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How many penalties can the IRS assess for a single missed form? That was the question before the Ninth Circuit Court recently in United States v Boyd. At least where an accurate FBAR report was filed late, the Court ruled that the one form and one violation meant the IRS was limited to one non-willful FBAR penalty.
Jane Boyd’s father passed away in 2009. Between that year and 2011, Ms. Boyd received a substantial inheritance, which she deposited into 14 foreign financial accounts in the United Kingdom. Taken together, the inherited money pushed the aggregate balance of those 14 accounts above the $10,000 threshold. That triggered the IRS’s reporting requirement under the Bank Secrecy Act. As of 2010, Ms. Boyd was required to disclose information about those accounts on an annual Foreign Bank Account Report (FBAR). She didn’t.
When Ms. Boyd discovered the error, she went to the IRS to fix it. She filed a late but accurate FBAR form in 2012, disclosing all her foreign accounts, and amended her tax returns to reflect the interest and dividends she had received from the accounts. However, to her surprise, and the surprise of her tax attorney, the IRS imposed 13 separate non-willful FBAR violations, for a total penalty of $47,279, all based on one late tax form.
Ms. Boyd refused to pay the penalty, so the IRS took her to court. In 2019, the trial court ruled that the IRS had properly assessed its penalties per account, rather than per tax year. This blog previously addressed the trial court’s ruling in detail here. Ms. Boyd appealed the decision, but the IRS used the same argument: willful penalties and the “reasonable cause” exception to them were both based on the accounts the taxpayer failed to file; why should the non-willful penalties be any different?
Since the trial court made its ruling, several other District Courts have also weighed in on the question of whether non-willful penalties can be issued per year or per account. However, US v Boyd is the first opinion to come out at the appellate level. The Ninth Circuit strictly construed the language of the Bank Secrecy Act and the IRS regulations related to reporting foreign financial accounts. Unlike the trial court below it, the Ninth Circuit said that when Congress amended the Bank Secrecy Act in 2004 to add non-willful penalties, it chose not to include the same account language it used in other parts of the law. Instead, non-willful penalties attach to “any violation” which could mean:
In Ms. Boyd’s case, the Court emphasized that her FBAR form, filed in 2012, was accurate but untimely. That meant she had only violated one of the Bank Secrecy Act’s requirements: the filing deadline. As a result, the IRS could only impose one penalty for that violation, and her penalty was limited to $10,000 rather than $47,279.
US v Boyd is an important decision in protecting American taxpayers from overly aggressive penalties assessed by the IRS. It shuts down the Treasury Department’s efforts to compound penalties on taxpayers’ inadvertent errors and makes certain the penalty keeps to the nature of the error. It also ensures that non-willful penalties are limited and won’t add up to more than the consequence of an intentional act. However, the decision has its limits. As a decision of the Ninth Circuit, Boyd is controlling precedent only in cases brought brought by taxpayers who reside within the geographical limits of that Circuit (comprising Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington State, as well as Guam and the Northern Mariana Islands). Boyd will, of course, be considered persuasive authority in the other Circuits, which have yet to address the issue. Should another Circuit Court decide the issue differently, a split will be created that will take a decision of the Supreme Court of the United States to resolve.
One lesson that is easily missed in this case is that accuracy is crucial. The Court repeatedly stated that Ms. Boyd had filed an accurate but untimely FBAR report. It was the filing deadline that Ms. Boyd had violated, not the contents of the report. The Court said:
“And even if the language could support separate non-willful penalties in a different factual scenario -- like if an individual first failed to timely file an FBAR, and then filed an inaccurate one -- we are not presented with those facts.”
In other words, if a taxpayer does, for whatever reason, miss the deadline for filing his or her annual FBAR, it is imperative that they work with a tax preparer and a tax attorney familiar with foreign reporting requirements to make sure the form is accurate once it is filed. Otherwise the protection that Boyd offers to taxpayers could go up in smoke.
Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 30 years experience. If you are facing non-willful FBAR penalties across multiple foreign financial accounts, contact Joe Viola to schedule a free consultation.