 per year, but of up to $310,104 (24 accounts x $12,921) per year. (One of the difficulties with the government’s new argument is that someone with 25 or more foreign accounts is not required to report each individual account separately on the FBAR.)
Along with the Ninth Circuit, three district court cases have held against the government’s new position. United States v. Bittner, 469 F. Supp. 3d 709 (E.D. Tex. 2020) is particularly well reasoned and was cited repeatedly by the Ninth Circuit in Boyd. The government filed a notice of appeal to the Fifth Circuit on September 17, 2020, Docket No. 20-40612, but the docket is sealed. The other cases ruling against the government are United States v. Giraldi, 2021 WL 1016215 (D.N.J. Mar. 16, 2021) and United States v. Kaufman, 2021 WL 83478 (D. Conn. Jan. 11, 2021). The government does not appear to have appealed in Kaufman. So far, then, it seems that courts are inclined to reject the government’s position, but that is by no means guaranteed.
The lesson from all this is that, unless you are in the Ninth Circuit, you should not accept the government’s offer to settle an FBAR investigation for a non-willful civil FBAR penalty, whether for one or more years, without first determining whether the government intends to follow what now appears to be its consistent position that the penalty applies per account rather than per annual FBAR form. If the government takes this position, depending on the amounts in your client’s foreign accounts, the willful civil FBAR penalty may actually be less of a monetary burden than the non-willful penalty.
Caroline Rule is a partner at Kostelanetz & Fink, LLP, in New York, New York.
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