The case of United States v. Colliot (2018) involves Dominique G. Colliot, a U.S. taxpayer who failed to file the required FBARs for his foreign bank accounts. The Internal Revenue Service (IRS) assessed penalties against Colliot for both non-willful and willful FBAR violations. Colliot contested the penalties, arguing that the IRS improperly calculated the penalty amounts.
The primary legal question in the United States v. Colliot case centered on the maximum penalty amounts for non-willful FBAR violations. Colliot’s legal team argued that the penalty should be capped at $10,000 per violation, based on the regulations in place at the time of the violations (31 C.F.R. § 1010.820(g)(2)).
The United States government countered by citing the updated statutory language in the Bank Secrecy Act (BSA), which permits a penalty of up to $100,000 or 50% of the balance in the account at the time of the violation for willful violations (31 U.S.C. § 5321(a)(5)(C)(i)). The government argued that the updated BSA provisions superseded the earlier regulation.
The United States District Court for the Western District of Texas ruled in favor of Colliot. The court held that the IRS could not assess penalties in excess of the amounts specified in the applicable regulation, which capped the non-willful FBAR penalties at $10,000 per violation. The court reasoned that the updated BSA provisions did not supersede the regulation, and the IRS had not followed the proper procedure to change the regulation.
In the aftermath of the Colliot decision, the IRS has updated its guidance on FBAR penalties to reflect the court’s ruling. Taxpayers facing FBAR penalties should be aware of this precedent and consider its potential impact on their case.
Article by Zaid Butt, Director
