A recent FBAR case—well, kind of—serves as a reminder that FBAR penalties can be [*fill in your pejorative adjective of choice*]. In United States v. Buff, the government initiated a suit to collect unpaid civil penalties that it had previously assessed against Buff for violations of the Bank Secrecy Act—specifically, its requirement to file an FBAR to report foreign accounts. Buff asked the court to dismiss the government’s complaint, arguing that it filed to properly serve her with process. After initially losing that battle, Buff asked the court to reconsider its ruling. It did, kind of, but decided that it was just fine with its prior ruling. Honestly, with a name like, Buff, I was hoping for more.
The Motion for Reconsideration
Generally, a motion for reconsideration should be granted only when the party]identifies an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice. Buff, however, didn’t raise any intervening change in the law. Rather, she took issue with the court’s prior application of the law. That, however, the court said, was not a ground for reconsideration. Otherwise, Buff’s motion simply provided additional evidence that were simply found to change the court’s initial finding of proper service.
The FBAR Reporting Obligations
The Bank Secrecy Act requires U.S. persons who have “a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country” to report that interest each calendar year. 31 C.F.R. § 103.24 (2008).
As a general matter, a non-willful penalty carries a penalty of $10,000 per violation (with adjustments for inflation). A reasonable cause defense may, however, be available. If the government deems the penalty to be a willful violation, the potential statutory penalty is the greater of $100,000 or 50% of the amount of the balance in the account at the time of the violation.
In the underlying case, the IRS determined that Buff failed to disclose her interest in six bank accounts located in Switzerland and France for calendar years 2006, 2007, and 2008. The IRS accordingly assessed multiple civil penalties against her. After she failed to pay the assessed penalties, the government filed a lawsuit against her.
Unfortunately for Buff, much of the case law in the FBAR-penalty context has been pro-government, although several cases have given hope to account holders. One moral of the overall story, however, has clearly been that account holders taking on the government in FBAR penalty cases must put forward thorough, well-researched arguments and positions. Otherwise, the government is largely having its way.
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