American College of Tax Counsel Files Brief Urging Appeals Court to Limit Financial Penalties Imposed on Tax Filers Holding Foreign Accounts

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Nationwide non-profit association of tax lawyers filed a "friend of the court" brief in the Ninth Circuit Court case of United States of America v. Jane Boyd (No. 19-55585), asking the court to limit IRS penalties for failure to timely file a Report of Foreign Bank and Financial Accounts to one penalty per annual report.

On November 15, 2019, the American College of Tax Counsel (“ACTC”) filed an amicus brief with the United States Court of Appeals for the Ninth Circuit in the case of United States of America v. Jane Boyd (No. 19-55585). Also known as "friend of the court" briefs, amicus curiae briefs are submitted by non-litigants who have information or expertise they believe may help guide the court in resolving the case.

District Court rules on filing penalties for foreign bank account holders, taxpayer appeals

Under the Bank Secrecy Act (31 U.S.C. 5311, et seq.), holders of foreign accounts with an aggregate value of more than $10,000 at any time in a year are required to file an annual Report of Foreign Bank and Financial Accounts (“FBAR”) reporting the names of the financial institutions where the accounts are held, along with other required information. Civil enforcement authority was delegated to the IRS. Pursuant to this authority, the IRS imposes a civil penalty up to $10,000 for a non-willful violation of the FBAR filing requirement.

In Boyd, the Ninth Circuit is considering whether penalties for non-willful FBAR violations (where the failure to timely file an accurate FBAR is attributable to negligence, inadvertence, or mistake) should be calculated on a per account or per year basis.

The U.S. District Court for the Central District of California (No. 2:18-cv-00803-MWF-JEM) held that the $10,000 penalty applies to each foreign account that is not reported on a single FBAR, rather than to the single failure to timely file an accurate FBAR.

Amicus brief challenges position of IRS and lower court

In its amicus brief, ACTC contends that the $10,000 penalty should apply per violation and that the violation referenced in the applicable statute is the failure to timely file an accurate FBAR, and not the violation to report each item of information with respect to each foreign financial account.

ACTC asserts that the statute is clear in that only one FBAR is required each year, and only one non-willful FBAR penalty is applicable if an account holder fails to file that FBAR due to negligence, inadvertence or mistake. In fact, the word "account" is not used in the statutory provision imposing a penalty for non-willful violations (31 U.S.C. 5321(a)(5)(B)).

ACTC further asserts that even if the statute is ambiguous, the lower court's broad reading of the penalty provision is contrary to Congressional intent and results in an unreasonable application of sanctions. Moreover, the rule of lenity dictates that only one penalty should be imposed and that this interpretation is the only reasonable interpretation of the penalty provision.

Finally, ACTC takes note of administrative guidance and other authorities, the Internal Revenue Service’s Internal Revenue Manual and instructions for completing the FBAR, that support the application of a single non-willful FBAR penalty per year up to a maximum of $10,000.

Caroline Ciraolo, who filed the brief on behalf of the American College of Tax Counsel, commented, “Civil penalties play an important role in tax enforcement, but penalties should not be greater than necessary to encourage voluntary compliance. We have seen a steady and sometimes alarming increase in the number and amount of civil tax penalties assessed for negligence or mistakes. The imposition of multiple non-willful penalties for a single failure to timely file an accurate FBAR is the latest in this trend. The lower court’s interpretation conflicts with the statutory provisions, Congressional intent, and the basic concepts underlying our tax system.”

About the American College of Tax Counsel

The American College of Tax Counsel is a nonprofit association of tax lawyers in private practice, in law school teaching positions, and in government, who are recognized for their excellence in tax practice and their substantial contributions and commitment to the profession. One of the chief purposes of the College is to provide a mechanism for input by tax attorneys into the development of U.S. tax laws and policy, including through the filing of amicus briefs. The College’s brief was submitted by its governing Board of Regents, represented by attorneys Caroline D. Ciraolo and Caroline Rule of Kostelanetz & Fink, LLP, of Washington, D.C.

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Pamela Lyons

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