District Court Denies IRS Maximum FBAR Penalty

News from RWHSG

Posted by Kim Chen on October 2nd, 2017

The District Court for the eastern district of Pennsylvania ruled that the maximum Report of Foreign Bank and Financial Accounts (FBAR) penalty imposed on a taxpayer was invalid because the reporting failure was not willful. Despite (1) filing an inaccurate FBAR by omitting one of two Swiss bank accounts, (2) likely learning of the existence of the second account from meetings with his banker, (3) the taxpayerÆs sophistication as a businessman, and (4) the taxpayerÆs accountant having told him in the mid-1990s that he was breaking the law by not reporting the Swiss accounts, the failure to report may have been negligent but was not willful under the civil standard. The taxpayer approached his lawyer and retained an accounting firm to file amended returns to rectify the issue prior to learning that the IRS was auditing him. Nonwillful violations of the FBAR reporting requirement result in a penalty not to exceed $10,000, whereas willful violations result in a penalty that is the greater of $100,000 or 50% of the balance in the account at the time of the violation. Arthur Bedrosian, 120 AFTR 2d 2017-XXXX (DC PA).