Accounting
FBAR penalties: ‘Grossly disproportionate’ | Accounting Today
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The Bank Secrecy Act of 1970 required the Treasury to promulgate regulations requiring United States citizens to report any “transaction” or “relation” with a “foreign financial agency.” Consequently, the Treasury created the Report of Foreign Bank and Financial Accounts form, known as the FBAR. Each American citizen with interests in or authority over any foreign bank account with a balance exceeding $10,000 must file an annual FBAR with the IRS identifying and describing that account.
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The Eleventh Circuit noted that the only other circuit court to have addressed the question as to whether FBAR penalties are fines within the meaning of the Eighth Amendment was the First Circuit, which recently held that the Excessive Fines Clause does not apply to FBAR penalties.
“After examining the historical development of the Excessive Fines Clause and the FBAR’s text, structure and history, we decline to follow the First Circuit,” the court wrote. “Rather, we hold that FBAR penalties are in substantial measure punitive in nature. Therefore, under controlling Supreme Court precedent, they are subject to review under the Eighth Amendment’s Excessive Fines Clause. And in this case, examining the penalties assessed against Schwarzbaum account by account, as we must, we identify $100,000 in penalties levied against one account in each of the years 2007-2009, for a total of $300,000, that are grossly disproportionate to the offense of concealing that account, and are therefore in violation of the Excessive Fines Clause.”
“We also hold, however, that the other penalties levied against the remaining accounts did not violate the Excessive Fines Clause because the penalties assessed against them were not grossly disproportionate to Schwarzbaum’s willful concealment of tens of millions of dollars in overseas accounts,” the court added.
Robbin Caruso, a partner at Top 100 Firm Prager Metis and co-manager of its National Tax Controversy practice, regularly represents taxpayers assessed with substantive and potentially financially devastating FBAR penalties. “I am hopeful that the Supreme Court will address this issue now that the Eleventh Circuit Court of Appeals has called such penalties ‘grossly disproportionate to the offense’ of concealing an account,” she said. “Even in cases where reasonable cause exists, rectifying the penalties on these FBAR violations is a time-consuming and expensive endeavor for the taxpayers involved. Whether or not the excessive fines clause applies directly to FBAR penalties, these penalties will remain at front and center due to this split.”
The court noted that even cases where the penalty is merely partially punitive would still be subject to review under the Eighth Amendment ban. But although the court trimmed Schwarzbaum’s total penalties by $300,000, it remanded his case to the district court for the entry of a judgment in the amount of $12,255,813, plus the calculation of late fees and interest.
The Governmental Accounting Standards Board issued guidance today that will require separate disclosures for certain types of capital assets for the purposes of note disclosures.
GASB Statement No. 104,
The statement requires certain types of assets to be disclosed separately in the note disclosures about capital assets. The intent is to allow users to make better informed decisions and to evaluate accountability. The requirements are effective for fiscal years beginning after June 15, 2025, and all reporting periods thereafter, though earlier application is encouraged.
The guidance requires separate disclosures for four types of capital assets:
- Lease assets reported under Statement 87, by major class of underlying asset;
- Intangible right-to-use assets recognized by an operator under Statement 94, by major class of underlying asset;
- Subscription assets reported under Statement 96; and,
- Intangible assets other than those listed in items 1-3, by major class of asset.
Under the guidance, a capital asset is a capital asset held for sale if the government has decided to pursue the sale of the asset, and it is probable the sale will be finalized within a year of the financial statement date. A government should disclose the historical cost and accumulated depreciation of capital assets held for sale, by major class of asset.
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