From the archives of Phil Hodgen’s blog, John Nolan, August 27, 2011 | 3:19 am, wrote:
To my knowledge, since the JOBS Act introduced the FBAR enhanced penalty regime in October 2004, there has been no civil case brought against anyone for enforcement of a FBAR penalty. (I am aware, however, that recently a criminal case was recently initiated alleging a single count of criminal non-filing.)
Nor am I aware of a single case in which a FBAR penalty, as such, has been paid by anyone – whether “voluntarily” as part of a plea bargain or “involuntarily” by judgement of a Federal court following a contested civil or criminal prosecution for enforcement of same.
Technically, the much-ballyhooed agreements by defendants to pay enhanced sums of money incident to a plea bargain are not FBAR penalties. Clearly, however, it is the threat of such FBAR penalties – and extra time in Club Fed – that induced such agreements.
I am not aware of any case in which a civil FBAR penalty has been asserted for simple late filing of a FBAR – for any reason. I am also unaware of any case in which a late-filed FBAR has caused the late filer to receive a demand for a payment for any maximum or lesser civil penalty amount based on simple tardiness.
(NB: the FBAR statute and its penalties makes no distinction between late and/or inaccurate filing and non-filing.)
To my knowledge, neither the FBAR filing obligation itself nor its penalties has ever been tested for constitutionality.
Nor do I believe that Treasury is confident that the criminal and/or civil FBAR penalties would be able to withstand a constitutional challenge.
In my view the FBAR’s mere existence is constitutionally infirm on substantive due process grounds. To wit:
I do not believe that Treasury, which invented the FBAR in 1970 in response to authorizing legislation found in the Bank Secrecy Act, has ever even attempted to meet the strict factual predicate imposed by Congress on Treasury in the BSA: that whatever data the information Treasury demanded should have a “high degree” of regulatory or law enforcement usefulness. I believe that if Treasury were compelled through civil or criminal discovery or even by a simple FOIA or Privacy Act request to produce substantiating evidence of any law enforcement or regulatory usefulness over the last 40 years that they would be hard put to do so; much less a “high degree” of such usefulness.
(Just for fun: maybe tax practitioners could develop a FBAR Privacy Act/FOIA request that would be filed automatically by every one of their clients who timely files a FBAR every year. It would cite the language of the privacy act notice at the bottom of the TD F 90-22.1 and demand a copy or summary of every report or document generated by FINCEN or Treasury that made use of the filer’s data and simultaneously demand all documents that might tend to substantiate the validity of the assertion of usefulness found in the Privacy Act notice at the bottom of the TD F 90-22.1)
As any constitutional scholar will be quick to tell you, “substantive due process” is a thin reed upon which to rest one’s hopes for a constitutional challenge to the validity of anything authorized by Congress.
The real constitutional vulnerability of the FBAR, however, lies in the 8th Amendment’s “excessive fines” clause.
A good constitutional challenge to FBAR, therefore, would be a three-stage attack based on:
1. Substantive due process – i.e. not rationally related to the promotion of any legitimate government interest and/or failure to meet the Congressionally prescribed substantive prerequisites.
2. Privacy act – the argument would be that the FBAR is of such dubious usefulness to any legitimate government interest that it is easily trumped by legitimate expectations of personal privacy. (Yuk-yuk. As if Americans had not long ago forfeited whatever rights to financial privacy they may have ever had!)
3. 8th Amendment – given the paucity of any current or historical evidence of law enforcement or regulatory usefulness over the more than 40 years of its existence, the original – much less the enhanced -penalties for non-filing are grotesquely disproportionate and constitutionally excessive under the 8th Amendment.
My guess is that Treasury will want to exhaust the revenue potential of its current crop of big-bucks tax-haven prosecutions before it will take the risk of such a challenge.
In the meantime, as Son-of-FBAR gets up and running next year the ease of collecting its penalties under Title 26 will gradually supplant the revenue enhancements available under the old FBAR.
At that point Treasury may feel it can safely take the risk of subjecting the old FBAR to constitutional challenge with the knowledge that, if they lose, they will have a back-up readily at hand that is probably constitutionally unassailable.
I wonder where I can find information on FBAR penalties of people not in the OVDI. What is happeining to folks like us who just found out of the reporting requirement and began to report and file the late fbars?
My wife and I have been soliciting the advice of many declared international tax professionals. One whose advice I tend to like is this person advised me to just file the late FBARs and not hire or consult with an attorney because he said that an attorney cannot do anything more for you than what you can do for yourdself in this situations. The tax professional also said that he did not ever hear of anyone who declares late fbars get penalized with such small amounts of money. At the end of the day you can read a thousand opinions on this and get left with no real understanding of what you are up against until the IRS comes knocking on your door. If they do, and you are like me with such little money at stake do we stand a chance fighting by ourselves or de we have to get a lwyer to fight hte IRS?
@ Pina1 I’ve been following this issue for a couple years, and I too have not heard of anyone being charged with penalties at that level.
I just discovered something I have to ask someone on this blog to help me understand. As I have said in previous blogs, my wife and I decided to send 5 late FBARs to treasury with a note we were not aware of this filing requirement. Was this a “VOLUNTARY DISCLOSURE”???? I am still confused of the different types of status for fbar late filing or disclosure. Is VOLUNTARY DISCLOSURE the same as OVDI??? Did I make a VOLUNTARY DISCLOSURE by just mailing in the late FBARS and will come under a more austere penalty regime? Thanks.
Typically the filing of late FBARs is called a Quiet Disclosure. You’d probably do ok with just go-forward compliance.
See also the example below of the IRS abuse of the FBAR statute of limitations. Particularly egregious if the minnow taxpayer has already filed the delinquent FBAR with the IRS, but due to IRS backlogs and incompetence, the IRS wishes to keep its options open – and pursue the FBAR penalty at its leisure.
Those in OVDI, who are opting out into the Streamlined Program may be ‘asked’ to sign one of these waivers. That would seem to be at especially egregious odds with the purpose and stated intent of the Streamlined Program – which is to provide a ‘commonsense’ approach for ‘low risk’ taxpayers to come into compliance. And, ‘absent other risk factors’, those identified as ‘low risk’, under the terms of Streamlined, would face no penalties or follow up actions by the IRS. Which includes no FBAR penalties.
So, we have the shameful contradiction of the actions of the IRS who has had more than ample time to examine the already filed delinquent FBARs in its possession, having identifed that a taxpayer abroad with no US tax owing, is ‘low risk’, and by creating the Streamlined process, tacitly acknowledging that minnows were not appropriate targets of the ‘one size fits all’ OVDI – (minnows who entered only because of the IRS threats). Yet still, the IRS is forcing minnows who owed the US no actual taxes, to ‘voluntarily’ sign a waiver to extend the SOL time to assess FBAR penalties – a waiver which is possibly not even lawful – by implying that to refuse to sign the waiver would constitute being uncooperative – which might then jeopardize their agents’ acceptance of their ‘reasonable cause’ and non-wilful arguments and the happy resolution of their case.
No minnows will have the resources to pursue a case against being forced to ‘cooperate’ by signing away and waiving their right to the protections of the FBAR SOL ‘voluntarily’ (under tacit threat and coercion by the IRS).
The fact that the IRS is continuing to operate this way – particularly in the cases of minnows that it has already formally identified as ‘low risk’ is an egregious wrong.
But it will continue to get away with it until someone has the means to challenge them in court. Or unless the Taxpayer Advocate takes this on.
Tax Notes Int’l
, May 13, 2013, p. 695
“…..FBAR Statute of Limitations
Regarding the U.S. administration of the OVDP as
well as opt-out and related cases, a key issue is the ap-plicable statute of limitations for FBAR filings. In gen-eral, under Title 31, the U.S. may review and may take action on any FBAR under a six-year statute of limitations.
However, the IRS apparently has informally developed a policy that would reopen what would oth-erwise be a closed statute by execution of the FBAR consent form, ‘‘Consent to Extend the Time to Assess
Civil Penalties Provided by 31 U.S.C. Section 5321 for FBAR Violations,’’ on the theory that such execution is a waiver of a defense. In Title 26, it is black-letter law that the execution of Form 872, ‘‘Consent to Extend the Time to Assess Tax,’’ with respect to an otherwise closed year will not under any circumstances open that
For the IRS to reach an interpretation to
the contrary under Title 31 without adequate statutory,
regulatory, or even case law support seems beyond the
scope of IRS authority. Further, IRS representatives, including field agents and IRS counsel, have informally commented over the
years that similar to the treatment of closed years under Title 26, under Title 31 the execution of the FBAR consent form would not reopen an otherwise closed year, even after the execution of Form 872. If the IRS
presses this position, it is unlikely it would prevail in court. Taking a step back from such a technical perspective and reflecting on sound tax administration, this appears to be another unfortunate situation in
which the IRS has suddenly engaged in what amounts to a bait-and-switch tactic by articulating a policy position that is contrary to decades of practice. ….”
US District Court rules on whether FBAR penalty violates the Excessive Fines Clause of the U.S. 8th Amendment:
TITLE OF SECTION: — “Even the Maximum Penalty the IRS Assessed Does Not Violate the Eighth Amendment—
Finally, the court considers Mr. Moore’s contention that the $40,000 penalty violates the Excessive Fines Clause of the Eighth Amendment.
The court assumes without deciding that civil FBAR penalties are “fines” within the meaning of the Eighth Amendment, i.e. “punishment for an offense.” United States v. Bajakajian, 524 U.S. 321, 328 (1998). Even under that assumption, the penalties are invalid only if they are “grossly disproportional to the gravity of the defendant’s offense.” Id. at 337.
Although no rigid inquiry governs the court’s proportionality inquiry, it should consider the “severity of the offense, the statutory maximum penalty available, and the harm caused by the offense.” Horne v. Dep’t of Agriculture, 673 F.3d 1071, 1081 (9th Cir. 2011), rev’d on other grounds at 133 S.Ct. 2053 (2013); see also United States v. Mackby, 339 F.3d 1013, 1016-19 (9th Cir. 2003).
Mr. Moore falls well short of convincing the court that his FBAR penalties are disproportionate to his offense. He failed to report an account worth between $300,000 and $550,000.
A small penalty is unlikely to serve as much deterrent for a person holding an account of that size.
In Bajakajian, the defendant forfeited the entirety of about $350,000 in currency because he failed to report it before transporting it out of the country. Id. at 324-25. The Court found that to be an excessive fine. Id. at 337.
The court has no reason to believe it would have reached the same conclusion as to a fine nearly an order of magnitude smaller. Mr. Moore would forfeit about 10% of the value of his account for failing to report it. That does not strike the court as disproportional, Case 2:13-cv-02063-RAJ Document 41 Filed 04/01/15 Page 23 of 25 ORDER – 24 much less grossly disproportional. [WHAT THEN IS THE THRESHOLD FOR “EXCESSIVE”? ALSO, WHAT IS THE EXTENT OF HARM CAUSED BY CITIZENSHIP BASED TAXATION THAT A UNITED STATES COURT WOULD AGREE UNREASONABLY FORCES THE PERSON TO ABANDON U.S. CITIZENSHIP? HOW MUCH HARM IS NECESSARY?]
Admittedly, the Government has wholly failed to point out the harm that Mr. Moore’s failure to report caused, and has given the court no basis to compare the severity of Mr. Moore’s offense to similar violations.
Nonetheless, Congress authorized both the FBAR reporting mandate and penalties of up to $10,000 without regard to the size of the unreported account. The court concludes that the Government’s interest in enforcing its laws is at least roughly proportional to the penalty it imposed here. See Mackby, 339 F.3d at 1019 (noting the government’s cost of enforcing the law against the person as justification for a fine).
The court has no basis to conclude that Mr. Moore’s $40,000 penalty is grossly disproportionate.”
I don’t know about everyone else, but I just despair at the thought of being a US citizen and reading about these fines and penalties. I can’t eat, sleep or work anymore. I’m terrified of financial ruin and the stress all of this is having on my marriage and family life. Maybe our only option will truly be for all of us to relinquish. How very sad….
The courts are rigged. They need the monies and will find excuses. Same goes for any court against Snowden in America. He would get off easy in any court in any other part of the world. Ah what- he`d be celebrated as a hero.
Welcome to the club. I`ve been taking antacids for a while now. Help with the lawsuits!
I have already made one donation and am planning on donating every month. I just hope the money (since it is cash in an envelope) is getting there. You never know….it’s coming from Europe.
That’s why it’s so important for them to mention where the daily donations come from. So people are assured their money is being received.
Same here. It gets there.
I cannot tell by your comments if you have just come to know of this situation…but please don’t despair. We all have been through this, or are still in it and while it isn’t easy, we are making it through ok. Read, read, read and ask questions, ask for help. That’s what Brock is for.
It may not always be possible to list all the countries of received donations on a daily basis. What a lot of folks do is to include a phrase that they will identify with and ask that it be posted when the donation is received. This is a lot more definite than just listing a country. We receive a lot of cash donations via the mail. People have ingenious ways of concealing it. Chocolate bar boxes, CD cases…..you get the idea………
Thank you so much for giving to ADCS. We appreciate each and every donation and are still amazed at the level of support.
We should have a most creative cash packet competition. I remember the Belgium chocolate cash caper but I had no idea people were thinking up other unique ways to mail their money to ADCS. Stephen Kish has been great about giving me hints that “it arrived” but I still like to put a mail tracker on my envelopes when they contain more significant amounts (I mostly use money orders now). To me it’s worth the $10 charge to watch the envelopes wend their way through the system. I think your “key phrase” suggestion is great. That gives the donor the reassurance that “it arrived” AND gives others a moral boost when they read it.
Posting another copy of this here in case it is useful re a challenge;
Looks like an important and interesting analysis of the FBAR and IRS failure to meet terms of the APA Administrative Procedures Act;
“…..Because FBAR penalties are imposed under Title 31 of the U.S. Code and not the Internal Revenue Code, the assessment and collection procedures for FBAR penalties are different than for tax penalties, and those procedures may be more susceptible to challenge based on Administrative Procedure Act (APA) violations………..”;
Badger, the APA angle is interesting.
In 2014 our US attorney (for ADCS, the Client) argued in a letter to State Department that the massive increase in renunciation fees in part violated the APA. State of course ignored our complaint.
In part our attorney said on our behalf:
“…The above-referenced Interim Final Rule (“Interim Rule”) would amend the Schedule of Fees for Consular Services rendered in connection with the processing of various visa and other citizenship-related services including requests for renunciation of U.S. citizenship. A review of the fee changes, which in some cases represent a reduction in user costs, reflects variances within a 7-45 percent range from the prior fees which were last changed in 2010. The one notable exception, however, is that the Documentation for Renunciation of Citizenship fee is increased from $450 to $2,350 which represents a five-fold increase.
Renunciation of U.S. citizenship is an option of growing importance to Dual Citizens, particularly for those individuals often referred to as “Accidental Americans,” namely, persons born in the U.S. (and therefore U.S. citizens) but who departed at a young age to live permanently in Canada. Dual Citizens wishing to free themselves of U.S. citizenship also include Canadian citizens and residents who were born in Canada to one or both parents who held United States citizenship. Many Accidental Americans and those born in Canada to U.S. parents dispute the right of the United States to impose U.S. citizenship on them without their express consent.
In addition to the Interim Rule’s questionable predicate as to the scope of U.S. citizenship, the fivefold increase in the processing fee for renunciation of citizenship is not just disproportionate, but now constitutes a significant burden to the exercise of a right of citizenship. This individual right was explicitly recognized by Congress in the Expatriation Act of 1868 which provides in the following terms:
“Whereas the right of expatriation is a natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty, and the pursuit of happiness … Therefore any declaration, instruction, opinion, order, or decision of any officer of the United States which denies, restricts, impairs, or questions the right of expatriation, is declared inconsistent with the fundamental principles of the Republic.” 15 Stat. 223; R.S. § 1999; 8 U.S.C.A. 1481 notes.
The historical iteration of the right to expatriate is also expressly included in the specific statutory authority to surrender U.S. nationality by “making a formal renunciation of nationality before a diplomatic or consular officer of the United States in a foreign state, in such form as may be prescribed by the Secretary of State.” 8 U.S.C. 1481(a)(5); also Supreme Court recognition in Afroyim v. Rusk, 387 U.S. 253 (1967).
[Here comes the APA violation argument:]
In this connection, it is important to note that the last increase in consular fees followed standard APA procedure in the form of a Proposed Rule which was open for prior public comment. 75 Fed. Fed. Reg. 6321 (Feb. 9, 2010). Inasmuch as the State Department is now contending that an increase in consular fees no longer necessitates the notice and comment opportunity in accordance with the standard APA process, then it must provide a meaningful explanation for a reversal from past practice since [r]easoned decision making … necessarily requires the agency to acknowledge and provide an adequate explanation for its departure from established precedent.” Dillmon v NTSB, 588 F.3d 1085, 1089-90 (D.C. Cir. 2009). See also FCC v. Fox Television Stations, Inc., 129 S. Ct. 1800, 1811 (2009) that “An agency may not …depart from a prior policy sub silentio.”…”
The September 6, 2014 effective date of this fivefold increase in the renunciation fee has obviously deprived our client and all other adversely affected parties of their rights under the APA to provide prior input to the rulemaking process. An exception to the prior notice and opportunity for public comment requirement pertains only “when the agency for good cause finds … that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” 5 U.S.C. § 553(b)(3)(B). The Interim Rule invokes this exception on the stated ground that “the fees in this rule fund consular services that are critical to national security.” 79 Fed. Reg. 51251 (August 28, 2014).
Clearly the fees specified in the Interim Rule “fund consular services,” but it is an exaggeration with no rational basis to claim that the announced increase in the fee schedule is “critical to national security.”…”
“…Summarizing our client’s objections to the Interim Rule:
1. The $2,350 fee is in and of itself an impermissible burden on the right of citizenship renunciation;
2. The process of imposing the fee through a truncated procedural process violated the rights of our client’s members as prescribed under the APA….”
“In the meantime, as Son-of-FBAR gets up and running next year the ease of collecting its penalties under Title 26 will gradually supplant the revenue enhancements available under the old FBAR.”
That might not happen. The IRS and US Tax Court still think the 5th Amendment protects a filer’s privilege not to be a witness against the filer’s self in a criminal case. The IRS “Tax Crimes Handbook” even says so. To break that part of the 5th Amendment, the US government has to go to other courts.
“If your bank gives the information to the IRS it is not privileged”
Exactly. Even when the 5th Amendment used to prevent compelling a person from being a witness against the person’s self, it was expected that people would testify against other people.
“I know Steven Mopsick thinks other nations will simply revise their constitutions and laws to accommodate FATCA. While I appreciate your participation here Steven, I think you are way off base in that assumption.”
Wow, some things DO change in 5 years. Now we know that Mr. Mopsick hit a home run.
I continue to suffer from deep-seated *”confusion of thought” as to how the escalating abuse of US citizens ‘abroad’ by the US government as embodied by the State dept., the IRS and FINCEN is congruent with the Cook vs. Tait claim that; “… government, by its very nature, benefits the citizen and his property wherever found…”.
It is disgusting that the State dept. is unashamed to stoop so low as to justify the extortionate size of the ransom fee they demand from ALL those who seek to exercise their legal right to expatriate while also depriving those interested or affected of the right to advance notice and the right to comment by disingenuously invoking national security.
*( “…confusion of thought in “mistaking the scope and extent of the sovereign power of the United States as a nation and its relations to its citizens and their relation to it.” And that power, in its scope and extent, it was decided, is based on the presumption that government, by its very nature, benefits the citizen and his property wherever found, and that opposition to it holds on to citizenship while it “belittles and destroys its advantages and blessings by denying the possession by government of an essential power required to make citizenship completely beneficial.”….”)
Cook v. Tait
265 U.S. 47 (1924)