Say you’re cooperating with the Department of Justice and the IRS Criminal Investigation Division in connection with the ongoing investigation of two Swiss bankers. Your cooperation with the agencies led to information about the Swiss bankers’ involvement in tax evasion by U.S. persons having undeclared offshore financial accounts.
You know that when you report the underpayment of taxes or the violation of tax laws by others to the IRS, you may be able to collect a whistleblower reward. You also know the IRS has two programs, named for the internal revenue code section that authorizes them. The 7623(a) program is for claims of $2 million or less, and the 7623(b) program is for claims over $2 million.
Now you learn that a taxpayer agreed to pay a substantial penalty in conjunction with a guilty plea for filing a false tax return. You also learn the taxpayer admitted that one of the two bankers being investigated thanks to your cooperation had helped the taxpayer open Swiss bank accounts to conceal the taxpayer’s income and assets from U.S. authorities. The taxpayer agreed to pay a civil penalty for failing to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (Foreign Bank Account Report or FBAR), as required under U.S. code section 31.* The penalty was substantially in excess of $2 million. In addition, the taxpayer paid a small amount of restitution, reflecting unpaid federal income tax on income derived from the Swiss bank accounts.
Since your cooperation with the U.S. agencies led to the arrest of the Swiss banker, and in turn to the taxpayer’s penalty, you believe you’re entitled to a whistleblower award under the 7623(b) program.
But the IRS says a whistleblower using the 7623(b) program is eligible for a nondiscretionary award only “if the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2 million.”
You and the IRS appear to agree the FBAR payments do not constitute “penalties,” “tax,” “interest,” or “additions to tax,” under the internal revenue code. But does the FBAR payment constitute an “additional amount” for purposes of determining whether the $2 million threshold has been met?
You think so. Your argument is that the term “additional amounts” as used in the whistleblower section of the tax code (section 7623(b)(5)(B)) means, in essence, “other sums of money.”
The IRS says a legal opinion from the IRS Office of Chief Counsel concluded that FBAR penalty payments, because they are made pursuant to Title 31 (Money and Finance) rather than Title 26 (Internal Revenue Code) of the U.S. code, are not “collected proceeds” eligible for a nondiscretionary award under title 26 section 7623(b)(1). (See PMTA 2012-10.) Therefore, the FBAR penalty doesn’t count when adding up the total claim, and your claim does not meet the $2 million threshold of the 7623(b) program.
You say because FBAR civil penalties are “administered by the IRS, are reported alongside income tax returns, and have a tax-related purpose,” “they are, in effect, ‘internal revenue laws,’ and should be treated as such under the scope of section 7623.” You point out that given the IRS’s important role in FBAR administration, at least one court has found that the internal revenue code and the FBAR provisions of Title 31 are “related statutes.”
The tax court says these arguments are extraneous to the dispute, and the focus is whether FBAR payments constitute “additional amounts” within the meaning of section 7623(b)(5)(B). To win your case, you must show that “the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000” with respect to your claim.
Here is the statutory structure the tax court intends to review:
The term “additional amounts,” when used in a series that also includes the words “tax” and either “additions to tax” or “additions to the tax,” appears nearly 40 times in the internal revenue code. Elsewhere in the U.S. code, the term “additional amount” appears in a series of this sort only twice; in both instances, the provision in which it appears is captioned “Taxes.”
“Additional amounts” and “additions to the tax” are terms of art in the internal revenue code.
Chapter 68 of the code is captioned “Additions to the Tax, Additional Amounts, and Assessable Penalties.” Subchapter A of chapter 68 is captioned “Additions to the Tax and Additional Amounts.” This subchapter includes 13 sections, including the additions to tax for failure timely to file a return or timely pay tax, the accuracy-related penalty under section 6662, and the fraud penalty under section 6663.
Section 6665, the last section in this subchapter, is captioned “Applicable Rules.” It states that, except as otherwise provided in Title 26, “the additions to the tax, additional amounts, and penalties provided by this chapter shall be * * * assessed, collected, and paid in the same manner as taxes” and that “any reference in this title to ‘tax’ imposed by this title shall be deemed also to refer to the additions to the tax, additional amounts, and penalties provided by this chapter.”
Based on the statutory structure,
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*Treasury Department Form 90-22.1 was the required report during the time period relevant to this case. FBAR reports are currently made on FinCEN Report 114.
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We have consistently held that “additional amounts,” particularly when it appears in a series that also includes “tax” and “additions to tax,” is a term of art that refers exclusively to the civil penalties enumerated in chapter 68, subchapter A. “Additional amounts” appears in section 7623(b)(5)(B) in conjunction with “tax” and “additions to tax,” and we find no reason to give that term a different meaning in this section than it has elsewhere.
FBAR civil penalties are not among the tax-related penalties enumerated in chapter 68, and they are not “assessed, collected, and paid in the same manner as taxes.” FBAR penalties are not “additional amounts” within the meaning of section 7623(b)(5)(B), and they must be excluded in determining whether the $2,000,000 “amount in dispute” requirement has been satisfied.
Held: The term “additional amounts” as used in internal revenue code section 7623(b)(5)(B) means the civil penalties set forth in chapter 68, subchapter A, of the internal revenue code, captioned “Additions to the Tax and Additional Amounts.”
Held, further, FBAR civil penalties are not “additional amounts” within the meaning of internal revenue code section 7623(b)(5)(B), and they are not “assessed, collected, * * * [or] paid in the same manner as taxes.” FBAR payments must therefore be excluded in determining whether the $2,000,000 “amount in dispute” requirement has been satisfied.