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IRS Focuses Once Again on FBAR Compliance & Related Penalties

With more court cases focusing on FBAR compliance and the IRS enforcing penalties, timely and accurate filing of FBARs is important. Read on for details.
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With an increasing number of court cases focusing on FBAR compliance and the IRS enforcing penalties, it is important that taxpayers timely and accurately file their Reports of Foreign Bank and Financial Accounts (FBARs) to mitigate expensive penalties and interest, or litigation fees.

In a nearly $18 million lawsuit, a district court held for the government regarding the calculation of penalties in relation to a taxpayer’s FBAR reporting requirements.

In the court case United States v. Schwarzbaum, the U.S. District Court for the Southern District of Florida granted a government motion for entry of a second amended judgment against Isac Schwarzbaum, telling the government to update its $17.8 million penalties and interest amounts to show the accruals that occurred since the government filed its motion.

Schwarzbaum’s FBAR dispute is long, and the problem occurred when the IRS recalculated the FBAR penalties against Schwarzbaum in accordance with an Eleventh Circuit decision. The wrong account balances were used by the IRS to calculate penalties as the balances were not based on June 30 balances. The district court violated the Administrative Procedure Act by recalculating the $15.7 million in penalties and interest itself instead of remanding the case to the agency. The court feared if jurisdiction was not retained by the district court, then Schwarzbaum would argue that under the statute of limitations, the recalculation assessment would be time-barred.

The government confirmed in September that Schwarzbaum owed the same overall FBAR penalty amount, even though different amounts and calculations were used. Schwarzbaum’s argument to limit interest also was rejected. The Eleventh Circuit vacated its judgment on the improper calculation and not the finding of willfulness and FBAR assessment. On October 27, the court said Schwarzbaum was bringing up arguments that were previously rejected. He tried to state that the government couldn’t use estimated account balances in any recalculation, even if he was the one who provided the estimated numbers. It was pointed out that while FBAR penalty miscalculations by the IRS aren’t unusual, the remand for recalculation is much more recent. 

Forvis Mazars will continue to monitor court cases such as Schwarzbaum, which highlight the need of taxpayers to focus on their reporting and submit timely and accurate filings.

If you have any questions or need assistance, please reach out to a professional at Forvis Mazars or use the Contact Us form below.

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