Courts Split on FBAR Willfulness & $100,000 Maximum Penalty Limit (Golding & Golding)
Courts Split on FBAR Willfulness & $100,000 Maximum Penalty Limit
The FBAR is the Foreign Bank Account Reporting form, otherwise known as the “Report of Foreign Bank and Financial Account Form (FinCEN 114).”
The FBAR is required to be filed by any individual (or entity), who is considered to be a U.S. Person, and has “a combined annual aggregate total of more than $10,000 in all of their accounts (not per account) on any given day of the year.”
Contents
- 1 Courts Split on FBAR Willfulness & $100,000 Maximum Penalty Limit
- 2 Understanding FBAR Willfulness
- 3 FBAR Willfulness does Not Mean Intent
- 4 FBAR Willful Blindness?
- 5 FBAR Willful Reckless Disregard
- 6 FBAR Willful Court Cases (5 Important Case Holdings)
- 7 You may Reduce FBAR Willfulness Penalties
- 8 Golding & Golding, A PLC
Courts Split on FBAR Willfulness & $100,000 Maximum Penalty Limit
If a person does not properly and timely file their annual FBAR, they are considered in violation of the IRS and FinCEN (Financial Crimes Enforcement Network) rules and regulations.
Unfortunately, even though the violation may seem minor, since the US government continues to make the enforcement of Offshore and Foreign related matters a key enforcement priority, the penalties can be staggering.
And, FBAR Penalties are some of the most devastating IRS financial penalties available for enforcement — especially Willful FBAR penalties.
*With that said, it still takes a lot to show a person was “willful,” and oftentimes the penalty associated with FBAR violations can be minimized, or even abated.
Understanding FBAR Willfulness
FBAR Willfulness (Civil) Penalties are non-criminal. They are bad but they are not criminal.
Civil FBAR Penalties are limited to monetary penalties. A civil FBAR Penalty is a penalty that is focused on monetary fines or warning letters (waivers) — without any risk of criminal investigation or prosecution.
There are two types of Civil FBAR Penalties:
- Willful; and
- Non-Willful
| U.S. Code citation | Civil Monetary Penalty Description | Current Maximum |
|---|---|---|
| 31 U.S.C. 5321(a)(5)(B)(i) | Foreign Financial Agency Transaction – Non-Willful Violation of Transaction | $12,921 |
| 31 U.S.C. 5321(a)(5)(C) | Foreign Financial Agency Transaction – Willful Violation of Transaction | Greater of $129,210, or 50% of the amount per 31 U.S.C.5321(a)(5)(D) |
| 31 U.S.C. 5321(a)(6)(A) | Negligent Violation by Financial Institution or Non-Financial Trade or Business | $1,118 |
| 31 U.S.C. 5321(a)(6)(B) | Pattern of Negligent Activity by Financial Institution or Non-Financial Trade or Business | $86,976 |
Willful FBAR Penalties and (Reduced) Willfulness
The Willful FBAR Penalty is typically more severe.
An FBAR Willful Penalty is penalty for acting willful, willfully blind, or with reckless disregard in not filing the FBAR. We have provided detailed explanations and analyses in our free International Tax Law library about these different terms, and what they mean.
A few important considerations:
- Most courts have held that the maximum annual FBAR willful penalty is not limited to $100,000.
- If the court believes you acted with Reckless Disregard, they can still penalize you full Willful FBAR Penalties.
- If the court believes you acted with Willful Blindness, they can still penalize you full Willful FBAR Penalties.
- Even in a non-willful setting, the court can issue $10,000 per account, per year penalty
FBAR Willfulness does Not Mean Intent
There can be “lower” forms of willfulness, which do not require willful or intent — these additional willful standard are referred to as:
If you have any concern of willful vs. non-willful, It is crucial that you consult with an experienced Streamlined and Offshore Disclosure Lawyer before making any submission.
FBAR Willful Blindness?
Willful Blindness is a form of “deliberate ignorance.” It is the concept that a person could readily obtain information, which if they did, would inform them that their actions could be criminal. Instead of seeking out the information, they “intentionally” avoid learning the information (aka burying their head in the sand).
What does Willful Blindness Mean?
It means you are “willfully” staying ignorant to a fact that would inform you that your actions are illegal.
Is Willful Blindness a Crime?
Yes. It is a substitute for willfulness. In other words, while you may have not intended to cause a crime, the fact that had you made yourself uninformed to the fact that your actions were illegal — takes you over the willfulness threshold.
What is the Mens Rea of Willful Blindness?
The idea of Mens Rea of Willful Blindness is the idea that the knowledge of the crime is presumed, due to the intentional lack of knowledge on the part of the participant.
What is Deliberate Ignorance?
Deliberate ignorance is essentially a synonym for willful blindness.
Willful Blindness Law School 101 Definition
Outside of the world of FBAR Penalties, the willful blindness standard is nothing new.
Here’s a typical example you learn in your first-year criminal law and procedures class:
David and his friends are hanging out in a seedy part of Tijuana. A Gentlemen approaches them and tells David and his two buddies that he will pay them each $1 million if they drive a car across the border.
None of the individuals ask the man why he is paying them that much to drive a vehicle for a few hours. Clearly, they should have some questions, but the money is just too good.
Therefore, David and his friends avoid asking any questions, believing if they do not ask, then they cannot know what is in the car – and that will absolve them from liability.
When they get pulled over and the police discover 50 pounds of cocaine in the car, the fact that they “didn’t know about the drugs” would not matter — since they were “willfully blind.”
FBAR Willful Reckless Disregard
Reckless disregard is a lower standard of willful. It does not require intent, but rather behavior which shows the U.S. person could have known and/or could have filed the FBAR.
How do the Courts Define Reckless Disregard?
Reckless Disregard In offshore disclosure, essentially means: “I Could have known better.”
The court in Bohanecs summarizes reckless disregard as:
“Although Defendants assert that “willfulness” encompasses only intentional violations of known legal duties, and not reckless disregard of statutory duties, no court has adopted that principle in a civil tax matter.
Where willfulness is an element of civil liability, the Supreme Court generally understands the term as covering “not only knowing violations of a standard, but reckless ones as well.” Safeco, 551 U.S. at 57.
– Recklessness” is an objective standard that looks to whether conduct entails “an unjustifiably high risk of harm that is either known or so obvious that it should be known.” Safeco, 551 U.S. at 68 (internal quotation marks and citation omitted).
– Several other courts, citing Safeco, have held that “willfulness” under 31 U.S.C. § 5321 includes reckless disregard of a statutory duty. See United States v Williams, 489 Fed.Appx. 655, 658 (4th Cir. 2012); United States v. Bussell, No. CV15-02034 SJO(VBKx), 2015 WL 9957826 at *5 (C.D. Cal. Dec. 8, 2015); see also United States v. McBride, 908 F.Supp. 2d 1186, 1204, 1209 (D. Utah 2012).”
FBAR Willful Court Cases (5 Important Case Holdings)
FBAR Willful Case: Williams (III)
If a person sign the tax return, marks “No” on Schedule B, Question 7 and the facts otherwise show that the person acted fraudulently regarding their taxes, the court can impute willfulness without any true intent to not report foreign counts.
FBAR Willful Case: Mcbride
The government does not need to show intent in order to prove willfulness in the context of FBAR Penalties. Rather, the government must only show reckless conduct, and reckless conduct includes willful blindness, even without direct evidence of willfulness.
FBAR Willful Case: Bohanec
As with the prior, the court again confirms that reckless disregard this efficient the Government to meet the burden of willfulness, and the Government must only meet the preponderance of the evidence standard, and not clear convincing evidence.
FBAR Willful Case: Garrity
The Government can provide Reckless Disregard to establish willfulness and the standard of proof is the preponderance of the evidence.
FBAR Willful Case: Bussell
Despite the fact that in this case the Willful FBAR penalties exceeds $1 million, that in the end FBAR penalties (even willful), are just monetary penalties, and therefore the preponderance of the evidence standard of proof is proper.
Another import aspect of Bussell, is to give you an idea of what arguments are destined to fail on appeal, and that the Supreme Court refuses to hear the matter regarding what constitutes FBAR Penalties.
You may Reduce FBAR Willfulness Penalties
There are 5 main versions of the program. In addition, there is an “illegal” version of Voluntary Disclosure as well, which is referred to as “Quiet Disclosure” or “Silent Disclosure.”
Golding & Golding, A PLC
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We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.