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.