Court Rules Schedule B FBAR Errors May be Non-Willful

Court Rejects Schedule B FBAR Errors As Being Summarily Willful

Court Rejects Government’s Schedule B FBAR Summary Judgment

U.S. Taxpayers who have ownership or signature authority over foreign accounts are required to file a form Schedule B each year to report their ownership or signature authority as part of their IRS Form 1040. This is the case, even if the U.S. Taxpayer is ultimately not required to file the FBAR. Schedule B is used to report several different items – with a primary focus on reporting dividends and/or interest income (domestic or foreign). It is only on the bottom third portion of Schedule B where a taxpayer must identify that they have ownership or signature authority over a foreign account — even if they are not required to file the FBAR. Thus, it is not uncommon for taxpayers to be blissfully unaware that they must file Schedule B, especially in situations in which they have no dividends or interest. Likewise, Taxpayers may file Schedule B but have not reviewed the form in its entirety before filing, because they do not have any dividends or interest, and trust that their preparer completed the form correctly. In the recent 2024 case of Saydam, the Taxpayer was required to file an FBAR (but did not do so) and also did not identify in his Schedule B that he had foreign accounts. The government used this fact as primary support for its motion for summary judgment, but the court disagreed and rejected the motion.

The IRS, Schedule B, FBAR & Streamlined FAQ 13

It is very important to note, that the IRS does not always take the position that just because a taxpayer fails to file Schedule B or files it incorrectly they are willful. In fact, as part of the Streamlined Filing Compliance Procedures (IRS procedures used by taxpayers who are non-willful but have unreported foreign accounts, assets, or investments to report their foreign accounts) the Frequently Asked Questions confirms that an incorrect Schedule B is not dispositive of willfulness.

As provided by the IRS Streamlined FAQ:

• • • “We realize that many taxpayers failed to acknowledge their financial interest in or signature authority over foreign financial accounts on Form 1040, Schedule B. If you (or your return preparer) inadvertently checked “no” on Schedule B, line 7a, simply provide your explanation.”

Thus, just because a Taxpayer’s Schedule B has errors does not mean they are willful.

U.S. vs Saydam (22-cv-07371-DMR)

Let’s look at some of the key excerpts from the argument and the court ruling:

• • • “Plaintiff argues that Defendant’s Schedule B forms demonstrate a willful violation of the statute. From 2014 to 2017, Defendant filed Schedule B forms through tax preparing services at H&R Block. Tuncay Dep. 159:3-162:19. Question 7a of Schedule B asks: “At any time during [the tax year], did you have a financial interest in or signature authority over a financial account . . . located in a foreign country?” From 2014 to 2017, Defendant filled out “No” for this question. Saydam Tax Returns. Defendant does not dispute that he signed and filed the tax returns under penalty of perjury. Tuncay Dep. 162:6-19, 164:7-13, 166:25-167:4. He also does not dispute in his opposition brief that his answers to Question 7a were false.

  • • However, he argues that the Schedule B forms do not demonstrate a willful violation because the H&R Block tax preparers never asked him about foreign accounts, so he was not aware that his foreign accounts were relevant to his U.S. tax returns. Opp’n 16-19. The Government responds that Defendant cannot genuinely dispute that H&R Block failed to ask him about his foreign accounts, because all three of Defendant’s H&R Block tax preparers testified that they always ask their clients about foreign accounts before filling in the Schedule B form. Reply 2-6. And even if there were a genuine dispute, the Government argues that H&R Block’s conduct is not material, because the fact that Defendant signed and filed the tax returns is sufficient in and of itself to demonstrate willfulness.”

  • • Defendant also attacks the credibility of the H&R Block employees who prepared Defendant’s tax returns. Although the employees testified that they always ask their clients about foreign accounts before filling in the Schedule B form, there is no record of exactly what they asked Defendant, and none of the individuals involved remember the details of Defendant’s appointments. [Docket Nos. 34-3 (Linda Dunn Dep.); 34-4 (German Gomez Dep.); 34-5 (Morris Rorer Dep.).] None of the employees are qualified to prepare returns related to foreign income. Defendant testified that each appointment took “at most 20 minutes,” he would rely on the tax preparer to fill in the requisite forms, and he would only briefly review the tax return for the “numbers that we owed.” Tuncay Dep. 159:3-160:1.

  • • While this evidence could support a finding that the tax preparers asked Defendant about his foreign accounts and that he acted willfully in failing to disclose them, the Court is “not entitled to weigh the evidence and resolve disputed underlying factual issues.” See JUUL Labs, Inc. v. Chou, 557 F.Supp.3d 1041, 1056 (C.D. Cal. 2021) (citing Chevron Corp. v. Pennzoil Co., 974 F.2d 1156, 1161 (9th Cir. 1992)). A reasonable jury could conclude that Defendant’s signed tax forms, which were the product of short and routinized oral interviews conducted by the H&R Block employees, are insufficient to establish willfulness. Reasonable jurors could differ on whether Defendant’s failure to review his Schedule B or consult with a specialized foreign income tax preparer demonstrates willfulness or mere negligence.”

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. 

*This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

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.