Last month the IRS lost a case (United States v. J. Brian Williams) in which it tried to impose the 50% penalty for willfully failing to file a Foreign Bank Account Report, TD F 90-22.1 (FBAR). This appears to be the first case that has gone to court on FBAR penalties which did not involve someone who was also being charged with drug or other serious criminal charges, other than tax charges. J. Bryan Williams had already been convicted of tax fraud conviction, and the fact that on his federal income tax return Mr. Williams had checked the box on Schedule B stating that he did not have an interest in a foreign financial account.
The judge rejected these contentions stating that “…the Government fails to differentiate tax evasion from failing to check the box admitting the existence of a foreign bank account.” The court also noted that “a taxpayer’s signature on a return does not itself prove his knowledge of the contents, but knowledge may be inferred from the signature along with the surround facts and circumstances.”
The case is good news for those taxpayers who have entered the voluntary disclosure program, and are now believe that the FBAR penalty that the IRS seeks to impose is too high.
On the other hand it’s important to note that in the Williams case, by the due date of the FBAR Mr. Williams’ Swiss Bank accounts had been frozen by the Swiss government, the IRS knew that the accounts had been frozen, and Mr. Williams knew that the IRS knew that the Swiss bank accounts had been frozen. Thus the argument went that Williams had no motivation not to file the FBAR because the IRS already knew about the accounts. It will be the unusual case where this type of factual scenario exists, and therefore the IRS will probably argue that Williams is distinguishable.
If you haven’t filed your FBARs and don’t know what to do call the tax attorneys at Brager Tax Law Group, A P.C. for a consultation.