Reasonable Cause for FBAR Rejected by Court (Self-Represented): In a recent court case about FBAR, the court rejected Defendant’s argument of Reasonable Cause in defense of an FBAR Penalty. The Court denied his defense (while granting summary judgment to the U.S. government.) In recent years. the U.S. has taken an aggressive position on matters involving FBAR Reporting and Foreign Accounts Compliance. FBAR Penalties can be bad, which is why when a person is faced with FBAR penalty assessment and enforcement, it is important to retain experienced counsel.
Reasonable Cause for FBAR Rejected by Court (Self-Represented)
In the case of U.S. vs. Ram K. Agrawal (Case No. 18-C-0504) the court rejected Defendant’s unsubstantiated claim of reasonable cause, and issued a summary judgment on behalf of the United States. This case involved non-willful FBAR violations, in which the defendant was self-represented, and provided conflicting testimony to the Court.
U.S. v. Agrawal Case No. 18-C-0504 (Background & Facts)
The case of U.S. v. Agrawal is a bit of a mess, because the defendant was self-represented, had accounts at a bad bank, gave conflicting testimony, and did not follow proper court procedures.
Here are some important background facts to consider about Defendant:
- He was self-represented
- He had accounts in India and Switzerland UBS (The latter is a “Bad Bank”)
- He stated he prepared his own returns, but also testified he relied on a CPA
- He never told his CPAs about the UBS Account
- He provided conflicting testimony
Defendant earned a solid living and invested wisely. At some point, Defendant decided to invest his Indian FD earnings (Fixed Deposits) into a UBS Account(s). UBS is considered a Bad Bank. They are on the on the IRS hit list. During his testimony, Defendant made many missteps, and his claims of reasonable cause did not make much sense.
Here is some of the important testimony:
Q: Did [the CPA] ask you whether you had a foreign financial account?
A: I said no.
Q; You told him no?
Q: But at this time you still had the UBS account, correct?
Q: Why did you tell [the CPA] no?
A: Because again, the word of [the UBS representative]that these—this account is not—non-taxable
in the U.S.…
Q: You didn’t tell [the CPA] that you had a UBS account but were told that it was non-
taxable and didn’t need to be reported?
A: I didn’t tell him.
Q. Okay. Why not?
A: Because when I trust somebody, like [the UBS representative], I didn’t tell him
This testimony made no sense.
Because it would make sense for Defendant to trust his CPA (who he hired) to prepare his taxes more than a sales representative. In other words, why would he not trust the CPA, but rather trust the representative at UBS (read: salesperson), who clearly has a financial interest in how Defendant’s money is invested, and is not a tax professional…
This is Not Reasonable Cause
The biggest takeaways from this case are:
- Do not represent yourself; and
- Use experienced counsel
In this case, the Judge was correct. The CPA asked if his client (Defendant) had foreign accounts. The defendant said no. The defendant did NOT say, “yes, but I was told they were not taxable.”
There is a big difference.
In the former, the client is NOT relying on the CPA. Rather, the client is relying on the UBS Representative, and intentionally keeping information hidden from the CPA.
In the latter, the client is answering the CPAs questions, and then clarifying why he (the client) believes the money is not taxable. If the CPA agreed, then this could be reasonable cause, but that is not what happened.
In the case of Agrawal, it would be impossible to provide he “reasonably relied on his CPA,” when he never told the CPA in the first place.
Defendant also Changed His Testimony
In addition to giving conflicting testimony, Defendant changed his testimony at the 11th hour. As provided in the Summary Judgment order:
“However, with his response to plaintiff’s motion for summary judgment, Agrawal submitted an affidavit reversing some of this testimony; he now claims that both CPAs asked whether he had foreign accounts; that he told them he did have a foreign account; that the CPAs did not file FBARs on his behalf or report the UBS account on his tax returns; and that he relied on the CPAs’ expertise.”
“Although the summary judgment posture of this case requires me to view the evidence in the light most favorable to Agrawal, that does not allow him to walk back his deposition testimony with later-filed contradictory affidavits. “[P]arties cannot thwart the purposes of Rule 56 by creating ‘sham’ issues of fact with affidavits that contradict their prior depositions.” Ineichen v. Ameritech , 410 F.3d 956, 963 (7th Cir. 2005). 2 I must therefore disregard the affidavits.”
On the record before me, no reasonable juror could find that Agrawal acted with ordinary business care and prudence, or that he made a reasonable effort to understand his FBAR reporting responsibilities, when he failed to file his FBARs for the years 2006-2009. By his own admission, Agrawal self-prepared his 2006 and 2007 tax returns; he did not disclose the existence of a foreign financial account on Schedule B despite a direct question on the issue. And according to his deposition testimony, in 2008 and 2009, he did not tell the CPAs preparing his tax return of the existence of the UBS account or question the CPA’s decision to leave blank the Schedule B question about foreign bank accounts.
A taxpayer acting with ordinary business care, or one making a reasonable effort to understand his responsibilities, would have sought informed advice about the reporting requirements alluded to in Schedule B; seeking such advice would necessarily involve the taxpayer notifying the advisor of the existence of the foreign account. See Jarnagin , 134 Fed.Cl. at 378 (“A taxpayer who signs a tax return will not be heard to claim innocence for not having actually read the return, as he or she is charged with constructive knowledge of its contents.”)(quoting United States v. Williams , 489 Fed.Appx. 655, 659 (4th Cir. 2012)); see also Richardson v. Comm’r , 125 F.3d 551, 558 (7th Cir. 1997)
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