Monthly Archives: November 2024

Schwarzbaum – FBAR Penalties ARE Subject To The “Excessive Fines Clause”

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Prologue – U.S. Citizenship And The Tax, Form and Penalty Club

U.S. citizens are members of the world’s premier “tax, form and penalty club”. The law of Mr. FBAR is a testament to the American penchant for imposing penalties for various “form crimes”.

One of most interesting issues is whether there are constitutional limits to the penalties that can be imposed for failing to file an FBAR. The eighth amendment of the U.S. constitution does include the prohibition on “Excessive Fines”. Can a fine that might exceed the value in the unreported account be consistent with the “Excessive Fines Clause”? This is one of the most significant social and legal issues in 21st Century America.

The Supreme Court of the United States refused to hear an appeal from Monica Toth’s FBAR penalty. In her petition to the Supreme Court, she asked the court to consider whether FBAR penalties might violate the “Excessive Fines Clause”. The court declined to hear the Toth FBAR case. Justice Gorsuch wrote a powerful dissent in which he invited lower courts to consider the issue. In 2024, the Eleventh Circuit obliged and ruled that FBAR penalties ARE subject to the “Excessive Fines” clause in the eighth amendment. The litigant was none other than Mr. Isac Schwarzbaum – a true pioneer in the development of FBAR jurisprudence.

Isac Schwarzbaum – Discussion In Various Podcasts

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Schwarzbaum – Willfulness In A Civil FBAR Penalty vs. Willfulness In A Criminal FBAR Penalty

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Prologue

In 2024 the Eleventh Circuit (contrary to the First Circuit in Toth) ruled that FBAR penalties are subject to the “Excessive Fines Clause”. I wrote about the Schwarzbaum decision here. The decision was a small win for Mr. Schwarzbaum but a large win for U.S. citizens and those “U.S. residents” subject to the FBAR rules.

Isac Schwarzbaum’s contribution to the understanding of Mr. FBAR continues …

Two kinds of “willful” FBAR penalties:

Generally both “civil” and “criminal” FBAR penalties can be asserted. Conviction of a “criminal FBAR penalty” may result in incarceration.

Willful FBAR Penalty 1 – The Civil Willful Penalty – 31 U.S.C. 5321(a)(5)(c)

31 U.S. Code § 5321 – Civil penalties

(C) Willful violations.—In the case of any person willfully violating, or willfully causing any violation of, any provision of section 5314—

(i) the maximum penalty under subparagraph (B)(i) shall be increased to the greater of—
(I) $100,000, or
(II) 50 percent of the amount determined under subparagraph (D), and
(ii) subparagraph (B)(ii) shall not apply.

Willful FBAR Penalty 2 – The Criminal Willful Penalty – 31 U.S.C. 5322

31 U.S. Code § 5322 – Criminal penalties

(a) A person willfully violating this subchapter or a regulation prescribed or order issued under this subchapter (except section 5315, 5324, or 5336 of this title or a regulation prescribed under section 5315, 5324, or 5336), or willfully violating a regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508, shall be fined not more than $250,000, or imprisoned for not more than five years, or both.

JR Commentary: Notice that both the civil and criminal penalty sections are triggered by “willfully violating”. The issue is whether the words “willfully violating” have the same meaning in the civil and criminal context. The Government (rightfully) argues they have different/separate meanings in each context. (The meaning of “willfully violating” has one meaning in the civil context and a different meaning in the criminal context.) The Government appeal of the Eleventh Circuit decision in Schwarzbaum includes this issue.

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New Renunciation Form And Processes For US Citizenship Relinquishment Effective November 1, 2024

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Update November 5, 2024 – See the Appendix where I include podcasts with expatriation lawyers Virginia La Torre Jeker and Diane Gelon.

The “Readers Digest” Version

Towards the end of October of 2024, the following comment appeared online:

‘Just renounced in Rome this afternoon. Very smooth, professional, friendly. I was asked why by the consular officer but the office person who did all the work was extremely helpful and did not ask why I decided to do it. It should take 2-3 months to get my CLN. Maybe even less. One thing the office guy mentioned was that I was just in time to do the standard procedure, because it is soon going to change. He said that if now there are two forms to fill out, soon there will be 13 pages of forms to fill out “to better identify and determine certain particular situations”. Does anyone know anything about this? I am thinking ( hoping) that it may be to facilitate accidentals? Anyway, all done, I am FREE! (No emotions. I remembered the podcast where someone said “just think of it as retirement “’

(The “think of it as retirement podcast was actually a podcast I did called “The Retired Citizen“.)

Effective November 1, 2024 a new procedure has been adopted for individuals seeking a Certificate Of Loss Of U.S. Nationality (“CLN”).

Generally, the new procedure:

– is based on a newly designed Form DS-4079 (the old one is obsolete) which has different sections for different kinds of expatriating acts. The parts of the form that you complete depend on the nature of the “expatriating” act upon which you rely;

– is better designed to probe whether the applicant’s facts meet the evidentiary standard (“preponderance of the evidence”) to establish the “voluntariness” and “intention to relinquish” which are required under IINA 349(a) and INA 349(b).;

– reflect that the burden of proof of establishing “voluntariness” and “intention” must be met by the individual (the days of presuming intention are over) – INA 349(b)

– clarify that the first interview need NOT take place in person (phone or email can work) but that the second interview MUST take place in person

– clarify that ALL individuals must (1) Complete the newly designed Form DS-4079 (a completely redesigned form) and and (2) what ORIGINAL documents must be presented at the relinquishment/renunciation interview

– appear to be moving toward a standardized process all around the world (up until October 31, 2024 different Consulates used different forms, etc.)

Generally the new process is described in the new DS-4079 which is available here:

ds4079

Those wishing to renounce U.S. citizenship in Canada will be pleased to know that (after a lengthy absence) Quebec City and Halifax are renunciation options. In Canada one can renounce in: Vancouver, Calgary, Toronto, Ottawa, Montreal, Quebec City and Halifax. Canada is surely the renunciation capital of the world!

Additional commentary

1. I will add more in the upcoming days. Until now few (if any) renunciation requests were refused. I predict that the new process will result in the first wave of individuals who cannot meet the evidentiary standard required on renunciation and relinquishment.

2. The new DS-4079 heightens the chance of inadmissibility after renunciation.

To be “FORMWarned” is to be “FOReArmed!”

If you need help, feel free to contact me at …

John Richardson – Follow me on X.com @Expatriationlaw

Appendix – Podcasts with lawyers Virginia La Torre Jeker and Diane Gelon

Virginia La Torre Jeker:

Diane Gelon:

Part 4 – Notice 2023-11: Relief For Foreign Banks And The Hunt For Americans Abroad Extended For An Additional Three Years By Notice 2024-78

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Prologue and introduction:

October 24, 2024 -Letter to Americans abroad from Kamala Harris

In a letter addressed to Americans abroad Vice President Harris said that she takes the concerns of US citizens overseas seriously, “whether it’s improving access to consular services, addressing the complex challenges you face with banking, taxation, and financial services, or ensuring equal treatment in immigration and citizenship processes.”

The full text of the letter may be found here.

https://www.democratsabroad.org/vp_harris_letter_to_americans_abroad

October 28, 2024 – Biden Treasury Letter To Americans Abroad – Notice 2024-78 – Either Comply With FATCA and U.S. Citizenship Taxation or Renounce U.S. Citizenship

As described in a short announcement from KPMG:

The IRS today released Notice 2024-78, extending the temporary relief provided in Notice 2023-11, subject to the procedures and requirements of Notice 2024-78, for certain foreign financial institutions required to report U.S. taxpayer identification numbers (U.S. TINs) for certain preexisting accounts as defined in an applicable Model 1 intergovernmental agreement (IGA).

If a foreign financial institution in an eligible Model 1 IGA jurisdiction complies with the procedures described in the notice, then the U.S. Competent Authority will not determine there is significant non-compliance with the reporting Model 1 FFI’s obligations under the IGA solely as a result of its failure to report U.S. TINs associated with its preexisting accounts for the 2025, 2026, and 2027 calendar years.

The text of Notice 2024-78 is here:

n-24-78

Notice 2024-78 is the first indication of how seriously (NOT) the Biden/Harris administration takes the concerns of Americans abroad. In brief, the message from the Biden Administration to (an update to Treasury Notice 2023-11) Americans abroad is:

Either comply with FATCA and U.S. citizenship taxation or renounce your U.S. citizenship!

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