- 1 Estate FBAR Penalties
- 2 How Does the IRS Show Intent?
- 3 Background Facts to the Case
- 4 The Deceased Could Not Sign the Streamlined Application, So…
- 5 Understanding the Lower Level of Willfulness (Same 50% Penalty)
- 6 Welcome to Lower Thresholds of Willfulness
- 7 What Does This Tell You about the IRS and FBAR?
- 8 What if I am Out of Offshore Compliance?
- 9 What Should You Do?
- 10 Golding & Golding, Board Certified in Tax Law
Estate FBAR Penalties – Lower Willful Standard, Same 50% Penalty
FBAR penalties from the IRS are more than just draconian, they are insulting and bordering on the insufferable.
Estate FBAR Penalties
In a recent case (still pending) a deceased man’s estate is being penalized millions of dollars, simply because the decedent (the man who passed away) cannot declare under penalty of perjury he was non-willful.
Remember of course, he is deceased — and unable to make his own statement.
How Does the IRS Show Intent?
They don’t have to.
The IRS cannot show he had any “specific intent” to defraud — just circumstantial evidence.
Luckily, for the IRS, they don’t have to prove intent.
The IRS only has to show the deceased man acted with reckless disregard, or willful blindness.
Background Facts to the Case
- Executor’s very elderly husband passed away
- Executor (now a widow) is also very elderly
- They were married for more than 50 years, and he handled all the taxes, with his CPA
- Executor became aware of the FBAR (She did not handle the taxes)
- Executor had filed a Streamlined Application, since she was non-willful
- Executor was nearly certain her husband did not know, but did not want to sign on his behalf.
- The CPA acknowledged that he (the CPA) was unaware of FBAR and did not advise his clients of it
- The IRS determined the Husband was willful, by way of “reckless disregard” or “willful Blindness”
- The IRS seeks to reduce the FBAR Penalty to Judgment against the Estate
The Deceased Could Not Sign the Streamlined Application, So…
The IRS determined (based on certain circumstantial facts which by themselves do not appear dispositive of any intent to defraud or avoid filing the FBAR) that the deceased must at least be “some sort of, kind of willful.”
Understanding the Lower Level of Willfulness (Same 50% Penalty)
Based on these facts, the IRS has made clear tat FBAR enforcement is a #1 Priority. And, if the facts at all can be swayed to show even the lowest form of willfulness, and the person is deceased, the IRS will still come after them.
The IRS did not say he acted with INTENT, but rather Reckless Disregard or Willful Blindness
Welcome to Lower Thresholds of Willfulness
Forget your common sense for a second. The IRS is not saying the deceased acted “Willful” but rather with Reckless Disregard or Willful Blindness.
As provided by the court in Bohanecs:
– Where willfulness is an element of civil liability, the Supreme Court generally understands the term as covering “not only knowing violations of a standard, but reckless ones as well.” Safeco, 551 U.S. at 57.
– Recklessness” is an objective standard that looks to whether conduct entails “an unjustifiably high risk of harm that is either known or so obvious that it should be known.” Safeco, 551 U.S. at 68 (internal quotation marks and citation omitted).
– Several other courts, citing Safeco, have held that “willfulness” under 31 U.S.C. § 5321 includes reckless disregard of a statutory duty. See United States v Williams, 489 Fed.Appx. 655, 658 (4th Cir. 2012); United States v. Bussell, No. CV15-02034 SJO(VBKx), 2015 WL 9957826 at *5 (C.D. Cal. Dec. 8, 2015); see also United States v. McBride, 908 F.Supp. 2d 1186, 1204, 1209 (D. Utah 2012).
As provided by the Court in Horowitz:
On these facts, willful blindness may be inferred. See Poole, 640 F.3d at 122 (“[I]n a criminal tax prosecution, when the evidence supports an inference that a defendant was subjectively aware of a high probability of the existence of a tax liability, and purposefully avoided learning the facts pointing to such liability, the trier of fact may find that the defendant exhibited ‘willful blindness’ satisfying the scienter requirement of knowledge.” (quoted in Williams II in the context of civil liability)).
What Does This Tell You about the IRS and FBAR?
This case should give you some insight and how the IRS works when it comes to FBAR Penalties.
The case is not resolved yet, and litigation is pending, but it is clear that IRS will enforce penalties against the estate and an executor, even if there is no clear fax to show that the actual executor acted willful.
What if I am Out of Offshore Compliance?
If you are out of offshore compliance, the penalties can be severe. Therefore, you may consider entering the IRS offshore voluntary disclosure/tax amnesty, before it is too late.
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, with experienced counsel.
Golding & Golding, Board Certified in Tax Law
We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.