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Zhanna Ziering Speaks to Tax Notes on the Recent FBAR Penalty Case

April 29, 2020, Tax Notes

The U.S. government is starting to compile litigation wins on whether penalties for willful failure to file foreign bank account reports can survive the death of the nonfiler.

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The court also held that the FBAR penalty — set at the greater of $100,000 or half the account balance for willful violations — was not wholly disproportionate to the harm, and that it need not directly relate to the government’s loss to be considered remedial. That the penalty is based on the balance of the account “reflects Congress’ likely determination that the value of the harm to the Government itself is correlated to the balance of the account,” according to the court.

Zhanna Ziering of Caplin & Drysdale said that in light of Schoenfeld, the decision in Green was unsurprising. But she called “interesting” the court’s interpretation of Congress’s intent behind the FBAR penalty, especially when considering the legislative history behind the statute.

“It makes it pretty clear that there was no remedial consideration by Congress. . . . If you read the explanations and the objectives, it was all about deterrence and encouraging compliance,” Ziering said, pointing to the Joint Committee on Taxation's "General Explanation of Tax Legislation Enacted in the 108th Congress."

The court found the FBAR penalty similar to that in Helvering v Mitchell, 303 U.S. 391, 401 (1938), among other cases, which imposed a 50 percent penalty on the underpayment of tax in addition to the underpayment’s recovery. That decision found the penalty remedial because it sought to reimburse the government for the “heavy expense of investigation and the loss resulting from the taxpayer fraud.”

Notably, however, Helvering imposed its 50 percent penalty on the amount of the deficiency, not the amount in the account, as is the case with a willful FBAR penalty.

“The court takes a broad view that [the penalty] is for all the misdoings, not just for the year that we are punishing,” Ziering said. “I’ve done enough FBAR cases to know that a 50 percent [account balance] penalty is almost always more than the loss of income tax.”

For the full article, please visit Tax Notes’ website (subscription required).


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