The Financial Crimes Enforcement Network (FinCEN) announced in FinCEN Notice 2020-2[1] that the agency plans to revise the regulations implementing the Bank Secrecy Act (BSA) to expand reportable accounts for FBAR reporting.

In 2018 we discussed two U.S. District Court cases where the IRS’s attempt to impose a greater than $100,000 penalty for willful failure to file a Foreign Bank Account Report (FBAR) return was denied by the courts, finding that a Treasury regulation that had not been changed since Congress removed the $100,000 maximum on such willful failures still controlled.[1]  The issue has now been addressed for the first time by a U.S. Circuit Court of Appeals in the case of Norman v. United States[2] and the IRS is much happier with the result.

An IRS Program Manager Technical Advice (PMTA 2018-013) the Chief Counsel’s office outlined its position on what constitutes willfulness for purposes of imposing the maximum penalty for FBAR reporting violations, as well as the standard of proof that must be established for the IRS to carry the issue of applying the penalty.

Under 31 USC §5321(a)(5)(B) the maximum penalty for an FBAR violation is $10,000 unless the violation is willful.  In that case, 31 USC §5321(a)(5)(C) increases the maximum penalty to the greater of $100,000 or 50% of the balance in the account.

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A U.S. District Court in the case of United States v. Colliot, Case No. 1:16-cv-01281, Western District of Texas, found that Treasury failure to update a regulation served the limit the amount of penalty the IRS could assess against an individual who willfully failed to report accounts on FBAR reports.

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Update - the Third Circuit Court of Appeals remanded this case on appeal, indicating that the District Court failed to properly consider precedent on what constituted willfulness. On remand, the District Court found that the conduct did amount to willfulness. See On Remand, District Court Finds Objective Evidence Shows Taxpayer Willfully Failed to Report Foreign Acccount on FBAR Report.

For the IRS the case of Bedrosian v. United States, US DC ED Pa, Case No. 2:15-cv-05853 was ultimately a loss—but the Court did agree that the test for “willfulness” for failing to file a Federal Bank Account Reporting (FBAR) form is whether he “knowingly or recklessly” failed to file the report (the general civil standards for willfulness) rather than whether there was a voluntary, intentional violation of a known legal duty. The court just found the IRS failed to show that the deficiencies in filing his 2007 return was done knowingly or recklessly.

The case was yet another IRS attempt to obtain large penalties for issues related to offshore accounts that the taxpayer had not properly reported, in this case looking for over $1,000,000 in penalties for the failure.

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The United States Department of the Treasury Financial Crimes Enforcement Network (FinCEN) announced on the news portion of their website that the agency will grant automatic extensions for filing the FBAR reports (FINCEN Report 114) beginning with those due in 2016.

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 provided that the due date for the report will be set to April 15 and that a maximum sixth month extension could be requested by filers.

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The taxpayer in the case of United States v. August Bohanec et ux, USDC CD Ca., No. 2:15-cv-04347 was found to have willfully failed to file FBAR forms.  The taxpayer was hit with the enhanced penalty of $100,000 or 50% of the balance in the accounts for being found willfully in violation.

This was true despite the fact that the taxpayer in question had attempted to enter the IRS’s Voluntary Disclosure Program for Offshore Accounts.  But the IRS rejected their application to enter the program and the Court found they had “made several misrepresentations under penalty of perjury” in their application to enter the program.

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The Ninth Circuit Court of Appeals dealt the IRS a blow regarding the types of accounts that must be reported on the Foreign Bank and Financial Account Report (FBAR) under 31 U.S.C § 5314 in the case of United States v. Hom, 118 AFTR 2d 2016-5057, CA9, albeit in a case that was not deemed suitable for publication (and thus of limited precedential value). Note that currently this report is filed electronically on FinCEN Report 114.

In this case the taxpayer had accounts with three entities which he used for online gambling. The IRS had asserted, and a US District Court agreed, that the taxpayer was required to report all of these accounts (which held balances in excess of the minimum reportable amount) on an FBAR report, something the taxpayer did not do.