The Court Denies FBAR Motion to Dismiss, Non-Willful Defense

Court Rejects FBAR Motion to Dismiss Non-Willful Defense

Court Rejects FBAR Motion to Dismiss Non-Willful Defense

In a recent large Foreign Bank and Financial Account reporting FBAR case, the defendant had already been convicted in a criminal matter and sentenced to more than seven years in prison. Subsequently, the government filed (and is currently pursuing) a civil action against the defendant for more than $40 million in FBAR penalties. The government takes the position that the taxpayer willfully violated the foreign account reporting statute. Unlike non-willful FBAR violations that are limited to a $10,000 per year penalty (Supreme Court ruling in Bittner), the penalties for willful noncompliance can reach upwards of a 50% maximum value of the unreported accounts — and there could be multi-year penalties in the same compliance period — although generally limited to a 100% penalty over a multi-year compliance period (previously it was 300%, which represented a 50% penalty per year over a six-year time-period which is the statutory time-period for FBAR violations).

Here, the defendant sought to dismiss the case by filing a motion to dismiss, but the court denied the motion. The crux of the basis for the dismissal is the fact that the defendant was smart, had experience as a CPA,  and was a Chief Financial Officer of a large company — and his conduct was allegedly reckless, which is sufficient to meet the willfulness FBAR violation standard.

Let’s take a look at how the court reaches its conclusion, by referring to portions of the Court’s Order.

The Wilful FBAR Conduct Standard

• • • “The Eleventh Circuit has explained that “[w]illful conduct in the FBAR context includes knowing and reckless conduct.” United States v. Schwarzbaum, 24 F.4th 1355, 1358 (11th Cir. 2022) (citing United States v. Rum, 995 F.3d 882, 888– 89 (11th Cir. 2021)). Recklessness is defined as “‘conduct violating an objective standard: action entailing an unjustifiably high risk of harm that is either known or so obvious that it should be known.’” Id. at 1363 (citations omitted).”

Court’s Finds Defendants Conduct was Wilful

• • • “As an initial matter, taking the allegations of the Complaint set forth above as true, as the Court must do when evaluating a motion to dismiss, Defendant is a financially educated, savvy, and sophisticated international businessman with an extensive background as a CPA, audit partner, CFO, and consultant, who retained a Swiss wealth advisory firm to help him hide his ownership and control of certain foreign accounts, transferring such accounts between different Swiss banks. (Doc. 1 at ¶¶ 15–19).

  • • To that end, the Complaint alleges that when asked to provide evidence of U.S. tax compliance, Defendant made his wife the beneficial owner of the account and then transferred the assets to new accounts, where he requested that all correspondence be retained at the bank and only sent to his Zurich-based wealth advisors. (Id. at ¶¶ 33–38). Additionally, the Complaint alleges that Defendant swore on his Streamlined Foreign Program certification that he has worked and resided in Russia since 1995, when in fact he had a home in Florida. (Id. at ¶¶ 94–95). With these allegations taken as true for the purpose of deciding the motion to dismiss, the Court finds that the Complaint adequately alleges that Mr. Gvetvay knowingly worked to skirt compliance with FBAR.”

Court’s Claims Defendant’s Arguments Were not Persuasive

• • • “In a nutshell, the Complaint alleges myriad deliberate actions over the course of a decade by [defendant] that establish plausible allegations of willfulness under the statutory framework. [Defendant]presents no persuasive argument why the Court should dismiss the Government’s claim that [Defendant]s] FBAR violation was willful. This is not to say that the Government will be able to prove up the Complaint’s allegations at a later stage of litigation. It simply means that the Complaint, as alleged, supports an FBAR violation.”

Willful Violations Not Limited to $100,000

• • • “Having found that the Government has adequately alleged that [Defendant’s] FBAR violation was willful, the Court turns to [Defendant’s] argument that the penalty must be limited to $100,000. (Doc. 13 at 12–17). He argues that “[t]he complaint does not allege anything that could remotely be described as failing to ‘report the existence’ of the [Falcon Felicis Account] or ‘identifying information’ about the account.” (Doc. 13 at 13).

  • • The Court disagrees. Under the plain language of the statute, when a person “willfully violat[es], or willfully caus[es] a violation of, any provision of section 5314,” the maximum penalty is the greater of: (i) $100,000 or (ii) “in the case of a violation involving a failure to report the existence of an account or any identifying information required to be provided with respect to an account, [50% of] the balance in the account at the time of the violation.” 31 U.S.C. § 5321(a)(5)(C)–(D). Thus, it is pellucidly clear that Congress intended to penalize willful violators with hefty monetary fines.”

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.