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Penalties for Non-willful Violations of FBAR Filings must be Assessed on a Per Form Basis

Kaufmann had 13 foreign accounts in Israel that were not reported on the Form TD F 90-22.1, "Report of Foreign Bank and Financial Accounts" (the FBAR) for the tax years 2008, 2009 and 2010. As a result, the IRS assessed $144,244 of penalties for the non-filings over those years based on the number of non-disclosed accounts. Kaufmann sought a determination that the statutory cap for civil monetary penalties for non-willful FBAR violations is $10,000 per form that is untimely or inaccurately filed. The Government contends that the $10,000 statutory cap applies to each account that is untimely or inaccurately filed.

The Bank Secrecy Act of 1970 (BSA) brought about the requirement of the FBAR and for the first three decades after becoming law there has never been a penalty for non-willful violations. Congress then amended the BSA to include penalties for non-willful violations but imposed a strict $10,000 cap without defining whether it was imposed on a per-form or per-account basis. The court noted that since Congress was aware there where penalty provisions for willful violations were based on account balances, they would have explicitly included that in the non-willful penalties. As a result, the Court held that absent other evidence, they believe Congress did not intend a per-account penalty and held that that it should be assessed on a per-form basis which would be $30,000 in this case.

The Government sought a summary judgement on Kaufmann’s liability that arose from his non-willful failure to file timely FBARS. Kaufmann argued summary judgement is not appropriate because there are triable issues of fact with respect to whether his failure was the result of "reasonable cause." Though there is no definition of reasonable cause the court looked to the Supreme Court ruling in United States v. Boyle, 469 U.S. 241 (1985) which used the definition “if the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time, then the delay is due to a reasonable cause.”

In all the years in question, Kaufmann’s tax preparer asked if he had any ‘foreign account’ to which Kaufmann replied ‘no’. The tax preparer also inquired how his bills in Israel were being paid and Kaufmann responded that he used his US brokerage account for all payments. On the cover letter of Kaufmann’s Form 1040, the preparer also wrote “DON'T FORGET THAT THE US DEPARTMENT OF TREASURY FORM TD F 90-22.1, REPORT OF FOREIGN BANK ACCOUNT AND FINANCIAL ACCOUNTS, SHOULD BE COMPLETED AND FILED IF REQUIRED. THIS FORM CAN BE DOWNLOADED AT IRS.GOV”. In addition, the diligent preparer also sent a reminder letter prior to the due date of the FBAR that stated “I just want to remind you that US Department of Treasury Form TD 90-22.1, Report of Foreign Bank Account and Financial Accounts, is due 6/30/0X if you are required to file. The form can be downloaded at IRS.GOV”.

Part of Kaufmann’s defense was that he relied on his American CPA who should have advised him about the FBAR more directly. The Court disagreed because the retention of a CPA cannot itself cannot support a reasonable cause defense because the duty to file the FBAR falls on the person so obligated. The Court also noted that Kaufmann’s misleading answers as to owning foreign accounts did not allow the preparer to make a determination on Kaufmann’s foreign filing obligations.

Kaufmann also deflected blame as he understood ‘foreign’ to mean accounts foreign to him, i.e., accounts not located in the US or Israel. This argument was given no weight since it would not be believable that a tax form asking about ‘foreign accounts’ would define it in that manner.

Based on all the facts, the court found that defense of reasonable cause was not supported and granted the Government’s motion for summary judgement on the issue of liability.


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