Taxpayers with undisclosed foreign accounts wish it were not true, but the reality is that the U.S. government, after a long period of inactivity and ineffectiveness, has taken significant steps over the past few years to identify and punish failures to file Forms TD F 90-22.1 (Report of Foreign Bank and Financial Accounts), or foreign bank account reports (“FBARs”) as they are commonly known. These steps include enacting legislation obligating foreign institutions to automatically provide the IRS with information about U.S. account holders, paying handsome rewards to whistleblowers, introducing a new information return forcing taxpayers to report their foreign financial assets (including foreign accounts) to the IRS each year, imposing multi-million dollar fines and disclosure duties on foreign banks that collaborate with taxpayers to evade U.S. taxes, extracting valuable data about international tax transgressions from taxpayers participating in the Offshore Voluntary Disclosure Program (“OVDP”), and criminally prosecuting FBAR offenders. Another step has become apparent in the past few months, i.e., litigation to collect civil penalties for “willful” FBAR violations. To date, two cases have been decided, both in favor of the U.S. government. The attached article, “McBride Willfull FBAR Penalty Case Article,” examines the most recent case. The article was published in the most recent version of the Journal of Taxation (April 2013).
Posted tagged ‘United States v. Williams’
Government Wins Second Willful FBAR Penalty Case: What McBride Really Means to Taxpayers with Unreported Foreign AccountsApril 25, 2013
IRS Finally Collects Civil “Willful” FBAR Penalty in Williams Case – Court Introduces New Lower Standard for Penalizing Taxpayers with Unreported Foreign AccountsDecember 7, 2012
The world of international tax enforcement is changing at a frenetic pace, especially when it comes to the rules about penalizing taxpayers who fail to file Forms TD F 90-22.1 (Report of Foreign Bank and Financial Accounts), or foreign bank account reports (“FBARs”) as they are commonly known. The latest installment in this area is United States v. Williams, a recent decision by the Fourth Circuit Court of Appeals holding that the taxpayer “willfully” violated his FBAR duties and thus deserved maximum sanctions. This judicial opinion, already the subject of much criticism by the tax community, raises more questions than answers. The attached article, called “Third Time’s the Charm: Government Finally Collects “Willful” FBAR Penalty in Williams Case,” addresses multiple issues triggered by Williams. The article was published in the December 2012 issue of the Journal of Taxation.
Alarmists might conclude that Williams stands for the proposition that (i) the standard for asserting civil FBAR penalties is willfulness, (ii) in this context, the government can establish willfulness by showing that the taxpayer was merely reckless, (iii) recklessness exists where a taxpayer does not read and understand every aspect of a complex tax return, including all schedules and statements attached to the return (including Schedule B), as well as any separate forms (including the FBAR) alluded to in the schedules, and (iv) the taxpayer’s motive for not filing an FBAR is not relevant. Pragmatists, on the other hand, might see Williams as an aberration, based on narrow facts, with little precedential value, and with questionable real-world applicability. Most people likely will fall somewhere in between. Regardless of the viewpoint, it is undeniable that Williams introduced issues critical to the FBAR debate, many of which remain unresolved. Taxpayers and their advisors would be wise to follow the evolving issues, as the incidence of FBAR and other international tax enforcement issues will continue to rise in the future.