Foreign Bank Account Reporting Non-Compliance in U.S. vs. Fairbank
New Court Case for IRS Willful FBAR Penalties (2020 Update): A recent New Court Case for IRS Willful FBAR Penalties was filed in U.S. v. Fairbank. When it comes to the U.S Government and enforcement of willful FBAR penalties in District Court, the government seems to operate in waves. And, the next wave of cases are coming, being led by U.S. vs. Fairbank.
In U.S. v. Fairbank, the U.S. Government seeks to enforce FBAR willful penalties for foreign account (FinCEN Form 114) violations.
*TD F 90-22.1 is the prior version of the FBAR, before it became an electronic form.
IRS Willful FBAR Penalties
The recently filed complaint in this new Court Case for IRS Willful FBAR Penalties is summarized below:
- This suit seeks to recover unpaid financial penalties imposed upon the Defendant, Barbara Fairbank (“Fairbank”). The penalties were imposed pursuant to 31 U.S.C. § 5321(a)(5) because Fairbank willfully failed to timely file accurate Forms TD F 90-22.1, Report of Foreign Bank and Financial Accounts (“FBAR”), for the years 2009, 2010, and 2011.
- Generally speaking, every U.S. person who has a financial interest in, or signature or other authority over, at least one foreign account must file an FBAR. The FBAR does not have to be filed if the aggregate balance in all foreign accounts is less than $10,000.
- On an FBAR, the filer must list certain information for each foreign account. That information includes the financial institution at which the account is held, the account number, and the maximum balance in the account during the calendar year.
Swiss Bank Accounts and Secret Money Transfers
- Fairbank, previously known as Barbara Hagaman, was married to Earl Hagaman. The Hagamans divorced in 1982.
- Fairbank and her ex-husband made written and verbal child support and property settlement agreements. One verbal agreement was that he would pay her $40,000 for 20 years (from 1983 through 2003) through the use of a Swiss bank account.
- Fairbank described this process as follows. She would receive a phone call from an anonymous person informing her of a deposit. She would then travel to Switzerland and meet an anonymous person who would give her cash.
- When the amount of cash Fairbank received exceeded $10,000, she would deposit it into an American Express credit card to avoid declaring those disbursements when she returned to the United States.
- Fairbank alleges that in 1989 she and her ex-husband agreed to change the child support agreement to three lump sum payments totaling $540,000 to be completed by October 1995. Hagaman only made two of the three payments.
- Between 2007 and 2012 Fairbank and Hagaman reached settlements of these and other disputes. On October 23, 2012, Fairbank obtained a $1,000,000 property settlement judgment against Hagaman.
What Does this Mean?
Based on these facts, it appears there may have been an intent to avoid reporting money to the U.S.
First, the money was in Switzerland, which at the time was a tax haven.
Second, the calls came from an anonymous source where she would travel to Switzerland to meet with an anonymous person to collect cash.
Foreign Entities and Accounts at UBS & Neue
In prior years, because UBS entered into a deferred prosecution with the U.S. government, it was common for the bank to create corporations that served no purpose beyond holding assets at the institution — which were then transferred to the intended beneficiary.
UBS Bank Account
- Xavana Establishment (“Xavana”) is a Liechtenstein Stiftung that Xavier Lienart (“Lienart”) incorporated.
- Upon information and belief, Xavana had no business purpose other than to hold assets including foreign bank accounts for Fairbank.
- On or about March 14, 1983, Lienart opened an account at UBS in Switzerland in Xavana’s name. Barbara Hagaman (i.e. Fairbank) was the beneficial owner of the UBS account ending in 857. Lienart was the sole signatory on the account. Lienart and Fairbank met with UBS regarding the account at least once.
- The UBS account was funded with $2 million received by Fairbank pursuant to a divorce settlement.
Neue Bank Account
- Xong Services, Inc. (”Xong Services”) is a British Virgin Islands corporation that Besser incorporated on April 1, 2009. Fairbank is the sole-shareholder of Xong Services.
- Upon information and belief, Xong Services had no business purpose other than to hold assets including foreign bank accounts for Fairbank.
- On May 31, 2009, $990,000 was deposited into an account at Neue Private Bank (“NPB”) in Switzerland. The account was in the name of Xong Services and had an account number ending in 4.300. Fairbank was the beneficial owner of this NPB account. Besser was the authorized signatory on the account.
Transfer and closing of the NEUE Account
- Using a cash card, Fairbank made 23 withdrawals of $10,000 each from the NPB account, totaling $232,000.
- On or about May 25, 2011, NPB transferred the remaining funds in the account, $709,035, to an account at Barclays Bank PLC, Singapore-Wealth Management ending in 8915 under the name International Legal Consultants.
- The NPB account was closed on or about May 30, 2011. 34. The NPB account held a high balance of $979,462.00 during 2009, $871,537.00 during 2010, and $751,817.00 during 2011.
Tax and FBAR Reporting
The main issue with these events is the lack of reporting. While the operation itself may appear less than kosher — that does not mean there was any unreported income or evasion.
If a person wants to open offshore accounts, that is not illegal.
If a person wants to operate in cash, that is not illegal.
The key issue here is the non-reporting. Here, Defendant did not report accurately on her Schedule B or FBAR, and then mass filed in 2014, which may be considered a quiet disclosure.
*Form 8938 was not introduced until 2011.
- IRS Form 1040, Schedule B, line 7a on each of the federal income tax returns Fairbank filed for the 2009 through 2011 tax years asks: “At any time during [the tax year], did you have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account? See instructions for exceptions and filing requirements for Form TD F 90-22.1.” Despite having an interest in UBS and NPB accounts Fairbank falsely answered “no” for each tax year.
- Because the aggregate balance of Fairbank’s foreign accounts exceeded $10,000 in each of the calendar years 2009 through 2011, Fairbank was required to file an FBAR reporting her financial interest in, and signature or other authority over, foreign accounts during the 2009, 2010, and 2011 calendar years on or before June 30, 2010, June 30, 2011, and June 30, 2012 respectively.
- Fairbank did not timely file an FBAR for the 2009, 2010, or 2011 calendar year. On February 11, 2014, FBARs were late filed on behalf of Fairbank, reporting her interest in the NPB account for 2009, 2010, and 2011.
Non-Willful Penalties were Assessed
Calendar Year FBAR Penalty Assessments
|Calendar Year||FBAR Penalty|
|Total Assessed Penalties||$489,000|
Alleged Facts Supporting Willful FBAR Penalties
The U.S. government laid out the following facts to support the allegations of willfulness:
- Fairbank failed to check “Yes” on IRS Form 1040, Schedule B, line 7a reporting an interest in a foreign account;
- Fairbank failed to report foreign accounts in response to questions on her tax return preparer’s tax organizer;
- Fairbank generally did not disclose the existence of the foreign accounts or income earned thereon to her tax return preparer;
- Fairbank went through considerable efforts to conceal her association with the NPB account as evidenced by ownership by a foreign entity and management by a foreign agent; e
- While the foreign agent dealt with the account, Fairbank was the beneficial owner of the account and all distributions went to her or her family members or were for her benefit;
- Fairbank was aware of her account because, through the foreign agent, she requested a cash card linked to the account, provided NPB a copy of her passport to support the request, and advised the bank that she was available for a meeting since she would be in the area for vacation in July and August 2009;
- Fairbank made 23 withdrawals of $10,000 each, totaling $232,300, from the NPB account using the cash card before transferring the remaining account balance to Barclays Banks PLC, Singapore-Wealth Management.
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