FBAR Penalty Stories

Joe Kristan has a nice little post about the absurd FBAR penalties:

Another inspiring tale of international tax enforcement from Phil Hodgen:

I’m 33 and single, I’ve been living in France for 13 years, am naturalized French (and born American). I had NO idea about these reports until I started searching on tax information for stock options I need to cash due to leaving a company. The worst part is I’m seriously considering revoking my American citizenship over it (it being thousands of dollars) – and as a proud American, it’s breaking my heart.

The glory of the tax law is that it has the same $10,000 fine (or half the account balance, if greater) for innocents abroad who don’t know about Form TD F 90.122 as it does for international money-launderers. If you don’t execute jaywalkers, how can you ever slap the wrists of multi-million dollar tax cheats?

These penalties and their knee-jerk enforcement are absolutely ridiculous.

I have an eighty year old client who inherited several foreign bank accounts. She had no idea that she was required to file an annual information return reporting the existence of those accounts. When she became aware of her obligation to file, she hired our firm to file the delinquent FBARs. As a result of her voluntary, albeit late, compliance she was hit with multiple failure to file penalties totalling more than $120,000.

We have sued the IRS in Tax Court to try to get the penalties abated, but because reasonable cause is not a basis for relief of the FBAR penalty her chances of success are not very high.

Steven Toscher and Michel R. Stein in FBAR Enforcement – An Update state that in order to increase voluntary compliance, Section 821 of the Jobs Act reorganized Title USC §5321(a)(5) (the statute that contains the FBAR penalty) and added a new civil penalty for violations of FBAR reporting requirements, whether or not the violation was willful, and increased the existing penalty for willful violations.¹

In other words, the mere fact of late filing is sufficient for the imposition of the penalty and none of the defenses available in accuracy-related penalty cases, such as reliance on a qualified tax advisor, poor health, lack of education, apply.

Although the penalty itself may be fair, its across-the-board imposition regardless of a taxpayer’s unique and particular facts and circumstances is woefully inequitable and probably in violation of  taxpayers’ due process rights.

Footnotes:

¹ See 31 USC §5321(a)(5), as amended by P.L. 108-357. See also, AMERICAN JOBS CREATION ACT OF 2004, LAW, EXPLANATION AND ANALYSIS at ¶655.