201901.07
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Court of Federal Claims Ruling (Schedule B, FBAR & Foreign Accounts)

Court of Federal Claims Ruling (Schedule B, FBAR & Foreign Accounts) - Golding & Golding

Court of Federal Claims Ruling (Schedule B, FBAR & Foreign Accounts) – Golding & Golding

Court of Federal Claims Ruling (Schedule B, FBAR & Foreign Accounts)

When it comes to Foreign Accounts and FBAR, the courts are all over the board.

District Courts and Appellate Courts are split on issues involving maximum FBAR penalties, enforcement procedures, etc. 

With that said, there is one near constant — which is that if you were “willful” the IRS is going to hit you with penalties; and most likely, the courts are going to enforce the IRS penalties.

Court of Federal Claims & FBAR

FBAR (Report of Foreign Bank and Financial Account Form aka FinCEN 114) was created by FinCEN (Financial Crimes Enforcement Network) but the form is enforced by the IRS.

FBAR compliance falls under title 31, not title 26. All that means to you, is that enforcement is tricky, and unnecessarily complicated.

The IRS does not have the same enforcement rights and procedures – and taxpayers do not have the same conventional FBAR relief procedures (aka Tax Court) as they otherwise would for a tax debt under title 26 – which results in the IRS filing suit in District Court, not Tax Court.

An alternative to District Court, is the Court of Claims, which is where we meet Alice Kimble.

Recent Case: Kimble vs. The United States

The following excerpts are from a recent ruling dated 12/27/2018 granting the U.S. Governments motion for Summary Judgement (Read: Not Good for Alice Kimble).

We have also provided additional summaries to help provide a roadmap to “Willfulness.”


During his marriage to Alice Kimble, Michael Kimble handled the couple’s finances and prepared their joint federal tax returns, but never reported any investment income derived either from the HSBC or UBS accounts.


Nor did Michael Kimble and Alice Kimble report the existence of their foreign bank accounts on their joint federal tax returns.


According to Michael Kimble, he did not know about the federal requirement to report foreign bank accounts until he learned about it in the “[l]ate ‘90s,” while using Turbo Tax.


In 2000, Alice and Michael Kimble divorced.


In or around 2000, Alice Kimble hired Steven Weinstein, a certified public accountant licensed in New York, to prepare her federal and New York state income tax returns. Mr. Weinstein never asked Alice Kimble if she had a foreign bank account.


Alice Kimble also never asked Steven Weinstein whether foreign investment income needed to be reported on her federal income tax returns


In 2008, Alice Kimble also learned from an article in the New York Times that the United States was “putting pressure on UBS to reveal the names of people who had secret accounts in UBS.”


In 2009, UBS entered a deferred prosecution agreement with the United States that required UBS to provide the IRS with the names and account information of United States citizen clients.


On October 24, 2009, Alice Kimble signed a document authorizing UBS to comply with the IRS’s request.


On each Form 1040 for tax years 2004 through 2007, Alice Kimble checked the box next to Question 7(a) labeled “No.”


On the Form 1040 for 2008, Alice Kimble left the spaces next to Question 7(a) blank.


Alice Kimble did not timely file a FBAR for calendar years 2003 through 2008.


An Issue as to Willfulness

There is an issue as to whether Alice knew or should have known she was supposed to report her foreign accounts. It is not entirely clear if this was a “Willful Blindness” issue prior to 2008, or if Alice really knew she should report.

The problem was that by 2008 Alice definitely knew she had to report and unlike her previously filed Schedule B — she did not mark off “No” as to ownership or signature authority over foreign accounts. She left it blank, after previously identifying “no,” which is suspect.

Alice Saves Herself


On April 8, 2009, Alice Kimble applied to the Offshore Voluntary Disclosure Program (“OVDP”), a “voluntary disclosure program specifically designed for taxpayers with exposure to potential criminal liability and/or substantial civil penalties due to a willful failure to report foreign financial assets and pay all tax due in respect of those assets.


On October 16, 2009, Alice Kimble was accepted into the OVDP.


OVDP (Pre-Dated) Streamlined

Back in 2009, when Alice entered into OVDP, she did not have the choice (prior to submitting) to decide between OVDP and Streamlined,

Remember, this was several years ago and the stand-alone “Streamlined Disclosure Programs” were not yet in effect — they came into effect in mid-2014.

So, just by submitting to OVDP back in 2009 did not make Alice Kimble willful per se.

Alice Decides to Opt-Out


In or around February 2013, Alice Kimble attempted to withdraw from the OVDP and declined to pay the miscellaneous penalty. 


A letter from Alice Kimble’s attorney to the IRS, relaying her decision to withdraw from the OVDP, is dated “January 23, 2013,” but a follow-up letter dated “February 26, 2013” clarified that her decision was effective on the later date.


Alice Kimble testified that she decided to “take her chances” with the IRS. (“The penalty was so high that I was advised to appeal the penalty.”).


Thereafter, the IRS sent Alice Kimble a letter informing her that any opt-out from the OVDP would be irrevocable and might cause her to incur a higher penalty. 

OVDP Opt-Out was Her Only Chance to Reduce the Penalty

Since there was no stand-alone Streamlined Program, if Alice believed she should received a reduced penalty, her only option was opt-out and subject herself to an audit — with the hopes of reducing the penalty.

The IRS Pounces


The IRS also rejected Alice Kimble’s request to apply a “reasonable cause” standard, 9 because her violation was “willful” and “the facts do not support that ordinary business care and prudence were exercised.”


Therefore, the IRS calculated the applicable penalty, in accordance with I.R.M. § 4.26.16.3.610 and I.R.M. Exhibit 4.26.16-2.


Next, the IRS added 50 percent of the balance in the UBS account, as of June 30, 2008 ($682,832), to 9 Title 31, U.S.C. § 5321(a)(5)(B)(ii) states that, for non-willful violations, “[n]o penalty shall be imposed” if: (I) such violation was due to reasonable cause, and (II) the amount of the transaction or the balance in the account at the time of the transaction was properly reported. 31 U.S.C. § 5321(a)(5)(B)


Opt-Out was Unsuccessful

The IRS determined that Alice did not qualify for a reduced or abated penalty under the Reasonable Cause rules, and instead hits her with a 50% penalty,


Alice Pays and Seeks a Refund/Abatement


On July 15, 2016, the IRS assessed a penalty in the amount of $697,229.


On or about August 3, 2016, Alice Kimble paid the full amount of the assessed penalty. 


On September 8, 2016, Alice Kimble filed a Claim For Refund And Request For Abatement with the IRS. 


It All Boils Down to Willfulness


The parties stipulated that Plaintiff failed to file a FBAR for 2007.


In addition, Plaintiff admitted that she is “not disput[ing] the FBAR penalty for the HSBC account.”


Plaintiff also admitted that she “is not seeking recovery of the 2007 FBAR penalty imposed for the HSBC account.”


As such, the court does not need to determine whether the penalty assessed by the IRS against the HSBC account was lawful. See RCFC 36(b) (“A matter admitted under this rule is conclusively established unless the court, on motion, permits the admission to be withdrawn or amended.”). Therefore, the threshold issue the court must determine is whether Plaintiff’s failure to file a FBAR for the 2007 tax year was “willful.”


But Remember, Reckless Disregard Is Civil Willfulness


The relevant stipulated facts in this case are as follows: • Plaintiff did not disclose the existence of the UBS account to her accountant until approximately 2010.


Plaintiff never asked her accountant how to properly report foreign investment income.


Plaintiff did not review her individual income tax returns for accuracy for tax years 2003 through 2008.


Plaintiff answered “No” to Question 7(a) on her 2007 income tax return, falsely representing under penalty of perjury, that she had no foreign bank accounts.


In the court’s judgment, stipulations ¶¶ 46 and 48 together evidence conduct by Plaintiff, as a co-owner of the UBS account that exhibited a “reckless disregard” of the legal duty under federal tax law to report foreign bank accounts to the IRS by filing a FBAR…see also 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.”) (citations omitted).


Although Plaintiff had no legal duty to disclose information to her accountant or to ask her accountant about IRS reporting requirements, these additional undisputed facts do not affect the court’s determination that Plaintiff’s conduct in this case was “willful.” For these reasons, the court has determined, viewing the evidence in the light most favorable to Plaintiff, that there is no genuine issue of material fact that Plaintiff violated 31 U.S.C. § 5314 and that her conduct was “willful.” See 31 U.S.C. § 5321(a)(5) (2004); see also RCFC 56.


OVDP Has Ended, But You Still have Options

Even though OVDP has ended, you still have options.

If you are out of compliance, the penalties can be severe. Therefore, you may consider entering IRS offshore voluntary disclosure (Traditional IRM program), Streamlined Program or other  IRS tax amnesty alternative — before it is too late.

What Type of Attorney Should I Hire?

IRS Voluntary Disclosure is a specialized area of law. An IRS Voluntary Disclosure is a complex undertaking. It requires the coordination of several moving parts, including strategy development, Tax Preparation, Legal Analysis, Negotiation and more.

You should hire a Tax Attorney who has the following credentials:

  • ~20 Years of Private Practice experience representing his/her own clients
  • Experienced in Criminal and Civil Tax Litigation
  • Experienced representing clients in Eggshell and Reverse Eggshell Audits.
  • Advanced Tax Degree (LL.M.)
  • EA (Enrolled Agent) or CPA (Certified Public Accountant)
  • Preferably a Board Certified Tax Law Specialist

We Specialize in Safely Disclosing Foreign Money

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!)

Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Examples of areas of tax we handle

Who Decides to Disclose Unreported Money?

What Types of Clients Do we Represent?

We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.

You are not alone, and you are not the only one to find himself or herself in this situation.

Sean M. Golding, JD, LL.M., EA (Board Certified Tax Law Specialist)

Our Managing Partner, Sean M. Golding, JD, LLM, EA  earned an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)

Mr. Golding and his team have successfully handled several hundred IRS Offshore/Voluntary Disclosure Procedure cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

Less than 1% of Tax Attorneys Nationwide are Board Certified Tax Law Specialists 

The Board Certified Tax Law Specialist exam is offered in many states, and is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. Certification also requires the completion of significant ethics and experience requirements.

In California alone, out of more than 200,000 practicing attorneys (with thousands of attorneys practicing in some area of tax law), less than 350 attorneys are Board Certified Tax Law Specialists.

Beware of Copycat Law Firms

Unlike other attorneys who call themselves specialists or experts in Voluntary Disclosure but are not “Board Certified,” handle 5-10 different areas of tax law, purchase multiple keyword specific domain names, and even practice outside of tax, we are absolutely dedicated to Offshore Voluntary Disclosure.

*Click here to learn the benefits of retaining a Board Certified Tax Law Specialist with advanced tax credentials.

IRS Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

A Penalty for failing to file Form 8938

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

What Should You Do?

Everyone makes mistakes. If at some point 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 program.

Be Careful of the IRS

With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.

4 Types of IRS Voluntary Disclosure Programs

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

Contact Us Today; Let us Help You.