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Willful FBAR Penalty Moving Towards a Strict Liability Standard

Assessment of the “willful” FBAR penalty

GSA US Tax Court bldg 450x450Courts have sustained FBAR penalties by reference to case law which is inconsistent with standards and principals applied in penalty cases under Title 26, despite the punitive nature of the willful FBAR penalty.

In order for the Government to successfully assess an FBAR Penalty, they must prove the following:

  1. The Taxpayer was either a citizen or a resident or a person doing business in the United States during the relevant tax period(s);
  2. The Taxpayer had a financial interest in, or signatory authority over the foreign financial account;
  3. The foreign financial account had a balance that exceeded $10,000 during the relevant tax year(s);
  4. The Taxpayer failed to disclose the foreign financial account.
  5. The amount of penalties was proper.

Proving Willfulness in FBAR context

In the FBAR context, willfulness “may be proven through inference from conduct meant to conceal or mislead sources of income or other financial information,’ and it ‘can be inferred from a conscious effort to avoid learning about reporting requirements.” (Williams, 489 Fed. App’x at 658). In addition, in Norman v. United States, 138 Fed. Cl. 189, 194 (Fed. Cl. 2018), the Court of Claims held that a taxpayer is put on inquiry notice of the FBAR requirement when signing a return. As such, a Taxpayer who signs a return will not be able to claim innocence for not actually having read the return, since the taxpayer is charged with constructive knowledge of its contents (Jarnagin v United States, 134 Fed. Cl. at 378 (Fed. Cl 2017).

The departure from the willful standard in the Title 26 context as it relates to civil tax penalties is also found in the May 23, 2018 Office of Chief Counsel, Internal Revenue Service Memorandum. This Memorandum provides that the standard for willfulness under 31 U.S.C § 5321(a) (5) (C) is:

“the civil willfulness standard and includes not only knowing violations of the FBAR requirements, but willful blindness to the FBAR requirements as well as reckless violations of the FBAR requirements.”

The civil fraud penalty under 26 U.S.C § 6663 provides that in order to sustain the standard of proof, the civil fraud penalty has to be “clear and convincing.” Closely tied to the civil fraud penalty is the criminal tax evasion penalty under 26 U.S.C § 7201 which requires a proof beyond a reasonable doubt. While the willful FBAR penalty has it criminal counterpart in 31 U.S.C. § 5322(a), the Courts have illogically used the lower preponderance of evidence standard in willful FBAR cases despite the punitive effects of the Penalty.

While reliance upon professional advice is a valid defense in tax crimes and the civil fraud penalty, a question remains as to whether relying on a professional is a valid defense to the imposition of a willful FBAR Penalty. The viability of such a defense would require the following:

  1. The taxpayer subject to the penalty has provided all the relevant facts to the professional;
  2. After providing the relevant facts, the Taxpayer must have relied upon the advice of the professional; and
  3. The reliance must be reasonable under the circumstances.

DOJ position on using a professional advice as a defense for “Willfulness” in FBAR penalty

Given the string of government victories in the assessment of the willful FBAR penalties and current litigation, the Department of Justice is now pushing the envelope suggesting that reliance on a professional as a defense to the assessment of a willful FBAR penalty is not a valid defense. DOJ’s position is inconsistent with judicial precedent as well as administrative pronouncements.

In light of DOJ’s position, it is hard to imagine circumstances where, an argument that a professional (accountant or tax preparer) didn’t give a client advice concerning disclosure of their foreign financial accounts would be successful, especially if the client withheld all the relevant facts, for example; a case where a taxpayer answers “no” in response to question 7(a) on Schedule B as to whether the taxpayer had an interest in or was a signatory to a foreign financial account and fails to tell his accountant or fails to seek advice on whether to report a foreign financial account, Courts have generally held that such conduct constitutes “reckless” behavior, thereby meeting the “willfulness” standard (Kimble v. United States, No. 1:17-cv-00421 (Fed. Cl. 2018).

Similarly, in United States v. Dadurian, No. 9:18-cv-81276, the U.S. District Court denied the Taxpayer’s motion for summary judgment and the case was scheduled for trial for August 19, 2019. The Taxpayer had a financial interest over signatory authority over a number of foreign accounts, some of which had maximum balances over $2 million in certain years. Prior to 2007, the Taxpayer had filed FBARs in connection with her Swiss and German Accounts. According to the Taxpayer, her Tax Attorney advised her that she did not have to disclose her accounts. For the years 2007- 2010, and based upon the Attorney’s advice, Dadurian  failed to tell her new tax return preparer about the foreign assets and further declared on Schedule B, Part III, in response to question 7(a) that she did not have an interest or signatory authority over the foreign financial accounts. In arriving at its decision, the Court raised the issue as to whether reliance on a professional may constitutes reasonable cause in light of 31 U.S.C § 5321 (a) (5) (C) (ii), which provides that, “reasonable cause” is not a defense to willful FBAR violations. In its proposed jury instructions, the DOJ asked that the jury be instructed that: “If the United States Proves that Daniela Dadurian acted willfully, Dadurian may not claim as a defense that she relied upon the advice she received from accountants, lawyers or other professionals.”

Other cases that suggest that the DOJ is ratcheting up the pressure include:

  1. In United States v. Francis Burga , the Government filed suit in the United States District Court for the Northern District of California in its attempt to reduce the government’s willful FBAR Assessments approximating $120m to Judgment. In its complaint against Francis Burga and the estate of her late husband, Margelus Burga, the Government alleges that the defendants had financial interests in at least 294 Foreign Financial Accounts between 2004 and 2009 in a number of jurisdictions (including  Lichtenstein, the British Virgin Island, Switzerland, Singapore, Panama, China and Vietnam) and that she willfully failed to file FBARs.
  2. In United States v. Isac Scwarzbaum, Case No. 18-CV-81147, a U.S. District Court for the Southern District of Florida, was faced with deciding a Motion for Summary Judgment brought by the Taxpayer. The case involved a suit by the Government to collect outstanding civil FBAR penalties against the Defendant, Isac Scwarzbaum for his alleged failure to timely report his interest in foreign bank accounts in violation of 31 U.S.C. § for the years 2006-2009. The Taxpayer was born in Germany and retained his German Citizenship. but he became a U.S. Citizen in 2000. The Taxpayer’s father, a German Citizen, was a successful businessman. As a result of his father’s financial prosperity, the Taxpayer received various gifts as well as an inheritance, which together with investments; he used to support himself and his children.

Between the years 1993/94 to 2009, the Taxpayer engaged three separate certified public accountants. The defendant’s CPA who prepared the Taxpayer’s 2006 return, also completed an FBAR reporting a foreign account in Costa Rica. For the Tax Years 2007 and 2009, the Taxpayer elected to file FBARs without the assistance of a CPA.  However, the Taxpayer failed to file an FBAR for 2008 until 2011.

After receiving a letter from 2009 from one of his banks in Switzerland indicating that the IRS had submitted a treaty request in order to obtain information about accounts of certain individuals maintained at UBS and that his account seem to fit the scope of the request. The taxpayer claimed that he sought the advice of a Swiss Tax Lawyer and was told the request did not pertain to him. This claim was disputed by the Government.

In 2011 the Taxpayer entered the Offshore Voluntary Disclosure Initiative (“OVDI”). The taxpayer paid the outstanding income tax, interest and accuracy related penalties due as a result of the taxpayer’s failure to report the interest on foreign financial accounts. The defendant then elected to opt out of the OVDI and was subject to full IRS examination. The examining agent initially recommended that the IRS should assert a non-willful FBAR penalty against the taxpayer, but that recommendation was rejected and the willful FBAR penalties were assessed in 2016 in excess of $15m. Following this, the government filed a suit in order to reduce the assessments to Judgment. In response, the taxpayer filed a Motion for Summary Judgment arguing, among other things, that the facts in the case demonstrate that he was not willful since he did not have actual knowledge of the extent of the FBAR requirements. In denying the defendant’s Motion, the Court discussed the standards for “willfulness” pointing out that the Bank Secrecy Act identifies the FBAR penalty as a civil money payment and as such includes both knowing and reckless violations of a standard.

What is the way forward?

With the announcements of the closure of the OVDP in September of 2018 and the implementation of the new Voluntary Disclosure Practice rules in November of 2018, taxpayers with unfiled FBARs are left with the making a disclosure using the streamline procedures or proceeding under the new Voluntary Disclosure Practice Rules, which are quite onerous.

If you have failed to report your Foreign Financial Accounts, or opted out of the OVDP or considering opting out, it still may be possible to make a disclosure and avoid the willful FBAR penalty. But time is not on your side. Based upon legal precedent, the lines between the assessment of a willful vs a non-willful FBAR penalty will invariably rest upon the facts of the case, including but not limited to the account balances, number of years the account has been in existence, whether tax returns were filed and if so, whether the returns were self-prepared or prepared by a third party professional, whether the taxpayer has been absent from the United States for an extended period of time, as well as other factors.

 

 

 

 

 

 

 

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New Developments in The Willful Civil FBAR Penalty

Current Developments May Make It Easier For the IRS To Assess Penalties After Willfully Failing to File FBAR’s

The Foreign Bank Account Report (FBAR) can be submitted with the advice of a tax law attorney.A taxpayer who willfully fails to file a Report of Foreign Bank and Financial Accounts (FBAR) may be subject to both civil and criminal penalties as well as imprisonment.  In both the criminal and civil context, the government has the burden of proof.

In FBAR criminal prosecutions, the standard of proof is well settled and requires the government to prove its case using the beyond a reasonable doubt standard.  However, in cases involving the assessment of the 31 USC § 5321(a) (5(C) willful civil FBAR penalty, the standard of proof  is unsettled and remains the subject of debate among legal scholars, practitioners and the judiciary. Practitioners have argued that the standard of proof in assessing the willful civil FBAR penalty should be the clear and convincing standard, citing Chief Counsel Advice (CCA) memorandum released January 20, 2006, CCM 200603026 (See discussion below) in support of using the higher standard of proof.

The correct standard of proof to be applied for assessing the willful civil FBAR penalty often arises in the context of an assessment of the willful civil FBAR penalty by IRS Examinations, an Appeal by the taxpayer, or in defense of an action by the U.S. government to enforce the 31 USC § 5321(a) (5(C) penalty. The proper standard of proof to apply in the context of the willful failure to file an FBAR has been the subject of a number of lower federal court decisions and is also reflected in jury instructions submitted by U.S. District Court in the Southern District of Florida. The Courts in all three cases have cited the preponderance of evidence standard as the correct standard to apply when assessing the 31 USC § 5321(a) (5(C) penalty.

Based upon two recent cases, the stage may now set for the U.S. Court of Appeals for the Fifth and Ninth Circuits to ultimately decide the correct standard of proof to be applied when assessing the31 USC § 5321(a) (5(C) penalty.

The first case, Gubser v Comm’r, 2016 WL. 3129530 (S.D. Tex. May 4, 2015) comes out of the U.S. District Court for the Southern District of Texas. In Gubser, the taxpayer filed a complaint in the District Court asking for a declaratory judgment that the proper standard to be applied in a willful civil FBAR penalty case is the clear and convincing standard. The District Court dismissed the taxpayer’s suit based upon lack of standing. The taxpayer subsequently filed an appeal.

Although the question currently before the Fifth Circuit is limited to standing, some observers believe that if the taxpayer prevails and the matter is remanded back to the District Court for further findings, the standard of proof issue to be applied in a willful civil FBAR penalty will find its way back to the Fifth Circuit.

The second case, U.S. V. August Bohanec and Maria Bohanec (Case No. 215-CV-4347 ddp (FFMx) (filed 12/8/16) involves a decision from the United States District Court for the Central District of California. In Bohanec, the Court rejected the taxpayers’ argument that the clear and convincing standard should be applied in a willful civil FBAR penalty case. Instead, the District Court applied the lower preponderance of the evidence standard of proof. The taxpayers’ attorney has indicated the taxpayers will appeal the decision.

The ultimate determination of the standard to be applied when assessing the willful civil FBAR penalty and its importance cannot be overstated; a decision by the Fifth and/or Ninth Circuits citing the preponderance of evidence as the correct standard will certainly have a chilling effect on taxpayers, who are considering opting out of the OVDP, and will also pose a greater risk to those taxpayers who have  or will submit a  Certification of Non-Willfulness as part of the Streamlined Procedures.  If the Appeals Court finds that the correct standard is the preponderance of evidence, taxpayers can also expect the IRS to be more aggressive in scrutinizing taxpayers who opt Out of the OVDP or those who proceed using the Streamlined Procedures.

This article outlines the concept of “willfulness” in light of U.S.C. §5321(a) (5) (C), CCM200603026, JB Williams, McBride and Zwerner and in anticipation of the Gubser and Bohanec cases making their way to the U.S. Court of Appeals.

A taxpayer who “willfully” fails to file an FBAR faces a penalty equal to the greater of $100,000 or 50% of the foreign financial account balance as of the June 30 FBAR due date,31 U.S.C. §5321(a) (5) (C). Neither the FBAR statute nor the regulations promulgated there under provide any guidance on the standard of proof to be applied in the assessment of the willful civil FBAR Penalty. In Chief Counsel Advice (CCA) memorandum released January 20, 2006, analyzing the issue of willfulness in the FBAR civil context, the IRS compared the burden of proof for the willful civil FBAR penalty to the burden of proof for the civil fraud penalty under 26 U.S. Code §. 6663, explaining that it expects the standard of proof will be the same—clear and convincing evidence, not merely a preponderance of the evidence. Proponents for applying the higher standard often cite CCM 200603026 in support. Despite CCM 200603026, the U.S. District Court, in three cases has cited the lower preponderance of the evidence standard as the correct standard when assessing the willful civil FBAR penalty.

The United States District Court in JB Williams applied the preponderance of the evidence standard,United States vs. Williams, 2010 U.S. Dist. LEXIS 90794 (ED VA 2010). In JB Williams, the government brought an action in the US District Court for the Eastern District of Virginia seeking to enforce the civil willful FBAR penalties assessed against the taxpayer for his failure to report his interest in two foreign bank accounts for tax year2000, in violation of 31 U.S.C. § 5314.  The taxpayer previously plead guilty to two count superseding information for Conspiracy to Defraud the IRS and Criminal Tax Evasion.  As part of the plea, Williams agreed to allocute to all of the essential elements of the charged crimes, including that he unlawfully, willfully, and knowingly evaded taxes by filing false and fraudulent tax returns on which he failed to disclose his interest in the Swiss accounts.

Furthermore, the taxpayer checked “no” in response to the question on Schedule B Form 1040, regarding the existence of a foreign financial account, despite having transferred $7M to a Swiss bank account.  In addition, the taxpayer completed a tax organizer, wherein he answered: “no” in response to a question as to whether he had a financial interest in or was a signatory over a foreign financial account. The taxpayer provided the following statement as part of his allocution.

“I also knew that I had the obligation to report to the IRS and/or the Department of the Treasury the existence of the Swiss accounts, but for the calendar year tax returns 1993 through 2000, I chose not to in order to assist in hiding my true income from the IRS and evade taxes thereon, until I filed my 2001 tax return.”

. . . .

The District Court, held without discussion, that the government’s burden to establish a willful violation of 31 U.S.C. § 5314only requires proof by a preponderance of the evidence.The District Court further held that the Taxpayer’s eventual filing of the delinquent FBARS, “negated” willfulness.  In reversing the District Court’s decision, the U.S. Court of Appeals for the Fourth Circuit, dodging the standard of proof question, held that the District Court clearly erred  in finding that the Government failed to prove that Williams willfully violated 31 USC § 5314.

In U.S. v. McBride, [908 F. Supp.2d 1186, 1201 (D. Utah 2012)], the District Court for the District of Utah Central District, relying on Williams held that the correct standard for imposition of the willful civil FBAR penalty is the preponderance of the evidence standard. Likewise, in U.S. v Zwerner, a 2014 Florida Case, the Federal District Court for the Southern District of Florida submitted the issue on willfulness to the jury using a preponderance of evidence standard.The U.S. Court of Appeals has yet to weigh in on the correct standard of proof to be applied in a 31 USC § 5321(a) (5(C) willful FBAR penalty case. However,  two recent lower court cases make clear that the higher court will ultimately be called upon to determine the correct standard of proof question.

In Gubser v. Comm’r, 2016 WL, 3129530 (S.D. Tex. May 4, 2016), the taxpayer, a Swiss citizen by birth and later naturalized asa U.S. Citizen maintained a Swiss account, which he opened when he was a young man. The purpose for opening the account was to enable the taxpayer to accumulate savings for his retirement in Switzerland.  Since its opening, the account was always held in Gubser’s name and the funds in the account represented after tax earnings. Grubser retained the services of a CPA, who prepared the taxpayer’s U.S. tax return for over 20 years. During this time, the CPA never raised the question whether the taxpayer had an interest in any foreign financial account. The matter first came to the taxpayer’s attention in 2010 when someone from the CPA’s office raised the question of the existence of foreign financial accounts. Gubser promptly filed an FBAR report for 2009 and subsequent years.  In addition, the taxpayer entered the OVDP, covering the tax years 2003-2010.   Subsequently, Gubser opted out of the OVDP, which resulted in the IRS sending Gubser a  3709 Letter (the FBAR 30 day letter), proposing the50% willful civil FBAR penalty pursuant to 31 USC § 5321(a)(5(C) for the tax year 2008. The penalty in the amount of $1.3M reflected approximately 50% of the taxpayer’s entire life savings.  Grubser filed a timely protest letter with Appeals.  When the taxpayer discussed the matter with the Appeals officer, the Appeals officer told Gubser that the IRS could prove willfulness by using the preponderance of the evidence standard, but not by the clear and convincing standard. The Appeals officer also asked for guidance on the proper standard.

Grubser thereafter filed a declaratory judgment action with the U.S. District Court for the Southern District of Texas, requesting that the Court declare that the IRS must prove willfulness by clear and convincing evidence. In response the government filed a motion to dismiss based upon lack of standing, arguing that the taxpayer’s injury could not be redressed by a declaratory judgment, since such a judgment would be non-binding on the IRS. The government’s motion was granted and Gruber appealed to the Fifth Circuit.

The second case to watch isU.S. V. August Bohanecand Maria Bohanec (Case No. 215-CV-4347 ddp (FFMx) (filed 12/8/16). In Bohanec, the taxpayers had previously applied for and were denied participation in the Offshore Voluntary Disclosure Program (“OVDP”), in part, due to several misrepresentations made during the OVDP process. The U.S. District Court for the Central District of California rejected the taxpayers’ argument that the government had to show willfulness under the clear and convincing standard of proof, and instead applied the preponderance of evidence standard of proof.  The Court found that the taxpayers’ failure to file FBAR’s for three accounts the taxpayers maintained for over a decade was at least “recklessly indifferent to a statutory duty.” The taxpayers’ attorney has indicated that the taxpayers will appeal the District Court’s decision.

Taxpayers currently participating in the OVDP, who are considering opting out of the Program or those who are thinking of making a disclosure using the Streamlined Procedures certainly need to proceed with caution.  The U.S. Court of Appeals for the Fifth and Ninth Circuits will ultimately address the correct standard to be applied in the assessment of the willful civil FBAR penalty. These decision(s) will undoubtedly have a significant impact on both current and future taxpayers who have made or are considering making a voluntary disclosure.

The takeaway here is that any decision  involving making an offshore voluntary disclosure should not be made based upon an internet search. Instead, those faced with the decision of making an offshore voluntary disclosure should consult with a knowledgeable and experienced tax attorney, who can assess the specific facts of each case and assess the risks associated with choosing one method of disclosure over another. At the Law Office of Anthony Verni, we know that there is no one size solution to fit all, contact us today or leave a comment below.

© 2017 Anthony N. Verni, Attorney at Law, CPA

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FBAR Enforcement:
How and When the IRS Will Act?

The Financial Crimes Enforcement Network, FBAR enforcement and FinCen form. The Report of Foreign Bank and Financial Accounts, (FBAR), is required

How Does the IRS Enforce the FBAR?

The Report of Foreign Bank and Financial Accounts, (FBAR), is required when a U.S. Person has a financial interest in or signature authority over one or more foreign financial accounts with an aggregate value greater than $10,000. If a report is required, certain records must also be kept. In April 2003, the IRS was delegated civil enforcement authority for the FBAR.

Under U.S. law, a “U.S. person” is required to annually file an FBAR and report his or her ownership of or signature authority over certain “foreign financial accounts.”  In general, FBAR reporting is required if the maximum aggregate value of the US person’s foreign financial account(s) exceeded US$10,000 at any time during the calendar year.

FBARs must be e-filed on FinCEN Form 1144 with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) on or before June 30th for the preceding calendar year.

Starting for the tax year 2015, the FBAR will have to be filed by April 15. No extension of time to file is available. Civil penalties for failing to properly file an FBAR range from up to US$10,000 per unreported account for non-willful violations, to the greater of US$100,000 or 50 percent of the account balance per year for a “willful” failure to properly report a foreign account.

Regulatory authority for the FBAR is 31 C.F.R. §§ 103.24 and 103.27. Section 103.32 provides for FBAR records and Section 103.56 tasks the IRS with FBAR enforcement. Section 103.24 states that each person subject to the jurisdiction of the United States (except a foreign subsidiary of a U.S. person) who has a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country must report that relationship to the Commissioner of the Internal Revenue for each year in which the relationship exists. The U.S. person must provide information as specified in the required reporting form.

The authority to enforce the provisions of 31 U.S.C. § 5314 and 31 C.F.R. §§103.24 and 103.32 has been re-delegated from FinCEN to the Commissioner of the Internal Revenue Service by a Memorandum of Understanding (MOU) between FinCEN and IRS. This includes authority to:

  1. Investigate possible civil violations of these provisions;
  2. Assess and collect civil FBAR penalties;
  3. Employ the summons power;
  4. Issue administrative rulings; and,
  5. Take any other action reasonably necessary for the enforcement of these and related provisions, including pursuit of injunctions.

The IRS may waive penalties if the failure to file FBAR was due to reasonable cause.  However, “willful” reporting violations may be subject to criminal penalties, which may be imposed in addition to asset forfeiture or civil penalties.

U.S. persons, as defined by the statute, with unreported foreign bank accounts are increasingly at risk of the IRS and Department of Justice identifying those accounts since the implementation of the Foreign Account Tax Compliance Act (FATCA). FATCA, enacted in 2010 and implemented on July 1, 2014, requires foreign financial institutions worldwide to perform in-depth due diligence and to collect information to identify any US account holders or US beneficial owners of financial assets abroad, and to automatically disclose account information annually to the IRS.

Once that information is disclosed and the IRS learns of a failure to file, the IRS may act to enforce civil and sometimes criminal penalties against the U.S. Person with legal authority or ownership of the foreign financial account.

It is vitally important you seek counsel in dealing with FBAR filing and related issues. Once a U.S. person is under IRS audit or whose non-compliance has been identified by the government, there are no corrective remedies available for FBAR compliance. A US person concerned that the government may view any FBAR errors or omissions as “willful” should engage legal counsel to fully evaluate the facts and circumstances and assess the potential civil and criminal exposure in order to resolve the matter before the IRS gets involved.

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Secret Foreign Bank Accounts Are Not Secret Anymore…

Secret Foreign Bank Accounts

Secret Foreign Bank Accounts are not secret anymoreSecret foreign bank accounts have been at the center of money laundering. This is especially with reference to offshore bank accounts.  It is very common for people to hide money in secret foreign bank accounts in other countries in an effort to avoid paying taxes on the monies.

A Case Where a Businessmen & Attorney Collude to Hide Money in Secret Foreign Bank Accounts

In the case, United States v. Kerr, D. Ariz., No. 2:11-cr-02385, which Bloomberg reports, two businessmen and an attorney were charged in U.S. District Court for the District of Arizona for hiding more than $8,000 million in assets in foreign bank accounts that were kept a secret.

The prominent Phoenix businessmen, Stephen M. Kerr & Michael Quiel, solicited the services of a former San Diego attorney in committing this crime.

The attorney, Christopher M. Rusch, assisted the two businessmen to set up secret foreign bank accounts Switzerland. The Swiss accounts were set up in the name of nominee entities concealing the identity of Kerr and Quiel as the owners of the bank accounts. They then went ahead and deposited millions in these secret foreign bank accounts from sale of stock they had concealed their ownership in acquiring. All this while, Rusch acted as a signatory authority to these secret accounts. He carried out all the transactions on these accounts on behalf of Kerr and Quiel.

The Role of the Attorney

Rusch, focused on criminal and civil tax defense, creating and maintaining offshore accounts among other things. He was a master in setting up these offshore accounts and was not left out in using them too. He also maintained secret foreign bank accounts in Switzerland and Panama. He went against the statement “preach water and drink wine.” He actually preached the water and drank it, or how else can you convince clients to hide money in secret foreign bank accounts.  At one point, he helped Kerr to purchase a golf course in Colorado from his secret accounts. He actually did this using his nominee Panamanian entity. As if that was not enough, he helped Kerr and Queil to use the hidden money in the secret foreign bank accounts at their comfort back in the U.S. by transferring funds to them through his client trust account.

Charges

You cannot hide from the law for so long.  Rusch was sure they will never be found or may be the deal he got from this two business men was too sweet to be ignored.  Either way, he was at the center of breaking the law by aiding money laundering and in the promoting tax evasion. IRS and the government proved too smart to be outsmarted when they caught up with the three.

 Kerr and Queil were each convicted of two counts of filing false individual tax returns for 2007 and 2008. In addition, Kerr was charged with failing to file FBARs (Report of Foreign Bank and Financial Accounts) for 2007 and 2008.  Rusch, pleaded guilty to conspiracy to defraud the government and failing to file an FBAR.

In case you have found yourself in the above situation, contact us for help. It is getting hard to run from the law with the IRS intensifying its search on these secret foreign bank accounts.

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FBAR Case on United States v. Carl Zwerner settled for $1.8 Million

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.

Background

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.

Settlement

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.

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