An increased IRS budget and a court ruling against the agency are of interest to those who file a report of Foreign Bank and Financial Accounts (FBAR).
In 2023, a ruling by the Supreme Court of the United States (SCOTUS) found in favor of a dual citizen who maintained numerous foreign bank accounts and filed late FBAR reports. The ruling impacts the number of non-willful penalties the agency can issue in a big way.
Alexandru Bittner returned to the U.S. from Romania and failed to file the required FBAR reports, noting he was unaware of the requirement. He eventually listed his offshore accounts in FBAR filings—amounting to 272 accounts listed on five FBAR reports. The lengthy legal battle that followed ended up before the Supreme Court and pointed to the question of whether non-willful penalties are applied per FBAR report or per account.
Doing the math, Mr. Bittner thought he might owe $50,000, or $10,000 per report that was not filed in a timely way. The IRS looked at it as $10,000 per account, or $2.72 million. The straightforward question of the action was answered in a straightforward manner by the court—non-willful penalties are tallied per report. This means the maximum penalty per report is $10,000 (and adjusted for inflation). As a result, the IRS cannot assess penalties per account on an FBAR, but only on the report itself. The agency has issued guidance regarding its revisions to the Internal Revenue Manual (IRM) pursuant to the ruling. This is welcome news for those with offshore tax holdings.
Win or lose, the IRS is known for its strident prosecutorial efforts. With an enhanced budget, the IRS has renewed its resources and set compliance priorities for 2024. In addition to taking a deeper dive into digital assets and construction industry shell companies, the IRS is intensifying its scrutiny of violations of FBAR reporting requirements. In a statement, the IRS notes “analysis of multi-year filing patterns has identified hundreds of possible FBAR non-filers with account balances that average over $1.4 million. The IRS plans to audit the most egregious potential non-filer FBAR cases in Fiscal Year 2024.”
Because the IRS has been cash-strapped for years, it lacked the resources, and frankly, expertise to pursue high-asset individuals and enterprises on a routine basis. Listening to the messaging from the agency at present, the IRS now intends to make up for lost time.
For 2024? Some good news and a heads-up for those with complex portfolios and partnerships that may attract the interest of the IRS.
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If you are concerned about business compliance, an offshore tax question, or need guidance with an IRS audit, our tax lawyers at Robert J. Fedor, Esq., LLC can help. We deliver seasoned, strategic tax guidance. Call us at 800-579-0997 or contact us online.
