updated 2:28 PM CEST, May 24, 2023

Another U.S. court finds FBAR non-willful penalty 'per annual form' rather than per account

Another U.S. district court has found that "non-willful" FBAR penalties should be handed out on a "per annual form" basis rather than for each un-reported account over the minimum amount that the taxpayer in question held in various different bank accounts during the year, according to press reports and court documents.  

Regular observers of such FBAR legal cases say that pressure is mounting for a final ruling in the matter, given that different courts keep ruling differently.

As noted last year in another much-commented-on case, United States v. Alexandru Bittner, a lack of legal clarity seems to exist as to whether the penalty for non-willful FBAR violations is meant to be applied per FBAR violation – which is based on a year's banking activity, which for some U.S. taxpayers can involve numerous non-U.S. bank accounts – or per each overseas account that held US$10,000 or more at any time during the calendar year.

This is in spite of the fact that the legal obligation for American citizens to file Foreign Bank Account Reports each year dates back to the Bank Secrecy Act of 1970. 

In U.S. v. Bittner, District Court judge Amos L. Mazzant agreed with Bittner's contention that "non-willful FBAR violations relate to each FBAR form not timely or properly filed, rather than to each foreign financial account maintained but not timely or properly reported".

U.S. v. Zvi Kaufman

The latest case, United States vrs Zvi Kaufman, took place in U.S. District Court in Bridgeport, Connecticut, and involved a former managing director of a pharmaceutical company who, though an American citizen, had lived in Israel since 1979, according to the court documents.

Like many American expats, Kaufman had "a financial interest in or signatory authority over several financial accounts" in the country in which he was living, but had failed to file "Foreign Bank Account reports" for each of these accounts for the years 2008, 2009 and 2010 -- all years when the "aggregate balance" of his accounts exceeded US$10,000 during at least one point each year, making such FBARs necessary, the documents added. 

Although the IRS in 2015 assessed penalties against Kaufman for his "non-willful" failure to file timely FBARs, he not only disputed the government's case but also claimed that the maximum amount of civil monetary penalties that could be imposed on his non-willful violations was just US$10,000 for each year an FBAR wasn't filed, for a total of US$30,000 only for the three years in question. 

On Jan. 11, U.S. District Court Judge Kari A.Dooley said she was granting the government's motion for summary judgement "in part" and denying it "in part", but that "civil monetary penalties...must be assessed on a per-form basis", and that for this reason, the civil penalties for which Kauman was liable in connection with the three years in question was to be "capped at US$30,000" – in other words, at US$10,000 per year, according to the court documents. 

"The statutory penalty provisions are not clearly worded, and the issue could go either way on appeal," one press report said afterwards. 

FBARs ‘notorious for
size of potential fines’

FBARs, or Foreign Bank Account Reports (FinCEN Form 114s), are required for all “U.S. persons” to file for any “foreign” accounts they hold in which the balance has exceeded US$10,000 during the year – whether they live in the U.S. or abroad.

Even an account with a balance of zero must be reported, if the aggregate total of all an individual’s accounts exceeds US$10,000 at any point during that 12-month period.

FBAR penalties are notorious for the fact that they can be sizeable, particularly when the failure to file them is judged to have been a “willful” act of non-compliance.

What concerns many tax industry experts most, though is the fact that an apparently significant number of Americans are apparently not filing FBARs, in spite of the potential penalties.

Even though an estimated 7 million to 9 million Americans live abroad – and unknown numbers of Homeland Americans also maintain overseas bank accounts – fewer than 1 million Americans file Financial Bank Account Reports, a U.S. Government Accountability Office report published in 2019 noted.

According to that report – which, as reported, revealed a range of issues resulting from the 2010 law known formally as the Foreign Account Tax Compliance Act, and which was seen to have contributed to a “nearly 178% increase in the rate of citizenship renunciations between 2011 and 2016 – only some 949,510 individuals filed FBARS in 2016.