On 11 July 2023, the Internal Revenue Service (IRS) issued interim guidance on FBAR examination procedures as a result of the Bittner case, in which the United States Supreme Court held that the penalty for non-willful FBAR violations applies on a per form, rather than a per account, basis. The interim guidance takes effect immediately and will be incorporated into the Internal Revenue Manual (IRM) within 2 years.
According to the interim guidance, the IRS is no longer considering mitigation provisions in calculating penalties for non-willful violations of the Report of Foreign Bank and Financial Accounts (FBAR) requirement, following the Supreme Court's landmark decision in Bittner v. United States.
Under previous guidance, the IRS could mitigate penalties for non-willful FBAR violations to:
- USD 500 per non-willful violation (with total non-willful penalties not exceeding USD 5,000 per year), if the maximum aggregate balance for all accounts to which the violations relate did not exceed USD 50,000 at any time during the calendar year;
- USD 5,000 per non-willful violation, if the maximum aggregate balance for all accounts to which the violations relate exceeds USD 50,000 but not USD 250,000 at any time during the calendar year; or
- the statutory maximum per non-willful violation, if the maximum aggregate balance for all accounts to which the violations relate exceeds USD 250,000 at any time during the calendar year.
While the IRS eliminated the above mitigation provisions and amended the IRM provisions related to non-willful FBAR violations to be consistent with the Bittner decision, the IRS guidance highlights that penalties for willful reporting violations still apply on a per-account basis and that the IRM guidance regarding the calculation of such penalties remains unchanged.