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Zhanna Ziering Talks to Tax Notes on Non-Willful FBAR Penalty Calculation

February 5, 2021, Tax Notes

The government is again asserting in litigation that non-willful foreign bank account reporting penalties apply per account rather than per form, this time in a controversy stemming from a more recent assessment.

. . .

The memo from several IRS division commissioners says that for most non-willful violations, examiners will recommend one penalty capped at $10,000 for each open year, regardless of the number of accounts. The memo leaves open the possibility of a separate penalty for each unreported account when warranted and with proper approval, if facts and circumstances dictate, but it says that in no event will total penalties exceed 50 percent of the highest aggregate balance of all accounts. Examiners were also instructed to use mitigation guidelines when determining penalty amounts. The interim guidance was later incorporated into the Internal Revenue Manual and applied to all open FBAR cases.

It isn't clear from the complaint what facts and circumstances led the IRS to assess $30,000 for each open year on Brewer’s three accounts.

. . .

Zhanna Ziering of Caplin & Drysdale argued that it was “a rarity” for the IRS to follow its memo guidance with a per-form assessment.

“Based on the balance in the accounts, the mitigation guidelines should have been applied to reduce the penalty. There is nothing in the complaint indicating why the penalties were not mitigated,” Ziering added.

Those mitigation guidelines state that if the aggregate balance of the accounts is more than $50,000 but less than $250,000, the penalty is $5,000 per violation.

For Brewer, the $250,000 threshold was exceeded only in the 2012 tax year.

For the full article, please visit Tax Noteswebsite (subscription required).


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