In United States v. Kaufman, the District Court for the District of Connecticut held that civil monetary penalties for failing to file an FBAR under 31 U.S.C. § 5321 must be assessed on a per-form basis.1 The district court rejected the Government's claim that the statutory penalty cap of $10,000 applies to each account untimely or inaccurately reported. In ruling for the taxpayer, the district court rejected the analysis in United States v. Boyd,2 which had adopted the Government's position that the $10,000 annual FBAR penalty applies to each foreign account untimely or inaccurately reported.
Background Facts
The taxpayer, Kaufman, had a financial interest in or signatory authority over several financial accounts in Israel in 2008, 2009, and 2010, which required him to file a Form TD F 90-22.1 ("FBAR") for each of those years. Kaufman did not file a timely FBAR for 2008–10; instead, he filed his FBARs for the three years at issue on May 15, 2012.
On September 24, 2015, the IRS assessed penalties against Kaufman for his nonwillful failure to file timely FBARs—$42,249 for the 2008 FBAR, $42,287 for the 2009 FBAR, and $59,708 for the 2010 FBAR. Kaufman disputed that he had any liability for the untimely FBAR filings and alternatively disputed the Government's calculation of the penalties assessed. On this latter issue, he argued that the maximum amount of civil monetary penalties that can be imposed for his nonwillful violations is $10,000 for each year that a FBAR was not filed, for a total of $30,000.
Kaufman filed a motion for summary judgment seeking a determination concerning the statutory cap for civil monetary penalties for nonwillful FBAR violations as set forth in § 5321.3 The Government opposed the motion and argued that the statutory cap of $10,000 applies to each account untimely or inaccurately reported. Although noting that the question was one of first impression in the Second Circuit, the district court looked to the decisions in United States v. Boyd and United States v. Bittner,4 applied general principles of statutory construction, and ruled for the taxpayer.
Analysis
The obligation to file an FBAR is imposed by the Secretary of the Treasury pursuant to § 5314.5Section 5314, also known as the Bank Secrecy Act, provides that the Secretary "shall require a resident or citizen of the United States . . . to keep records, file reports, or keep records and file reports, when the resident[ or] citizen . . . makes a transaction or maintains a relation for any person with a foreign financial agency." Section 5321(a)(5)(A) of title 31 authorizes the Secretary of the Treasury "[to] impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314."6 "In general — Except as provided in subparagraph (C) [governing willful violations] . . . the amount of any civil penalty imposed . . . shall not exceed $10,000."7
The court noted that the regulations promulgated by the secretary require "person[s] subject to the jurisdiction of the United States" to file an annual report (or FBAR) concerning any foreign financial accounts that they have "a financial interest in, or signature or other authority over."8 FBARs must be filed "on or before June 30 of each calendar year with respect to foreign financial accounts exceeding $10,000 maintained during the previous calendar year."9 Significantly, the court recognized that the trigger for the reporting obligation is the aggregate account balance in a person's foreign financial account(s). According to the court, it does not matter whether an individual maintains 5, 25, or 500 accounts, and "[p]ersons having a financial interest in 25 or more foreign financial accounts need only note that fact on the form."10 Thus, the court concluded that "it would make little sense to read § 5321(a)(5)(A) and (B)(i) to impose per-account penalties for non-willful FBAR violations when the number of foreign financial accounts an individual maintains has no bearing whatsoever on that individual's obligation to file an FBAR in the first place."11
In addition, the court looked to § 5321 subparagraph (D) to support its finding that the statutory cap of $10,000 applies on a per-form basis, not to each foreign account. Subparagraph (D) provides that the amount determined is, "in the case of a violation involving a failure to report the existence of an account or any identifying information required to be provided with respect to an account, the balance in the account at the time of the violation."12 According to the court, the reference to "balance in the account" in the willfulness-penalty provision shows that "Congress clearly knew how to make FBAR penalties account specific."13 The court recognized that Congress had imposed penalties for willful violations long before it amended the Bank Secrecy Act in 2004 to add the provision for nonwillful penalties. "Congress therefore had a template for how to relate an FBAR reporting penalty to specific financial accounts, and the fact that it did not do so for non-willful violations is persuasive evidence that it intended for the non-willful penalties not to relate to specific accounts."14
In reaching this conclusion, the court recognized that United States v. Boyd endorsed the approach advocated by the Government. However, the court found the Boyd reasoning unpersuasive, stating that "it is unclear whether the Boyd court considered the general presumption that Congress acts intentionally when it includes disparate language in different sections of the same statute."15 For this and other reasons, the court declined to follow the approach taken in Boyd.
Footnotes
1. 2021 U.S. Dist. LEXIS 4602 (D.C. Ct. 2021).
2. 2019 WL 1976472 (C.D. Cal. April 23, 2019) (holding that the statutory cap applies on a per-account basis), appeal argued No. 19-55585 (9th Cir. Sept. 1, 2020).
4. 469 F. Supp. 3d 709 (E.D. Tex. 2020) (holding statutory cap applies on a per-form basis).
7. 31 U.S.C. § 5321(a)(5)(B)(i) (emphasis omitted).
8. 31 C.F.R. § 103.24 (2009); 31 C.F.R. § 1010.350 (2011).
9. 31 C.F.R. § 103.27(c) (2009); 31 C.F.R. § 1010.306(c) (2011).
10. 31 C.F.R. § 103.24(a) (2009); 31 C.F.R. § 1010.350(a) (2011).
11. 2021 U.S. Dist. LEXIS 4602 at *26 (quoting United States v.Bittner, 749 F. Supp. 3d 709, 720 (E.D. Tex. 2020).
12. 31 U.S.C. § 5321(a)(5)(D)(ii) (emphasis added).
13. Bittner, 469 F. Supp. 3d at 719.
14. Id. (citing Hamdan v. Rumsfeld, 548 U.S. 557, 578, 126 S. Ct. 2749, 165 L. Ed. 2d 723 (2006) ("A familiar principle of statutory construction . . . is that a negative inference may be drawn from the exclusion of language from one statutory provision that is included in other provisions of the same statute.")).
15. 2021 U.S. Dist. LEXIS 4602 at *30.
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