FBAR Case: United States vs. Carl Zwerner is settled for $1.8 Million

The IRS U.S. Court building in Washington DC, a courthouse where cases on the Trust Fund Recover Penalty (TFRP) are held

The United States v Carl Zwerner FBAR case has been finally settled despite the many speculations regarding the Eighth Amendment rights. Carl Zwerner has entered a settlement agreement with the U.S. Department of Justice contrary to what most tax practitioners and attorneys thought. “Mr. Zwerner believed that a settlement at this time was in his best interests,” Press told Bloomberg BNA. “The Eighth Amendment issue will have to be litigated at some future date by others. We were fully prepared to litigate that issue.” This settlement agreement therefore finally closes the case of United States v. Zwerner.


Zwerner opened an account in Switzerland in the 1960s, under the name of two different foundations he created. He used the proceeds of the account for personal expenses. Zwerner failed to report his financial interest in the Swiss bank account on an FBAR and also failed to report any income earned from the Swiss bank account on his original tax returns for 2004 to 2007.  He represented on Schedule B of his original tax returns for those years that he did not have an interest in a foreign financial account by answering “no” in response to question 7(a). Check here for more details on the case.

The Tax Law

U.S. District Court for the Southern District of Florida jury scrutinized the evidence and found that Zwerner knew of his obligation to file FBARs. According to the jury, Zwerner’s failure to file FBARs for the years 2004 through 2006 was willful. See (U.S. v. Carl Zwerner, Civil Docket Case #1:13-cv-22082-CMA). The balance of the account for each of the years at issue exceeded $1.4 million and Zwerner committed FBAR violations by not complying with the law as required by 31 U.S.C. § 5314 and its implementing regulations. The law requires that U.S. citizens who have an interest in or signature authority over, a financial account overseas are required to disclose the existence of such account on Schedule B, Part III of their individual income tax return. Additionally, U.S. citizens must file an FBAR with the U.S. Treasury disclosing any financial account in a foreign country with assets in excess of $10,000 in which they have a financial interest, or over which they have signatory or other authority. Those who willfully fail to file their FBARs on a timely basis, due on or before June 30 of the following year, can be assessed a penalty of up to 50 percent of the balance in the unreported bank account for each year they fail to file a required FBAR.


The FBAR Case on United States v. Carl Zwerner was finally settled for $1.8 Million. Zwerner agreed to pay about $1.8 million in penalties and interest to settle the case.

The penalties Zwerner will pay for failure to file the FBAR include; $723,762 for 2004 and $745,209 for 2005. Zwerner also agreed to pay the U.S. interest of $21,336.11 for the 2004 failure and $20,947.52 for the 2005 failure. In addition, he will pay statutory penalties of $128,016.64 for 2004 and $125,685.11 for 2005.

The defendant agreed to make all of these payments by Sept. 2. Once the payment is made, the parties will stipulate to dismiss the action with prejudice, according to the court document. Check here for more information.  Zwerner’s attorney, Martin Press, told Bloomberg BNA on June 10 that the final settlement was less than half of the amount originally sought by the government for the four-year period. Press said it was his client’s decision to settle the case. “The government is looking at multiple FBAR penalties and will increase the assertion of multiple FBAR penalties in the future,” Press said. “And this may apply to both civil cases and criminal cases. I believe this is an initiative by the Justice Department to assert penalties in more than one year.”

FBAR Case on United States v. Carl Zwerner is just an eye opener to U.S. Citizens and Residents with foreign financial accounts that are not reported.

“As this jury verdict shows the cost of not coming forward and fully disclosing a secret Offshore bank account to the IRS can be quite high,” said Assistant Attorney General Kathryn Keneally for the Justice Department’s Tax Division. She added that “Those who still think they can hide their assets offshore need to rethink their strategy,” http://www.woodllp.com/Publications/Articles/pdf/Zwerner.pdf.

OVDP changes to accommodate non-willful tax evasion

The OVDP (Offshore Voluntary Disclosure Program) may face more modifications as IRS continues to focus on international tax compliance. The IRS Commissioner John Koskinen hinted on the upcoming modifications to the OVDP on June 3rd, 2014 before the IRS Council. His remarks give a ray of hope to U.S citizens and residents who have offshore bank accounts that have gone unreported. This may be because the OVDP has been previously centered on criminal prosecution and hefty penalties under Bank Secrecy Act. The modifications would consider the U.S. Citizens and residents who have resided in other countries for so long that their failure to comply with their tax obligations has not been intentional. The IRS looks to accommodate these tax payers by easing the penalty on them. This is aimed at encouraging them to report their offshore accounts and comply with their tax obligations.

OVD program focus on combating tax evasion

OVDP (Offshore Voluntary Disclosure Program) was put in place to curb global tax evasion. It was to provide an opportunity to U.S. Citizens and permanent residents living overseas or those with offshore accounts to comply with their tax obligations voluntarily. This would involve disclosing offshore accounts and paying a monetary penalty thus avoiding criminal prosecution. The program has been successfully and as such seen various modifications since its inception. Despite this, there are still many tax payers who have not tapped into the OVDP program. They may have been willing to comply with their tax obligations may be if the penalties were minimal and reduced chances of criminal prosecution. For more on help with OVDP program, click here.

IRS modification to include willful tax payers in OVDP

IRS is determined to ensure maximum cooperation of its taxpayers abroad through yet another possible modification of OVDP. The OVDP program has without a doubt targeted all taxpayers with offshore bank accounts without considering if the taxpayers were willful or non-willful tax evaders. In his remarks, the IRS Commissioner John Koskinen notes that they are considering whether their voluntary programs have been too focused on those willfully evading their tax obligations and not being accommodating enough to others who don’t necessarily need protection from criminal prosecution because their compliance failures have been of the non-willful variety. According to the IRS commissioner, some of the U.S. citizens have resided abroad for many years, perhaps even the vast majority of their lives. This is the driving factor behind the forthcoming foreseen possible modifications by the IRS to the OVDP.

The IRS, through its Commissioner, hinted on the possibility of giving these tax payers, whose non-compliance does not constitute willful tax evasion, the opportunity to come into compliance without having to face the type of penalties relevant for those who willfully hid their investments overseas. These tax payers might not have had the opportunity of coming into compliance that doesn’t involve the threat of substantial penalties.

Tax Evasion under QI agreements

The IRS U.S. Court building in Washington DC, a courthouse where cases on the Trust Fund Recover Penalty (TFRP) are held

On Feb. 28 2014, Thomas Sawyer, senior counsel on international tax matters with the DOJ’s Tax Division, clarified that banks who have helped clients hide assets from the US government aren’t immune from penalty simply because they have complied with a qualified intermediary (“QI”) agreement.

Mistaken Beliefs

Sawyer addressed the misconception of some banks that may have decided not to come forward under the mistaken belief that their QI agreements will protect them from enforcement. “If you’re hearing that advice, you should be put on notice that that’s wrong,” Sawyer said. Another misconception is that all banks have to do is pay a fine and they can simply move forward, he said.

An official from the IRS also said that the IRS has attaches in multiple countries to assist with investigations, and is looking at whether taxpayers who renounce their citizenship may be doing so for tax evasion purposes.  Since the enactment of the Foreign Account Tax Compliance Act (“FATCA”), the government has seen an increase in these renunciations. It is very clear that the U.S. Government is committed to combating tax evasion. Foreign Financial Institutions holding U.S. Citizens bank accounts have to either comply with IRS under FATCA or face penalties or to the worst case, close the bank accounts.

Sooner or later, the government will catch up with non-compliant banks and non-compliant U.S. Citizens in foreign countries. There is no option to tax evasion.