Court holds that FBAR penalties can exceed $100,000

Aug 03, 2018
Aug 03, 2018
0 min. read

On July 31, 2018, the Court of Federal Claims in Norman v. United States held that the IRS’s authority to impose penalties for willful failure to file foreign bank account reports (FBAR) is not capped at $100,000. The court’s holding diverges from two earlier U.S. district court cases, United States v. Colliot and U.S. v. Wadhan, which both held that the IRS could not assess FBAR penalties in excess of $100,000 based on the regulatory maximum.

U.S. persons must file the FBAR to disclose any foreign account with a balance in excess of $10,000 in which they have a financial interest. The penalties imposed for failure to file depend on whether the failure is willful or non-willful. In 2004, Congress passed the current version of 31 U.S.C. section 5321(a)(5), which provides that the penalty for an individual who willfully fails to file an FBAR is the greater of $100,000 or 50 percent of the balance in the unreported account at the time of the violation. A previous version of 31 U.S.C. section 5321(a)(5) authorized a penalty for an individual’s failure to file an FBAR of $25,000 or the balance of the unreported account up to $100,000.

The district courts in Colliot and Wadhan reasoned that the 2004 amendments gave the Department of Treasury discretionary authority to impose a bigger penalty, but that Congress did not mandate a higher maximum penalty. The Senior Judge in Norman has rejected this reasoning and instead stated, “Congress clearly expressed its intent to raise the maximum FBAR penalty amounts when it amended the Bank Secrecy Act in 2004.”

This split in the trial courts demonstrates that the IRS may still impose penalties in excess of $100,000 on persons who willfully fail to file FBARs. Given the severity of the failure to file penalty and the low evidentiary standard, U.S. persons with foreign accounts should consult with their advisors to ensure timely and complete compliance with the FBAR rules. RSM US LLP has tax professionals who are experienced in successfully seeking penalty abatement for assessed penalties who are available to assist clients facing penalty assessments.

For more information regarding the FBAR willfulness standard, see our previous articles:

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