Supreme Court Agrees To Determine How Penalties Apply For FBAR Compliance

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In whose case the Supreme Court of America (SCOTUS) granted the writ of authenticity on June 21, 2022? Bittner vs United States, The matter is expected to be settled forever, whether the penalty for not filing Annual Report of Foreign Bank and Financial Accounts (FBARs) per form or per account is applicable.

In March 2021, the Ninth Circuit decided United States vs Boyd That the penalty for unintentional failure to file FBAR per form applicable. In November 2021 the Fifth Circuit issued a decision. United States vs Bitner In direct opposition to Boyd’s decision, deciding that penalties for unintentional FBAR compliance apply per account, not per form. Meanwhile, the case of the second circuit United States vs Kaufman is still pending.

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Currently the IRS is following a taxpayer-friendly, per-form approach. boyd, but only for issues arising in the Ninth Circuit. The Court applies the “Golson Rule” when adjudicating for cases before the US Tax Court. Tax court cases arising in different jurisdictions under the Golson Rule may have different consequences for similar circumstances. In other words, if the FBAR penalty case arose in the Fifth Circuit before the Tax Court, the per-account penalty would apply because the Fifth Circuit decided that. Bitner, If a strikingly similar case arises in the Ninth Circuit, however, as decided, the penalty shall apply per form. boyd,

SCOTUS DECISION IN Bitner Only FBAR filings will apply to unintentional breaches of compliance. Still, the decision is significant because even the penalty for willful non-compliance is enormous—$10,000 per violation. The imposition of a per form penalty means that the penalty is effectively capped at $10,000 per year. There is no limit on when the penalty is imposed per account. Taxpayers with multiple foreign accounts may face annual failure to file fines in the millions of dollars (as is the case). Bitner) and despite years of increasing attention to compliance efforts for foreign account reporting, many taxpayers remain (happily) unaware of their filing requirements and are often in for a surprise when the IRS issues a failure to file notice and associated penalties ( and interest). For example, sometimes a relative (eg, parent) in a foreign country will authorize an adult child to sign their bank account (or accounts). These accounts need to be disclosed in annual FBAR filings. Other times foreign retirement accounts and pensions can trigger a reporting requirement that many taxpayers are unaware of.

Resolving non-compliance issues, especially non-compliance related to foreign tax reporting, is a complex process and taxpayers facing non-compliance tasks should consult a tax professional who is competent to do so. Still, Mary Beth Lugen, enrolled agent and president of American Expat Tax Services, headquartered in Virginia Beach, Virginia, which specializes in foreign tax return preparation, compliance, and dispute matters, says, “Over the years, taxpayers and their advisors have decided how to come into FBAR compliance (or not) without any certainty of how much it will ultimately cost them.” For example, the penalty range in the Bitner case is $50,000 to $2.72 million. Lugen notes That “these are very different interactions with our customers, and ‘So, are you feeling lucky?’ explicitly using phrases like? Tax compliance should never be part of the conversation.” According to Lugen “being able to accurately set taxpayers’ expectations makes the system better in every way. I can do my job better when I understand how the IRS will assess penalties. Knowing the rules means that taxpayers and businessmen can navigate the system thoughtfully without any fear. Clearly, this is a matter that the tax business community will follow closely.

Credit: www.forbes.com /

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