Few basic U.S. tax compliance questions matter more to a U.S. citizen or green-card holder living abroad than what an unfiled FBAR can actually cost in penalties.  Also, a green-card holder might not have any reporting requirements at all – given the law explained in the federal district court decisions originally appealed by the government in my 9th Circuit decision:   Aroeste v. United States, Case No. 22-cv-00682-AJB-KSC. 

What Are the Penalties for Not Filing an FBAR?

Failure to file an FBAR may result in a civil penalty if assessed by the government. The willful civil penalty is frankly more onerous than the criminal penalty that is maxed out by statute.  The maximum civil penalty depends on whether the violation is determined to be non-willful or willful.

The statutory framework was initially set out by a federal district court in 2015, that also reviewed the FATCA laws, and it is worth reading the summary here: 

A person who fails to file a required FBAR may be assessed a civil monetary penalty. 31 U.S.C. § 5321(a)(5)(A). The amount of the penalty is capped at $10,000 unless the failure was willful. See 5321(a)(5)(B)(i), (C). A willful failure to file increases the maximum penalty to $100,000 or half the value in the account at the time of the violation, whichever is greater. § 5321(a)(5)(C). In either case, whether to impose the penalty and the amount of the penalty are committed to the Secretary’s discretion. See § 5321(a)(5)(A) (“The Secretary of the Treasury may impose a civil money penalty[.]”)

Crawford v. U.S. Department of the Treasury (S.D. Ohio 2015 – Case No. 3:15-cv-00250)

The IRS internal revenue manual (4.26.16.4.1) summarizes how and why the IRS has purported authority to assess penalties for FBAR Title 31 violations as set forth below:

As of April 8th 2003, IRS was delegated the authority to assess and collect FBAR civil penalties. 31 C.F.R. § 103.56(g). The delegation includes the authority to investigate possible FBAR civil violations, provided in Treasury Directive No. 15-41 (Dec. 1, 1992), and the authority to assess and collect the penalties for violations of the reporting and recordkeeping requirements.

Was this delegation of authority from FinCEN to the IRS even valid as a matter of law?  That questions has not been challenged yet in the courts.  

When performing these FBAR functions, the IRS is not acting under Title 26 (the federal tax law) but, instead, is acting under the authority of Title 31 (the Bank Secrecy Act). Provisions of the Internal Revenue Code generally do not apply to FBARs and visa-versa.  Does the IRS even have lawful authority to manage and assess these penalties – which previously were in the hands of the more obscure FinCEN.  

What Is the Penalty for a Non-Willful FBAR Violation?

A non-willful FBAR violation may result in a civil penalty of up to $10,000 per violation. The Supreme Court has now held (after years of litigation) that, for non-willful violations, the penalty generally applies singularly – per report – rather than per account as the IRS argued for years.  Bittner v. United States, 598 U.S. 85, 143 S. Ct. 713 (2023)

For years the government (IRS) read that $10,000 could be assessed for each account, and the Supreme Court finally resolved the question in 2023 against the government.  The Ninth Circuit had ruled against the government in United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021) and the Fifth Circuit (United States v. Bittner, 19 F.4th 734 (5th Cir. 2021)) overturned the federal district court in the eastern district of Texas in United States v. Bittner, No. 4:19-CV-415, 2020 WL 4200057 that had originally ruled in line with Boyd.  

See an article I wrote on this issue along with two of my international tax colleagues at Chamberlain Hrdlicka: published as a Special Report in Tax Notes:  

Six Weeks, Three International Information Reporting Decisions –

On February 28th, 2023, the Supreme Court of the United States (“SCOTUS”) resolved in Bittner that the applicable non-willful FBAR penalty is not measured by every foreign account of the individual as the Service had argued for years and as they put into their IRM.  The author had the opportunity to draft as one of the co-authors of the ACTEC amicus brief that was filed in Bittner.  After Bittner, the total maximum penalty per year is $10,000 for non-willful violations.   A maximum penalty of $50,000 (x5 years) applied per the SCOTUS versus the IRS determined amount of US$2.7M+ multiplying each account by $10K.

“Best read, the BSA treats the failure to file a legally compliant report as one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per-account basis.”   The ACTEC brief was cited by the majority opinion- “ We see evidence, too, that the point of these reports is to supply the government with information potentially relevant to various kinds of investigations, criminal and civil alike. But what we do not see is any indication that Congress sought to maximize penalties for every nonwillful mistake (whether a late filing, a transposed account number, or an out-of-date bank address). See Brief for American College of Trust and Estate Counsel as Amicus Curiae 5–7.”

Importantly, the U.S. Supreme Court rejected the IRS interpretation of multiple per year non-willful FBAR penalties in Bittner v. United States, 598 U.S. 85, 143 S. Ct. 713 (2023).

What Is the Penalty (Civil) for a Willful FBAR Violation?

A willful FBAR violation may result in substantially higher penalties. The maximum penalty is generally based on the greater of a statutory amount or a percentage of the account balance.

Because the willful penalty is measured against the account itself, it can exceed the balance entirely once assessed over several years.  See, United States v. Carl R. Zwerner, Case No. 1:13-cv-22082-CMA (2014)

The government was  on its face, very “successful” in the Zwerner case in convincing a jury they should render a verdict for 3 years of FBAR 50% willfulness penalties (150% of the account balance in total).  The government tried to assert 4 years of willfulness penalties, which would have been 200% of the account balance; all under a civil penalty provision in the statute, that looks like a criminal penalty on its face and via its outcome.

In Zwerner, the taxpayer did come forward and disclose the unreported foreign accounts, and received a letter from the IRS CI on February 17, 2009, stating that ” . . . based upon the information provided a criminal investigation will not be initiated at this time. . . ”   Nevertheless, the government pursued 50% civil willfulness penalty assessments for multiple years (4 years).  The Tax Division of the Justice Department pursued this case through trial, incurring the time and costs of government resources, arguing Mr. Zwerner owed a total of $3,630,119.29 (on an account with a maximum value during the years at issue of apparently no more than US$1.69M) in their Motion for Summary Judgement.

In Count Six, Plaintiffs contend that the FBAR “Willfulness Penalty” is unconstitutional under the Excessive Fines Clause. Plaintiffs allege the Willfulness Penalty is designed to punish and is therefore subject to the Excessive Fines Clause. Plaintiffs further allege the Willfulness Penalty is grossly disproportionate to the gravity of the offense.

Can the IRS Penalize Each Foreign Account Separately?

Not for non-willful violations as explained above.  The “jury is still out” regarding to what extent multiple years of 50% willfulness penalties may be assessed.  The IRS has tempered their approach a bit over the last decade – particularly as of late, after losing a number of key FBAR cases going to trial.  

Is the FBAR Penalty Mandatory?

No. The statute provides that the government may assess an FBAR penalty, giving the government discretion over whether, and in what amount, a penalty is imposed.

The distinction between what the statute permits and what it requires is easily missed, and it matters a great deal for individuals who have not filed FBARs.  Especially for those residing outside the United States – including those individuals with green cards.

 The relevant statutory provision is that “The Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314.”  31 U.S.C. Section 5321(a)(5)(B).  

How Long Does the IRS Have to Assess an FBAR Penalty? – Six Years – 

The IRS generally has six years to assess a civil FBAR penalty. This limitations period differs from the rules that apply to federal income tax returns.

The two bodies of law run on different time clocks.  

The FBAR (the Foreign Bank Account Report) comes from a different law than the federal income tax. The income tax is from Title 26 of the U.S. Code. The FBAR comes from the Bank Secrecy Act, which is Title 31. These two laws are very different, with very different obligations and rights. One of the important differences is the time frame in which the government can assess penalties for not complying.

A statute of limitations is the time frame in which the government has to assess penalties for not complying with the law. For foreign accounts, these time periods are not the same under Title 31 (the Bank Secrecy Act) as they are under Title 26 (the income tax law). The gap between the two is what makes this area confusing.

No. When a U.S. citizen or LPRs residing overseas fails to file an income tax return, the time period for the IRS to make tax assessments never lapses. There is effectively no statute of limitations against the IRS in that situation. The clock to assess does not start until a return is filed.

Title 31, the Bank Secrecy Act, is different. It does have a time period that runs against the U.S. federal government, even if the FBAR was never filed. For civil assessments of penalties, that time period is 6 years.  This important distinction helps drive strategic decisions of foreign account holders if they have failed to file FBARs. 

There is a statute of limitations whether or not an FBAR was filed.  Hence if a USC or LPR neglected to file an FBAR for the year 2006, for instance, the time period for the government to assess penalties has lapsed long ago.  See, When does the Statute of Limitations Run Against the U.S. Government Regarding FBAR Filings?

How Does the IRS Collect an FBAR Penalty?

An FBAR penalty is generally not collected through the IRS’s ordinary tax lien and levy procedures. Instead, the government is typically required to bring a civil action to collect an unpaid penalty.  They also have “off-set” rights that can be invoked against other payment amounts owed to the taxpayer.  See, Bureau of the Fiscal Service and their powers through the  Treasury Offset Program (TOP). 

Assessing a penalty and actually collecting it are separate problems for the government, particularly where the taxpayer and the assets are outside the United States.

The collection of the FBAR penalty is not as easily collected under the law, as is a tax claim.  A Title 26 tax lien and levy claim against the taxpayer’s property cannot be used to collect an FBAR penalty.  Instead, the government has rights of set-off and will typically be required to bring a judicial action in Court to enforce the penalty assessment.  See, an early case, United States v. Williams, 489 F. App’x 655 (4th Cir. 2012), where the government sued to collect the 50% FBAR willfulness penalty.

The laws of many countries outside the U.S. often conclude that enforcing these FBAR penalties against a U.S. citizen or LPR, inside that person’s home country, violates the laws of that country. Canada is one example. Calgary based tax attorney Roy Berg has written on the question of whether the IRS can collect FBAR penalties under the Canada-US Treaty.

The “Revenue Rule” was a common law concept that generally prohibited the U.S. government from assisting in the collection of taxes of another country.  Hence, the U.S. Treasury renegotiated the treaties with five countries (including Canada) that now have a specific treaty provision such as XXVI A above:

As a result of these cases and the Revenue Rule, the U.S. and Canada modified their income tax treaty to (at least in theory) to allow for the international enforcement of taxes.  The U.S. now has five income treaties with “mutual assistance” provisions: Canada, Sweden, France, Denmark, and the Netherlands (with a clause in the newly negotiated, but yet to go into force, Swiss treaty).

In the Dewees case, we learned that the assistance in collection provision is not merely a theoretical tool that can be used in collecting taxes.   The IRS was successful in a long running case with FBAR penalties and Title 26 penalties for failure to file IRS forms 5471 regarding the U.S. citizens Canadian companies.  He lived in Canada.  See, Dewees v. United States, 272 F. Supp. 3d 96 (D.D.C. 2017), which was subsequently affirmed by the D.C. Circuit Court of Appeals (Dewees v. United States, 767 F. App’x 4 (D.C. Cir. 2019)).  The actions of both the Canadian (CRA) and U.S. governments (IRS and District Court Judge), made the provision effective.   The US$120,000 penalty, that has nothing to do with any U.S. income taxes owed (nor FBAR penalty), was collected by the IRS; a penalty under 26 U.S.C. § 6038(b) for failure to file informational returns – .

Can an FBAR Violation Lead to Criminal Charges?

Yes, but not every FBAR violation is a criminal matter. Criminal liability generally requires proof of willful conduct and carries a burden of proof on the government – (beyond a reasonable doubt) – and always depends on the facts of the case.

Yes. A U.S. citizen or LPR living overseas could in theory become criminally liable for willfully not filing the FBAR form. Criminal liability carries different legal consequences than a civil penalty. These are not easy cases for the government – and hence they rarely have brought criminal FBAR cases for taxpayers residing overseas.  It all depends upon the facts.  

IRS Criminal Investigation (division) has been delegated the authority to investigate possible criminal violations of the Bank Secrecy Act. 31 C.F.R. §103.56(c)(2).  This should not be taken lightly.  

Yes, there are also statutes of limitations for criminal charges the government brings for FBAR violations. The law gets much more complex here, especially when the taxpayer is residing outside the U.S. In that situation, the time period can be tolled or suspended in favor of the government, which extends the window to bring charges. Jack Townsend (an amazing, now retired criminal tax defense lawyer who has contributed extensively to the tax law practice) has written on the statutes of limitations for FBAR noncompliance related to tax reporting.  Jack is co-author of Tax Crimes – John  (“Jack”) Townsend with my law partner the esteemed criminal tax defense lawyer Larry Campagna along with Steve Johnson, and Scott Schumacher.

U.S. citizens residing overseas clearly have FBAR filing requirements – if they meet the thresholds.  The law is quite different for those with “green cards” residing predominantly overseas in a country with an income tax treaty with the U.S.  Here, it gets a lot more complicated, but see my case of  Aroeste v. United States, Case No. 22-cv-00682-AJB-KSC (2023) that was appealed to the Ninth Circuit by the government after they lost.  

What Can We Learn from Real FBAR Penalty Cases?

Reported cases show that the outcome of an FBAR penalty dispute depends heavily on the facts. They also demonstrate that proposed penalties may be successfully challenged in appropriate cases.

One case makes the point better than any summary of the rules could.

This case was covered extensively by various tax journalists and followed by tax professionals around the world from the time it started until it concluded. I know, because I was the lead attorney representing the then 91 year old widow from Canada, dear Mrs. Margaret Jones. The pleadings in the case can be viewed here – Margaret J. Jones v. United States (2:19-cv-04950)

In my view, this case should have never ended up before the U.S. District Court. The IRS erred in making a determination of “willful blindness” against Mrs. Jones who was legally blind at her advanced age. They conceded Mrs. Jones had no actual knowledge of the reporting requirement. She was advised for more than two decades by a CPA, both she and her late husband (an immigrant from New Zealand). They both had accounts that were decades old from their respective countries – Canada and New Zealand. Held openly and directly for the majority of their lives.

Mrs. Jones did the right thing by going to the Streamlined Filing Procedure (the streamlined filing procedure) and correcting her errors on her tax returns. She was then selected by the IRS for audit (because of that filing) where she got a tax refund of over $20,000. For that effort, time and expense, the IRS turned around and slapped her with US$3.4M of “willful blindness” penalties regarding her accounts in Canada and New Zealand, most of which were her husband’s accounts. Her late husband served in World War II while living in New Zealand before moving to the U.K. then Canada (where he met Mrs. Jones) and then on to the U.S. They both had high school diplomas.

The case was set for a jury trial (on two occasions) but Judge Selna postponed it on both occasions due to the Corona-virus. Unfortunately, Mrs. Jones never had her day in Court where I believe a jury would have found that the government did not carry its burden against Mrs. Jones and her late husband. Not even a close call. Her facts were not nefarious, unlike most of the cases where sophisticated taxpayers have been hiding their assets from the IRS, such as in Swiss bank accounts.

After the government conceded the bulk of the case and it was dismissed just before Christmas of 2020, Mrs. Jones passed away shortly afterwards. May her Soul Rest in Peace.

The DOJ drives the bus (NOT the IRS) once the case falls into their hands.

A jury trial should always be considered in the right case, a good faith taxpayer case, as jurors will generally see and understand the big picture.

By contrast, in Zwerner the penalty amount apparently sustained by the jury has been reported as “. . . $2,241,809 on an offshore account that had an apparent high balance of $1,691,054. . . “

The author has spoken on defending Title 31 FBAR penalties at the University of San Diego School of Law – International Tax Institute, alongside Caroline D. Ciraolo, former Acting Assistant Attorney General of the Justice Department’s Tax Division, and Robert S. Horwitz; and many other panels and forums advising clients on these FBAR issues.  Seek advice on FBAR issues if you have a filing requirement.

In Kawashima v. Holder (565 U.S. 478 (2012), the United States Supreme Court held that certain tax offenses committed by lawful permanent residents constitute crimes involving “fraud or deceit” for purposes of the Immigration and Nationality Act (“INA”). Specifically, the Court concluded that lawful permanent residents (a husband and wife from Japan) who were convicted of filing false tax returns resulting in a tax loss exceeding $10,000 had been convicted of an “aggravated felony” within the meaning of the INA.

As a consequence, a conviction for such an aggravated felony renders a lawful permanent resident removable (deportable) from the United States under the immigration laws. Importantly, however, the criminal conviction itself does not automatically terminate lawful permanent resident status. Rather, it provides the legal basis for the Department of Homeland Security to initiate removal proceedings, after which an Immigration Judge may enter a final order of removal.

Once a final order of removal becomes effective, the individual’s lawful permanent resident status is considered to have been revoked. For U.S. federal income tax purposes, this generally results in the termination of lawful permanent resident status under 26 U.S.C. § 7701(b)(6)(B), which provides that an individual ceases to be a lawful permanent resident when “such status has been revoked or has been administratively or judicially determined to have been abandoned.” Accordingly, following a final order of removal, the individual is no longer treated as a lawful permanent resident for purposes of the tax law as summarized below:

The 2012 case involved Akio and Fusako Kawashima, Japanese citizens who had been lawful permanent residents since 1984. Mr. Kawashima pleaded guilty to willfully filing a false tax return under 26 U.S.C. § 7206(1), while Mrs. Kawashima pleaded guilty to aiding and assisting in the preparation of a false tax return under 26 U.S.C. § 7206(2).  The immigration judge issued the order of removal.  The Board of Immigration Appeals affirmed. Holding that convictions under 26 U. S. C. §§7206(1) and (2) in which the Government’s revenue loss exceeds $10,000 constituted aggravated felonies, the Ninth Circuit affirmed and ultimately so too did the SCOTUS in this decision. 

The Supreme Court concluded that these tax offenses necessarily involve fraud or deceit and, because the tax loss exceeded the statutory $10,000 threshold, they constituted aggravated felonies under immigration law. The Supreme Court of the U.S. therefore upheld the government’s order (which had been upheld through the Ninth Circuit Court of Appeals) removing the Kawashimas to Japan.

This of course is important for U.S. “expatriation tax” purposes, since the “lawful permanent resident” status for tax purposes will necessarily terminate upon the final order of removal.  Not before.  Once LPR status terminates, the individuals will become covered expatriates, if they meet the time period under the statute to become “long term residents” as was the case for Mr. and Mrs. Kawashima and meet either of the three tests:  the tax liability, net asset and certifications of compliance with the federal tax laws.  See, Why a “long-term” LPR can NEVER avoid “Covered Expatriate” status under IRC Section 877A(g)(1)(B) if Asset or Tax Liability Test is Satisfied!

I have previously written (pre-Aroeste v. United States) about the thorny issues that LPRs face when spending substantial time outside the United States.  See an earlier post titled:

Who is a “long-term” lawful permanent resident (“LPR”) and why does it matter?

Posted on August 19, 2014

I highlighted some key concepts about why it matters if you become a “long-term” resident as that term is defined in the tax law and now the case law in Aroeste makes these risks clear as confirmed in the landmark case.

• A LPR can reside for substantially shorter periods in the U.S. (shorter than the apparent 7 or 8 years identified in the statute), and still be a “long-term resident” per IRC Section 877 (e)(2) depending upon the facts of any particular case.

• There are far more LPRs who abandon their status (formally) than U.S.  citizens who formally take the oath of renunciation.  See the table above reflecting those who have formally renounced U.S. citizenship versus those who have formally abandoned their LPR status.

• Plenty of LPRs informally abandon their LPR status for immigration purposes by moving and living permanently outside the U.S.

• An individual who has/had LPR status, has no control over the timing of when their status ends; if it is determined to have been legally abandoned by a federal immigration judge.  See,  The dangers of becoming a “covered expatriate” by not complying with Section 877(a)(2)(C).

• There are plenty of timing issues for LPRs surrounding how and when they have “abandoned” their LPR status for purposes of IRC Section 877 (e)(2).  See –

Timing Issues for Lawful Permanent Residents (“LPR”) Who Never “Formally Abandoned” Their Green Card, Posted on August 15, 2015

* More Green Card Holders Abandon Status Than Citizens Renounce Citizenship

A frequently overlooked fact is that:

Formal Abandonment of LPR Status Is More Common Than Citizenship Renunciation

• Each year, substantially more lawful permanent residents formally abandon their green cards than U.S. citizens formally renounce citizenship.  The focus in the press and media is typically U.S. citizens who formally renounce.  Here is my most recently compiled graph,  the  total  number  of  U.S.  citizens  renouncing  is  typically  in  the  thousands  (few)  each  year.  It has trended downward post-COVID.
• However, with LPRs, formal recognition of abandonment by filing Form I-407 (not including informal abandonments which are multiple times greater)  is multiple times greater.
• The graph I created several years ago, shows that formal LPR abandonments are mlutiple times greater than citizenship renunciation.  I made a FOIA request with the government to request information about the number USCIS Forms I-407 that are filed with the government. See, also quarterly statistics of the USCIS – Form I-407, Record of Abandonment of Lawful Permanent Resident Status (partial information for years 2016-2019).
• I have made a new FOIA request for more recent records, since this data is no longer public after the year 2019 year.
• The statistics reflected above demonstrate that:
  • Formal green card abandonment significantly exceeds formal citizenship renunciations.
  • The population potentially affected by the expatriation rules is therefore much larger than many individuals around the world appreciate.

Lack of Control Over the Timing of Termination

One of the greatest risks for green card holders is that they often do not control the legal date on which their LPR status terminates, especially if they reside in a tax treaty country, per the analysis in the landmark case:

• Aroeste v United States, 22-cv-00682-AJB-KSC (20 Nov. 2023)

Why This Matters

If abandonment is later determined by tax treaty law, effectively an CPB officer, the Executive Office for Immigration Review (EOIR) immigration court, the Board of Immigration Appeals (BIA)or a even a Federal District Court:

• The taxpayer may not control the effective date of termination – “expatriation”.
• If they are a “covered expatriate” or not.
• The tax consequences may arise unexpectedly.
• The timing can directly impact whether the tax expatriation rules apply and all of the potential consequences.

There are important unintended tax consequences that can befall individuals here:  see, Oops…Did I “Expatriate” and Never Know It: Lawful Permanent Residents Beware! International Tax Journal, CCH Wolters Kluwer, Jan.-Feb. 2014, Vol. 40 Issue 1, p9).

• • Topsnik – Why Should I Care?

These timing issues become important when the IRS challenges tax positions taken on tax returns filed (or filed late) as was the case in Topsnik v. Commissioner (143 T.C. 240 (2014) – “Topsnik I”) and the subsequent case of Topsnik v. Commissioner (146 T.C. No. 1, 2016) – “Topsnik II”).  In Topsnik II, Judge Kerrigan agreed with the IRS and ” . . . determined  that P [taxpayer] was a “covered expatriate” who expatriated in 2010 and must recognize gain on the deemed sale of his installment obligation on the day before his expatriation under I.R.C. sec. 877A.”  The U.S. Tax Court cited IRS Notice 2009-85 and explained it was not legally binding as follows:

We are not bound by Notice 2009-85, supra, see Compaq Computer Corp. v. Commissioner, 113 T.C. 363, 372 (1999), but it is an official statement of the Commissioner’s position and we may let it persuade us, see Nationalist Movement v. Commissioner, 102 T.C. 558, 583 (1994), aff’d, 37 F.3d 216 (5th Cir.1994).

The Tax Court went on to conclude these facts caused the court to conclude and uphold the IRS assessment of the “exit tax” on the German citizen Mr. Topsnik as a “covered expatriate” quoted as follows:

Notice 2009-85, sec. 8, 2009-45 I.R.B. at 611, explains that for purposes of certifying tax compliance for the five years before expatriation pursuant to section 877(a)(2)(C):

All U.S. citizens who relinquish their U.S. citizenship and all long-term residents who cease to be lawful permanent residents of the United States (within the meaning of section 7701(b)(6)) must file Form 8854 in order to certify, under penalties of perjury, that they have been in compliance with all federal tax laws during the five years preceding the year of expatriation. Individuals who fail to make such certification will be treated as covered expatriates within the meaning of section 877A(g) * * *

For the year of his expatriation petitioner failed to complete and file a Form 8854 certifying under penalties of perjury that he has complied with all of his U.S. Federal tax obligations for the five taxable years preceding the taxable year that includes his expatriation date. Respondent [IRS] has provided evidence that petitioner did not file all of his U.S. income tax returns before expatriatingand was not in payment compliance for taxes owed for the five years before expatriation in taxable year 2010. Thus petitioner could not have certified under penalties of perjury on a Form 8854 that he had been in tax compliance for the five years before expatriation. Consequently, because petitioner failed to certify tax compliance for the five years before expatriation, he is a “covered expatriate” as defined by section 877A(g)(1)(A).

Importantly, the court in Aroeste concluded IRS Form 8854 was not required to be filed (even though the DOJ attorney argued it was required – as set forth in the instructions to the form) as explained below:

C. Whether Aroeste Was Required to File Form 8854

The Government next argues that even if the IRS had accepted Aroeste’s amended
returns, neither amended return would have properly notified the IRS of a commencement
of treaty benefits because both failed to attach Form 8854, as required by IRS Notice 2009-
85.(Doc. No. 76-1 at 4–5.) The Government concedes Aroeste attached Form 8833 to both
amended forms. (Id.)

Aroeste responds that Notice 2009-85 is not binding authority as it fails to comply
with the Administrative Procedures Act (“APA”). (Doc. No. 78-1 at 8 (citing Green Valley
Investors, LLC v. Comm’r of Internal Revenue, 159 T.C. No. 5, at *4 (Nov. 9, 2022)) (under
the APA, agencies must follow a three-step procedure for “notice-and-comment”
rulemaking, but this requirement does not apply to “interpretive rules, general statements
of policy, or rules of agency organization, procedure, or practice.”).) The Court agrees. In
Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022), the court found
that Notice 2007-83 failed to comply with the APA’s notice-and-comment procedure.
Similarly here, because Notice 2009-85 has not been subject to a notice-and-comment
procedure, it does not comply with the APA and thus is not binding. As such, Aroeste was
not required to file Form 8854 with his amended returns.

Both the Green Valley Investors LLC case and Mann Construction were 2022 cases, some 6 years after Topsnik II.

My law firm, Chamberlain Hrdlicka, successfully represented the taxpayers in Green Valley and of course in Aroeste.

This is a classic report that now reads quaintly.

This 1998 U.S. Treasury report was written before the IRS and the Department of Justice started enforcing what has now become numerous international information reporting penalty provisions in the law. The author watched the change over these years, and the introduction of some new statutory penalties (e.g., 26 USC § 6039F in 1996; § 6039D in 2010; § 6039G in 1996; and major modifications in 2010 to § 6048, among others and increased FBAR penalties). Most importantly, the biggest change was how international individual taxpayers can (and often are) severely penalized by the IRS.

This 1998 report is full of sensible ideas. The Treasury explains the complex tax laws applicable to United States citizens (“USCs”) and lawful permanent resident (“LPR”) residing outside the U.S. The report has suggestions on how to best educate international taxpayers living overseas who are impacted by these laws.

Fast forward more than 25 years later (post 9/11/2001; post USA Patriot Act of 2001; post Swiss Bank scandals 2009+; post FATCA 2010+, etc.) and we are in a world of international tax penalties galore.

The U.S. international tax world in 2024 is a very different world, even though the core of the U.S. international tax law of how much tax is owing has largely remained the same for individuals. The calculation of income taxes for USCs and LPRs living overseas in 2024 is largely the same as it was in 1998. Plus, the IRS reports that only 10,684 resident income tax returns (IRS Form 1040) were filed by these individuals living overseas in the last year the IRS Office of Statistics reporting tax returns with IRS Form 2555 (Foreign Earned Income).

What has changed over these years is the IRS enforcement and easy found money on penalty collections. One example is the penalty for reporting tax-free gifts and inheritances. The reporting requirement of that law (26 U.S. Code § 6039F – Notice of large gifts received from foreign persons) was adopted in 1996.

The IRS assessed US$1.7 billion of penalties for this simple 6039F reporting violation over the four years of 2018-2021. The 2018 amounts tripled or quadrupled in subsequent years (e.g., $77M v. $238M v. 282M). Not all of these taxpayers are residing overseas, but certainly USCs and LPRs residing outside the U.S. are likely to encounter foreign gifts and foreign bequests, simply because their lives are foreign!

On the flip side, there have been few favorable changes to the U.S. citizen and lawful permanent resident (“LPR”) living outside the U.S. over these 25 years.

The most favorable developments have come in the last year or so. Importantly, the U.S. Supreme Court rejected the IRS interpretation of multiple per year non-willful FBAR penalties in United States v. Bittner, 143 S. Ct. 713 (2023). The author of this blog worked on the ACTEC amicus brief in Bittner, cited by the majority opinion (Justice Gorsuch) and the dissent (Justice Sotomayor).

Also of significance for individuals living in tax treaty countries is the case of Mr. Aroeste. The author of this blog represents the Mexico City resident who had not formally abandoned his LPRs. The case law provides significant relief for different groups of international taxpayers pursuant per the ruling by the federal district court in Aroeste v United States, 22-cv-00682-AJB-KSC (20 Nov. 2023). That case had over $3M of penalties assessed for IRS Forms 5471, 3520 and FBAR filings.

Plus, the DOJ conceded the penalty assessed against a Polish immigrant for a foreign gift in Wrzesinski v. United States, No. 2:22-cv-03568, (E.D. Pa. Mar 7, 2023) for not filing IRS Form 3520 based upon reasonable cause. Finally, the U.S. Tax Court decision in  Farhy v. Commissioner of Internal Revenue (2023) concluded the IRS could not automatically assess penalties for not filing IRS Form 5471.

See Three Precedent Setting Cases in International Information Reporting (“IIR”) in 6 Weeks:  * Aroeste, * Bittner, and * Farhy: all Interconnected via Title 26, Title 31 and U.S. Income Tax Treaties

Indeed, the international tax world has changed much over this past quarter century since the 1998 U.S. Treasury report. These recent string of cases in favor of international taxpayers is starting to look like a positive trend. See, Six Weeks, Three International Information Reporting Decisions (18 Sept. 2023).

More comments to come – in Part II.

The whole idea of the “escape hatch” for tax treaties is an excellent way of explaining how and when tax treaty law applies in different circumstances. Importantly, the U.S. federal government cannot deny an individual (or presumably a company either) from properly applying the law of a tax treaty – even if they “gave [an] untimely notice of his treaty position “. See further comments at the end of this post and the District Court’s opinion here – Aroeste v United States – Order (Nov 2023). Meanwhile, see below the 22 countries from where global readers viewed Tax-Expatriation.com during the first full week of 2024.

Below is the list of 22 countries (including the United States) from where readers hailed, who read Tax-Expatriation.com during the first week of 2024. All, but Brazil, Croatia, Nigeria, the United Arab Emirates, Colombia, Kenya and Bermuda have income tax treaties with the United States.

This means that all other individuals are connected with the following 14 countries that have tax treaties with the United States:

• Mexico
• India
• Canada
• United Kingdom
• Switzerland
• Australia
• China
• Spain
• Turkey
• Germany
• Japan
• Romania
• Portugal
• Netherlands

Further, all individuals who might have never formally abandoned their lawful permanent residency (“green card”), maybe never filed specific IRS tax forms, and yet reside in one of these fourteen (14) treaty countries could be eligible for the application and the specific benefits of international income tax treaty law. This, along the lines of the decision in Aroeste v United States (Nov. 2023). In addition, there could be other tax treaty benefits applicable to those individuals in these fourteen countries depending upon where are their assets, what type of income they have, where does the income come from, and where do they reside.

The tax treaty rights discussed here are established by law, as elucidated by the Federal District Court in Aroeste v United States (Nov. 2023). The Court determined that the IRS cannot simply assert an individual’s ineligibility for treaty law provisions based solely on the failure to file specific IRS forms within the government-defined “timely” period. The Court emphasized that there is no automatic waiver of treaty benefits as a matter of law, while acknowledging: “. . . Aroeste gave untimely notice of his treaty position. . .” For specific excerpts from the opinion, please refer to the highlighted portions below. To access the complete opinion, please consult Aroeste v United States – Order (Nov 2023).

* * * * * * * * *

B. Whether Aroeste Did Not Waive the Benefits of the Treaty Applicable to Residents of Mexico and Notified the Secretary of Commencement of Such Treatment.

To establish Mexican residency under the Treaty, and thus avoid the reporting requirements of “United States persons,” Aroeste must have filed a timely income tax return as a non-resident (Form 1040NR) with a Form 8833, Treaty-Based Return Position Case 3:22-cv-00682-AJB-KSC Document 90 Filed 11/20/23 PageID.2722 Page 8 of 17 9 22-cv-00682-AJB-KSC Disclosure Under Section 6114 or 7701(b). Indeed, Aroeste did not submit Form 8833 to notify the IRS of his desired treaty position for the years 2012 and 2013 until October 12, 2016, when he submitted an amended tax return for both years at issue. (Id.) The Government asserts that because Aroeste did not timely submit these forms, he cannot establish that he notified the IRS of his desire to be treated solely as a resident of Mexico and not waive the benefits of the Treaty. (Id. at 4.) The Government relies upon United States v. Little, 828 Fed. App’x 34 (2d Cir. 2020) (“Little II”), a criminal appeal in which the court held a lawful permanent resident of a foreign country was a “‘resident alien’ or ‘person subject to the jurisdiction of the United States’ with an obligation to file an FBAR.” Id. at 38 (quoting 31 C.F.R. § 1010.350(a), (b)(2)).

In response, Aroeste asserts that while he agrees with the Government that I.R.C. § 6114 requires disclosure of a treaty position, he disagrees as to the consequences for a taxpayer’s failure to timely file the disclosure. (Doc. No. 75-1 at 6.) While the Government asserts the failure to timely file Forms 1040NR and 8833 deprives individuals of the Treaty benefits provided, Aroeste argues instead that I.R.C. § 6712 provides explicit consequences for failure to comply with § 6114. Specifically, § 6712 states that “[i]f a taxpayer fails to meet the requirements of section 6114, there is hereby imposed a penalty equal to $1,000 . . . on each such failure.” I.R.C. § 6712(a). Based on the foregoing, Aroeste argues the taxpayer does not lose the benefits or application of the treaty law.1 (Doc. No. 75-1 at 6.) In United States v. Little, 12-cr-647 (PKC), 2017 WL 1743837, at *5 (S.D. N.Y. 1 Aroeste further asserts that published agency guidance, letter rulings, and technical advice support his position. (Doc. No. 75-1 at 7.) For example, in 2007, an IRS agent sought advice from IRS Counsel asking, “Do we have legal authority to deny a tax treaty because Form 8833 is not attached or the treaty is claimed on the wrong Form (1040EZ or 1040)?” Legal Advice Issued to Program Managers During 2007 Document Number 2007-01188, IRS. IRS Counsel responded, “No, you cannot deny treaty benefits if the taxpayer is entitled to them. You may impose a penalty of $1,000 under section 6712 of the Code on an individual who is obligated to file and does not.” Id. As to this, the Court finds it has no precedential value under I.R.C. § 6110(k)(3), which states that “a written determination may not be used or cited as precedent.” See Amtel, Inc. v. United States, 31 Fed. Cl. 598, 602 (1994) (“The [Internal Revenue] Code specifically precludes [plaintiff] and the court from using or citing a technical advice memorandum as precedent.”) Case 3:22-cv-00682-AJB-KSC Document 90 Filed 11/20/23 PageID.2723 Page 9 of 17 10 22-cv-00682-AJB-KSC May 3, 2017) (“Little I”), a criminal case for the plaintiff’s willful failure to file tax returns, the court stated the plaintiff’s same argument “that the failure to take a Treaty position can result only in a financial penalty also lacks merit. 26 U.S.C. § 6712(c) expressly states that ‘[t]he penalty imposed by this section shall be in addition to any other penalty imposed by law.’” (emphasis added).

I have been consulted over the years by other taxpayers which are cited now as published decisions by the government and the Federal District Court (Southern District of California). These cases are referenced and cited in my own most recent case of Aroeste v United States (Nov. 2023).

However, in Little I, the plaintiff never attempted to take a treaty position. Next, in Shnier v. United States, 151 Fed. Cl. 1, 21 (2020), the court denied the plaintiffs’ claims for relief based on tax treaties because they failed to disclose a treaty based position on their tax returns pursuant to I.R.C. § 6114 “and did not attempt to cure this omission in their briefing[.]” Although the plaintiffs in Shnier were naturalized U.S. citizens who attempted to recover their income taxes under I.R.C § 1297, the court’s brief discussion of I.R.C. § 6114 in relation to a treaty-based position is instructive that an untimely notice of a treaty position does not bar the individual from taking such position. Moreover, in Pekar v. C.I.R., 113 T.C. 158 (1999), the court noted that a taxpayer who fails to disclose a treaty-based position as required by § 6114 is subject to the $1,000 penalty, but stated “there is no indication that this failure estops a taxpayer from taking such a position.” Id. at 161 n.5.2 The Court agrees with Aroeste.

Although Aroeste gave untimely notice of his treaty position, the Court finds this does not waive the benefits of the Treaty as asserted by the Government. Rather, I.R.C. § 6712 provides the consequences for failure to comply with I.R.C. § 6114, namely a penalty of $1,000 for each failure to meet § 6114’s requirements of disclosing a treaty position.

* * * * * * * * *

For individuals living in any of these 14 tax treaty countries (or any of the total 67 income tax treaty countries), the key takeaway is that, based on their specific circumstances, they might be eligible to leverage the international tax treaty principles outlined in the Aroeste v United States case (Nov. 2023). The forthcoming post will pose questions for consideration by the potentially millions of individuals affected by these rules of law.

Clear U.S. tax and legal relief now exists for a significant portion of the 3.89 million Lawful Permanent Residents (LPRs) who never formally abandoned their U.S. immigration status. This relief stems from two sources in the law:

(i) Tax treaty laws that apply to individuals residing in one of the 67 income tax treaty countries with the United States, recently including Chile.

(ii) Legal principles, recently confirmed by the Federal Court in Aroeste v. United States, that establish that individuals can apply tax treaty laws (when applicable) even if they missed certain filing deadlines set by the Internal Revenue Service. The Court termed this provision an “escape hatch,” allowing individuals, depending on specific circumstances, to be considered non-residents of the United States (not “United States persons”). This can be true under the relevant treaty, even if they never formally abandoned their LPR status.

The 2023 DHS report estimates that nearly 4 million individuals have emigrated from and left the United States and are now living somewhere around the world. Notably, Mexico constitutes the largest share at about 25% of the total LPR population who have left the United States.

The United States has a total of 59 income tax treaties covering 67 countries. See, Countries with U.S. Income Tax Treaties & Lawful Permanent Residents (“Oops – Did I Expatriate”?) (2014).

The DHS report allows the reader to extrapolate that around 1 million individuals, similar to Mr. Aroeste, are living in Mexico and did not formally abandon their LPR status by filing Form I-407, Record of Abandonment of Lawful Permanent Resident.

Aroeste v. United States is the third case I’ve litigated, examining whether individuals with a “green card” residing outside the United States in a tax treaty country are considered U.S. income tax residents. The previous two cases (involving Mexican and German citizens) didn’t progress to the oral argument stage; as the government conceded both before trial. See, IRS Chief Counsel Concedes Tax Treaty Residency Position for LPR German Taxpayer in Tax Court

How many individuals currently living in Mexico have not officially abandon their LPR status by filing  Form I-407, Record of Abandonment of Lawful Permanent Resident? See an earlier post reflecting different legal consequences to these individuals: Few LPRs Who Leave (Emigrate from) the U.S. Formally Abandon their Immigration Status: Important Tax Consequences (Part I) See notations below from Table 1 and throughout the Full Report here: Estimates of the Lawful Permanent Resident Population in the United States and the Subpopulation Eligible to Naturalize: 2023

A FOIA response yielded surprising information; the government records indicate that only 46,364 Forms I-407 were filed from 2013 to 2015.

(Source: Federal Government Response to FOIA Request: Office of Performance and Quality (OPQ), Performance Analysis and External Reporting (PAER), JJ)

What can we glean from the DHS report and the LPR – I-407 information obtained through the FOIA response? There is a substantial gap in the millions; millions of individuals who have physically left the U.S. to reside elsewhere globally, compared to the relatively smaller number of tens of thousands who have officially filed Form I-407, Record of Abandonment of Lawful Permanent Resident.

• Conclusion

Importantly, now under the legal principles established in Aroeste v. United States, individuals residing in one of the 67 countries covered by an income tax treaty have specific legal relief from the worldwide reporting of income to the United States government.

New Section 7345 completely modifies how U.S. citizens (“USCs”) living and traveling around the world have to now consider very seriously actions taken by the Internal Revenue Service (“IRS”).  It is the IRS which now holds the power under this new law that requires the U.S. Department of State (“DOS”) to revoke or deny to issue a U.S. passport in the first place.

New Section 7345(e) provides in relevant part as follows:  “upon receiving a certification described in section 7345 of the Internal Revenue Code of 1986 from the Secretary of the Treasury, the Secretary of State shall not issue a passport to any individual who has a seriously delinquent tax debt described in such section. . . ” [emphasis added].

This new law mandates (not at the discretion of the DOS) that various U.S. passports be denied at the direction of the IRS.  Once the IRS issues the certification of “seriously delinquent tax debt.”

All it takes, is for the IRS to claim tax or penalties are owing of at least US$50,000 through an assessment (plus start a lien or levy action).

Of course, US$50,000 sounds like a large sum for many modest USCs, until an individual understands that there are a host of international reporting requirements for taxpayers.  Specifically, the IRS can impose a US$10,000 penalty for each violation of failing to complete and file various IRS information forms; EVEN IF NO income taxes are owing.  See IRS website – FAQs 5 and 8 regarding civil penalties (see also How is the offshore voluntary disclosure program really working? Not well for USCs and LPRs living overseas).

For a summary of these forms and filing requirements, see a prior post, Oct. 17, 2015, Part II: C’est la vie Ms. Lucienne D’Hotelle! Tax Timing Problems for Former U.S. Citizens is Nothing New – the IRS and the Courts Have Decided Similar Issues in the Past (Pre IRC Section 877A(g)(4))

Indeed, our office has seen and assisted numerous taxpayers around the world where the IRS has assessed tens of thousands, hundreds of thousands and in some cases in excess of US$1M (in proposed assessments) against an individual for failure to simply file information reporting forms.  See, for instance, a prior post on Nov. 2, 2015, Why Most U.S. Citizens Residing Overseas Haven’t a Clue about the Labyrinth of U.S. Taxation and Bank and Financial Reporting of Worldwide Income and Assets

Also, we have seen several IRS assessments of income tax (not just penalties) against individuals of hundreds of thousands of dollars which are not supported by the law.  For instance, it is not uncommon for the IRS to issue a “substitute for return” alleging income taxes owing.  See, How the IRS Can file a “Substitute for Return” for those USCs and LPRs Residing Overseas,  posted Nov. 8, 2015.  We have a number of those cases pending, where the IRS has taken erroneous information and made such assessments against USCs residing and working outside the U.S. for much if not most of their professional lives.

New Section 7345 requires that USCs, wherever they might reside, take great care in knowing about any actions the IRS might be taking against them; as to tax and penalty assessments, whether or not they are supported under the law.

One basic method of learning more about the activities of the IRS is to make a transcript request directly to the IRS regarding the status of a USC’s federal tax status according to IRS records.  See, IRM, Part 21. Customer Account Services . . . Section 3. Transcripts.

It is also possible for the USC to obtain additional tax information from the IRS through a Freedom of Information Act (“FOIA”) request.

Most discussions regarding renunciation/relinquishment of U.S. citizenship are highly focused towards the U.S. federal tax consequences.  Today, the focus is on a 2002 report prepared by the DOJ for the Solicitor General, who supervises and conducts government litigation in the United States Supreme Court.

The report is found here, and I have highlighted some key excerpts:  Survey of the Law of Expatriation: Department of Justice Analysis:

*

. . . In 1868, Congress declared that “the right of expatriation is a natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty, and the pursuit of happiness.” Act of July 27, 1868, ch. 249, pmbl., 15 Stat. 223, 223; see also 8 U.S.C. § 1481 note (2000) (quoting Rev. Stat. § 1999 (2d. ed. 1878), 18   Stat. pt. 1, at 350 (repl. vol.)) (same).

 *

That declaration further stated that “any declaration, instruction, opinion, order, or decision of any officers of this government which denies, restricts, impairs, or questions the right of expatriation, is hereby declared inconsistent with the fundamental principles of this government.” 15 Stat. at 224. Similarly, the Burlingame Treaty of 1868 between the United States and China recognized “the inherent and inalienable right of man to change his home and allegiance, and also the mutual advantage of . . . free migration and emigration . . . for purposes of curiosity, of trade, or as permanent resident s.” U.S.-China, art. 5, July 28, 1868, 16 Stat. 739, 740. Congress provided specific legislative authority for nullifying citizenship when, in 1907, it enacted the predecessor of the modern federal expatriation statute.

* * *

There are different periods of time the federal tax law sets forth to protect both the taxpayer and the government.  In short, after a certain period of time (assuming numerous conditions are satisfied), neither (i) the government can take action to assess or recover taxes, or (ii) the taxpayer can demand a tax refund.

This concept is known as the “statute of limitations” and is a concept deeply imbedded throughout U.S. law, not just taxation law.

There are two key aspects for how and when taxes are levied by the IRS.  First, there is the “assessment” part, which helps determine a tax is owing in the first place.    There have been chapters of tax treatises written on how and when an assessment is valid.  A tax return is a “self-assessment”.  See, for instance, the CCH^® Expert Treatise Library: Tax Practice and Procedure, and its chapter on Assessment and Collection.

The IRS can also make an assessment through a so-called “substitute return.”  See,  How the IRS Can file a “Substitute Return” for those USCs and LPRs Residing Overseas.

The focus of this post, is on the second aspect; the “collection” part of how the IRS collects upon a final tax assessment.

There is a 10 year collection statute of limitations imposed upon the IRS.   See IRC Section 6502.

The general rule, is that the IRS cannot wait forever to collect against a taxpayer for the amount of taxes owing.  If the taxes are not collected within this 10 year period, the general rule is that the IRS cannot continue to attempt to collect the taxes.

However, there is a huge exception in the 10 year collection statutory law, which does not apply when the individual is physically outside the United States for a continuous period of at least six months.  See, IRC Section 6503(c).  This means that any USC or LPR residing predominantly outside the U.S. will have this 10 year collection statute suspended in favor of the government.

In other words, the IRS will be able to indefinitely use its collection efforts to lien and levy assets of the taxpayer, when she is living outside the U.S.  The only way to “re-start” the collection statute, is for the individual to travel to the U.S. and not stay outside the U.S. for more than a six month period.  Obviously, for those who live outside the U.S., this will typically be impractical, if not impossible, to live several month continuous periods within the U.S.

Finally, traveling to the U.S., can raise additional issues for the overseas USC or LPR who has taxes owing to the IRS. See, Should IRS use Department of Homeland Security to Track Taxpayers Overseas Re: Civil (not Criminal) Tax Matters? The IRS works with Department of Homeland Security with TECs Database to Track Movement of Taxpayers

See also, U.S. Enforcement/Collection of Taxes Overseas against USCs and LPRs – Legal Limitations

The lives of United States Citizens and Lawful Permanent Residents living outside the U.S. has necessarily become more complicated due to FATCA. 

Previous posts discussed unintended consequences of FATCA.  See, Part 2 – Unintended Consequences of FATCA – for USCs and LPRs Living Outside the U.S.

Also, see, Part 1- Unintended Consequences of FATCA – for USCs and LPRs Living Outside the U.S.

– One of the most significant unintended consequence, is that the U.S. federal government (the IRS, the Treasury Department, or Congress) never initially even contemplated USCs and LPRs living overseas.  In other words, the group targeted were U.S. resident individuals who were evading taxes through foreign financial institutions.  I say this, based upon extensive conversations I have had with ex-government officials and some government officials who were involved in the original policy discussions.

Also, see FATCA Driven – New IRS Forms W-8BEN versus W-8BEN-E versus W-9 (etc. etc.) for USCs and LPRs Overseas – It’s All About Information and More Information*

Currently, the IRS has revised or created the following new tax forms as a result of FATCA (all in the English language), which can be located at the IRS website at FATCA – Current Alerts and Other News:

Importantly, none of these forms are in other key languages such as Spanish, French, Mandarin, Cantonese, Portuguese, etc.  Imagine the daunting nature of completing these complex forms just in English when English is your first language, let alone completing them when you speak little to no English.

As the financial and account information of U.S. citizens and LPRs at financial institutions worldwide is now being collected to be reported in 2015 to the IRS under FATCA, a better understanding of FATCA forms is required.  A follow-up post will specifically discuss how financial and account information of non-U.S. shareholders and owners of foreign corporations, companies and foreign trusts will also indirectly be reported to the IRS, when there is a “substantial U.S. owner.”

A detailed discussion of how and when this information will be released to the IRS will be explained in a follow-up discussion of a passive “non-financial foreign entity” (“NFFE”) which will typically be a foreign corporation (non-U.S.), companies and foreign trusts.

This information is set forth and requested in Parts XXX and XXIX on the last page of IRS Form W-8BEN-E on page 8.  These items are highlighted here in yellow reflecting the information requested.

A follow-up post will explain what is a “passive” NFFE and what information is required to be reported per the form.  For a better understanding of the importance of signing a document “under penalty of perjury” see  Certifying Under Penalty of Perjury – Meeting the Requirements of Title 26 for Preceding 5 Taxable Years.