Foreign Account FBAR Willful Standard – IRS Bedrosian Appeal (Update)

Foreign Account FBAR Willful Standard – IRS Bedrosian Appeal (Update) – Golding & Golding

Foreign Account FBAR Willful Standard – IRS Bedrosian Appeal (Update)

Recently, there was an important case holding update regarding the 3rd circuit court of appeal. 

The case was Bedrosian. In Bedrosian, the Government issued willful penalties, BUT the Court disagreed.

As a result, the court held that Bedrosian would not be subject to a 50% penalty on his undisclosed $2M account.

Foreign Account FBAR Willfulness – 3^rd Circuit Appeal

The 3^rd circuit reviewed the holding and came to the conclusion that the Federal Court may not have used the proper legal standard in evaluating whether or not Bedrosian was non-willful. The 3^rd circuit requested that the Federal Court re-review the holding.

Court’s Main Finding

The remainder of the District Court’s opinion does not dispel our concern. Although it discusses whether Bedrosian acted knowingly, it did not consider whether, when his 2007 FBAR filing came due, he

 

• clearly ought to have known that

 

• there was a grave risk that [an accurate FBAR was not being filed] and

 

• if he was in a position to find out for certain very easily.”

 

Carrigan, 31 F.3d at 134 (quoting 16 Vespe, 868 F.2d at 1335 (internal quotation omitted)). The Court thus leaves the impression it did not consider whether Bedrosian’s conduct satisfies the objective recklessness standard articulated in similar contexts.

As provided by the 3^rd Circuit:

In assessing the inquiry performed by the District Court, we first consider its holding that the proper standard for willfulness is “the one used in other civil contexts—that is, a defendant has willfully violated [31 U.S.C. § 5314] when he either knowingly or recklessly fails to file [a] FBAR.” (Op. at 7.) We agree.

 

Though “willfulness” may have many meanings, general consensus among courts is that, in the civil context, the term “often denotes that which is intentional, or knowing, or voluntary, as distinguished from accidental, and that it is employed to characterize conduct marked by careless disregard whether or not one has the right so to act.”

 

This holds true as well for recklessness in the context of a civil FBAR penalty. That is, a person commits a reckless violation of the FBAR statute by engaging in conduct that violates “an objective standard: action entailing ‘an unjustifiably high risk of harm that is either known or so obvious that it should be known.’”

 

What if I am Out of FBAR Compliance?

If you are out of FBAR compliance, the penalties can be severe. Therefore, you may consider entering the IRS offshore voluntary disclosure/tax amnesty, before it is too late.

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We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)

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Who Decides to Disclose Unreported Money?

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What Should You Do?

Everyone makes mistakes. If at some point you discover that you should have been reporting your foreign income, accounts, assets or investments, the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure programs.

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There are typically four types of IRS Voluntary Disclosure programs, and they include:

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• Reasonable Cause (RC)

Contact us today; we can help.