New FBAR Limits Reflecting IRS Concern on Eighth Amendment Litigation

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June 5 — New constraints on penalties the IRS will impose when taxpayers don't properly report their foreign bank accounts show agency concerns that some will argue in court that huge penalties are unconstitutional, attorneys told Bloomberg BNA.

IRS guidance limiting the penalties examiners can assert for failure to file the Report of Foreign Bank and Financial Accounts “reflects some awareness and sensitivity about the constitutional issue presented by a multi-year FBAR penalty,” Scott Michel, a member of Caplin & Drysdale, said June 4. “The notion that the government will exercise some administrative restraint is a good development.”

Practitioners said the guidance likely stems in part from an argument a taxpayer was prepared to make in court in 2014 that a penalty far greater than the value of his bank account, across multiple years, was an excessive fine under the Eighth Amendment. Some said that argument still could be made even under the new guidance, which limits the amount the government can take to 100 percent of the account.