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Court Upholds FBAR Penalties, but Rejects Government's Assessed Interest and Late Charges

By Michael A. Villa, Jr. on July 28, 2015

In Moore v. U.S., No. C13-2063 (W.D. Wash. July 24, 2015), Judge Richard Jones examined a case in which FBAR penalties of $10,000 were assessed for each year from 2005 through 2008.  The Court held the IRS’s decision to assess the FBAR penalties was not arbitrary, capricious or an abuse of discretion.  However, the Court also ruled that the IRS’s conduct and actions in assessing the FBAR penalties was in fact arbitrary and capricious and, therefore, held that the plaintiff should not have to pay interest or late charges on the FBAR penalties.  In coming to its conclusion, the Court took issue with the fact that during the exam the IRS refused to disclose any adequate basis for its decision to assess the penalties.  The IRS essentially refused to disclose its basis for the penalties until after litigation commenced and it was compelled to disclose its reasoning.   The Court also noted that as to the 2005 penalty, the IRS failed to adhere to its own promise to not impose a penalty until the plaintiff had an opportunity to respond to the “proposed” assessment.  The Court noted “no citizen should have to sue his own Government to find out why he is being fined, or to find out why he is being fined $40,000 as opposed to a smaller amount.”

Click here to read the Court’s full decision.