Ninth Circuit FBAR Tax Decision

Case: United States v. Boyd, No. 19-55585

Ninth Circuit Panel Composition: Ikuta (W. Bush), Bennett (Trump), and district court judge Douglas Woodlock (Reagan) sitting by designation

Result: 2-1 reversing district court’s grant of summary judgment

Summary

In a matter of first impression, the Ninth Circuit held that the IRS may impose only one non-willful penalty for untimely filing a single, accurate Report of Foreign Bank and Financial Accounts (FBAR) (the form that requires taxpayers to report foreign financial accounts exceeding $10,000) “no matter the number” of foreign accounts in dispute. United States v. Boyd, 2021 WL 1113531 (9th Cir. Mar. 24, 2021).

Boyd, a U.S. citizen, maintained a financial interest in fourteen financial accounts in the United Kingdom. She received interest and dividends from these accounts but failed to report them on her tax return. She subsequently asked and was later accepted to participate in the IRS’s Offshore Voluntary Disclosure Program—allowing taxpayers to voluntarily report undisclosed offshore financial accounts in exchange for certain predictable penalties. Boyd then submitted an FBAR, listing her fourteen foreign accounts and amending her 2010 tax return to reflect her interest and dividends from the accounts.

After later opting out of the IRS’s disclosure program, the IRS examined Boyd’s 2010 tax return and concluded that she had committed thirteen FBAR violations—one for each foreign account she failed to timely report. After determining that her violations were non-willful, the IRS assessed a total penalty of $47,279, and the government later sued Boyd seeking to obtain a judgment against her for the unpaid penalties. Boyd argued that she had committed only one non-willful violation (filing the FBAR late)—not thirteen. The government countered, asserting that the IRS was authorized to assess one penalty for each non-reported foreign account. Ultimately, the district court ruled in favor of the government and Boyd later appealed.

On appeal, the Ninth Circuit panel was charged with determining whether 31 U.S.C. § 5321 “authorizes the IRS to impose multiple non-willful penalties for the untimely filing of a single accurate FBAR that includes multiple foreign accounts.” Boyd, 2021 WL 1113531, at *2. The panel swiftly rejected the government’s contentions, observing that it had “no difficulty concluding that the government cannot assess multiple penalties for the non-willful violation here.” Id. at *7.

In reversing the district court, the Ninth Circuit conducted a statutory interpretation analysis and concluded that the language of 31 U.S.C. § 5314(a)(5)—the statute requiring the filing of a timely FBAR to account for certain foreign accounts—did not support a separate penalty for each foreign account that Boyd should have listed on her FBAR. Because Boyd’s FBAR was accurate, her only offense was filing the report late. The panel reasoned that the statutory scheme and the implementing regulations “authorizes one penalty per non-willful violation of § 5314, not to exceed $10,000.” Id. at *5. In other words, because Boyd committed only “a single non-willful violation”—failing to timely file the FBAR—“the IRS may impose only one penalty not to exceed $10,000.” Id. (emphasis added).

Judge Ikuta dissented, reasoning that the majority’s holding rejected “the most natural reading of the statutory language, which requires Americans to report each foreign account and imposes a penalty for each failure to do so.” Id. at *9 (emphasis added). In her view, “the applicable statute and regulations make clear that any failure to report a foreign account is an independent violation, subject to independent penalties.” Id. at *11 (emphasis added). “[E]ach failure to report a foreign account is a separate violation,” and therefore, because Boyd “failed to file thirteen such reports, she committed thirteen violations.” Id. at *12.

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