Which U.S. Taxpayers Have to E-File an Annual FBAR with FinCEN?
- 1 What does FBAR Willful Mean?
- 2 FBAR – Global Enforcement of a U.S. Law
- 3 FBAR Enforcement is Serious
- 4 What is the Hague Evidence Convention?
- 5 Legal Argument – Failure to Disclose Foreign Bank Accounts
- 6 Factual Allegations of the Government
- 7 Defendant Argues for Non-Willfulness
- 8 Letter of Request for International Judicial Assistance
- 9 IRS Voluntary Disclosure
- 10 Golding & Golding, A PLC
Which U.S. Taxpayers Have to E-File an Annual FBAR with FinCEN?
FBAR litigation is becoming an epidemic without borders. While FBAR penalties can range from a warning letter all the way to 100% penalties in a willful, multi-year audit, there is no straightforward, bright-line test to determine willful vs. non willful.
Just knowing which U.S. taxpayers have to e-File an annual FBAR with FinCEN is an undertaking with way more twists and turns than necessary.
What does FBAR Willful Mean?
FBAR willfulness can mean many things: It can mean intentional non-disclosure, it can mean willful blindness, and it can also mean reckless disregard — but not necessarily constructive knowledge (but maybe, because it was only held insufficient on summary judgment, see flume).
Even though the IRS has stated in a previous memo that the standard of proof should be clear and convincing evidence (the “middle” standard), the courts have seemingly decided the actual level of proof should be preponderance of the evidence…the lowest standard of proof.
Oh, and the U.S Government can (and will) make a formal request to foreign countries to obtain the information it needs to enforce these penalties against you.
So, even if you thought your actions outside of the U,S. were safe & protected, or unsafe but at least confidential — the U.S. Government will still take you to task.
FBAR – Global Enforcement of a U.S. Law
Despite the fact that the FBAR is an entirely U.S. Law (unlike FATCA which spans more than 110 countries and 300,000 Foreign Financial Institutions), the United States may still seek foreign country assistance to enforce Foreign Bank Account (FBAR) Penalties – even for foreign residents when they still have U.S. status.
FBAR Enforcement is Serious
The purpose of this article is to shine some light on just how far the U.S. will go to try to enforce what they believe is FBAR willfulness. Even in a civil situation, in which no “crime” is being alleged, the U.S. Government will go the distance if it feels the defendant was willful. The U.S. will take whatever tactics necessary to make that happen.
One tactic to be aware of is to make a request(s) under the Hague Evidence Convention.
What is the Hague Evidence Convention?
The “Convention on the Taking of Evidence Abroad in Civil or Commercial Matters,” or Hague Evidence Convention is a treaty signed in the Netherlands more than 40 years ago. The purpose of the Hague Evidence Convention, is for one country to be able to make a request to another country for evidence, using a more direct manner than the usual information gathering channels (which are highly bureaucratic).
Greece has been a member of the Hague Evidence Convention since 2005 and Lichtenstein is also a member since 2008 though a backdoor workaround using Article 39 for non-member countries.
Legal Argument – Failure to Disclose Foreign Bank Accounts
In the current action, the U.S. is seeking to show that the Defendant willfully failed to report an account a UBS for tax year 2007 under 31 U.S. C. section 5314 et seq. The government alleges Defendant willfully failed to file the FBAR and disclose the account, even though through her CPA, she was aware of her responsibility to do so.
Factual Allegations of the Government
The Defendant is a U.S. Citizen who resides in Greece. She is alleged to have had control over multiple bank accounts at UBS and had communications with bank as well and requested the bank initiate a transfer.
Therefore, even though the accounts were under the name of a Foundation and Business – the U.S. alleges that the Defendant had control over the account.
The Defendant Met with UBS Client Advisors:
As provided by the Court:
On December 23, 2005, (Redacted) and others had dinner in Athens, Greece, with UBS client advisors, and discussed a new account and the creation of a Hong Kong entity to be the accountholder.
A few days later, on December 29, 2005, a representative from UBS signed the Certificate of Incorporation for (Redacted) creating an entity that is registered in Hong Kong, with an UBS Account ending (Redacted).
On January 3, 2006, on the Form A, “Verification of the beneficial owner’s identity,” (Redacted) was identified as one of the beneficial owners of the (Redacted), for the account ending in (Redacted).
In addition, on said date and on June 1, 2006, (Redacted), as a director, signed several Corporations and Complex Trusts Certifications of Beneficial Owner and Non-US Person Status for the primary and sub-accounts, indicating that (Redacted) was a corporation organized in Hong Kong.
Defendant Argues for Non-Willfulness
Defendant makes very good arguments as to why she would not be considered willful in this type of situation, and under these facts.
– Defendant never signed the 2007 tax return that is in question, has many errors in it, along with misspellings – including her name and location.
– Even though the IRS did interview the CPA who prepared the return, it was conducted 4-years after the “incident” occurred, and there is no proof that he knew about FBAR reporting at the time the returns were filed back in 2007 (We all have 20-20 in hindsight, right?)
– The willful actions, if any, were done by the bankers at UBS, and not necessarily any, if at all by the Defendant or her family.
Letter of Request for International Judicial Assistance
Pursuant to the Hague convention:
The United States District Court for the Western District of New York (“District Court”) presents its salutations to the Greek Central Authority, and requests assistance in obtaining evidence to be used in civil proceedings before this Court.”
Specifically, the District Court requests assistance in obtaining documents and oral testimony from (Redacted), a citizen of Greece, for use at trial. (Redacted) is married to the defendant (Redacted) and is also represented by the defendant’s counsel. This Letter of Request is submitted in both English and Greek.
IRS Voluntary Disclosure
This case summary shows you the lengths the U.S. Government will go to in order to try to penalize you for offshore/foreign related matters. Whether or not your actions were willful or non-willful, there are various actions you can take to safely get yourself into IRS compliance.
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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.