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Zhanna Ziering Comments on Government Win Against $100,000 FBAR Cap

March 4, 2019, Tax Notes

Another district court has sided with the government in declining to hold that an old reg caps willful foreign bank account reporting penalties at $100,000.

. . .

The defendants also unsuccessfully asserted that the penalties assessed were an excessive fine that was unconstitutional under the Eighth Amendment.

The applicability of the excessive fines clause in the FBAR context is somewhat unsettled. United States v. Bajakajian, 524 U.S. 321 (1998), a frequently cited Supreme Court case on the matter, held that a punitive forfeiture is invalid only if it is “grossly disproportional to the gravity of the defendant’s offense.”

. . .

The parties had also previously settled trust fund penalties with the defendants paying $850,000. The defendants then contended that the penalties on the foreign trust should be counted in assessing an Eighth Amendment violation.

But the court held that the trust violation was “legally and factually distinct.” The penalties assessed were for a failure to file forms, not for the existence of an account, the court held. It also emphasized that only one of the 16 trust violations overlapped with the FBAR violation and that the IRS abated more than that one year’s amount as part of the settlement. Further, the court noted that the settlement amount could be applied to whatever trust penalty the agency decided, and therefore it was uncertain if any trust fund payment applied to the same year as the FBAR violation.

. . .

Zhanna A. Ziering of Caplin & Drysdale took issue with the court declining to consider the penalties for failure to file forms related to foreign trusts.

“The court’s refusal to consider Garrity’s penalties for failure to file forms 3520 and 3520-A in its Eighth Amendment analysis of the FBAR penalties disregards the fact that all of these penalties were imposed for Garrity’s failure to report largely the same assets, albeit on separate forms, and each of these penalties is a percentage of the assets’ aggregate value,” Ziering said. “This is particularly relevant since, as part of the Bajakajian analysis, the court must determine if the penalty is ‘grossly disproportional’ to the gravity of the offense.”

For the full article, please visit Tax Notes’ website (subscription required).

Excerpt taken from the article “U.S. Government Tallies Another Win Against $100,000 FBAR Cap” by Andrew Velarde for Tax Notes.

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