Courts Split on FBAR Willfulness & $100,000 Maximum Penalty Limit
- 1 Courts Split on FBAR Willfulness & $100,000 Maximum Penalty Limit
- 2 Understanding FBAR Willfulness
- 3 FBAR Willfulness does Not Mean Intent
- 4 FBAR Willful Blindness?
- 5 FBAR Willful Reckless Disregard
- 6 FBAR Willful Court Cases (5 Important Case Holdings)
- 7 You may Reduce FBAR Willfulness Penalties
- 8 How to Find Experienced & Reputable Offshore Voluntary Disclosure Counsel
- 9 Sean M. Golding, JD, LL.M., EA (Board Certified Tax Law Specialist)
- 10 Beware of Copycat Law Firms
- 11 How to Retain Experienced Counsel?
Courts Split on FBAR Willfulness & $100,000 Maximum Penalty Limit
The FBAR is the Foreign Bank Account Reporting form, otherwise known as the “Report of Foreign Bank and Financial Account Form (FinCEN 114).”
The FBAR is required to be filed by any individual (or entity), who is considered to be a U.S. Person, and has “a combined annual aggregate total of more than $10,000 in all of their accounts (not per account) on any given day of the year.”
Courts Split on FBAR Willfulness & $100,000 Maximum Penalty Limit
If a person does not properly and timely file their annual FBAR, they are considered in violation of the IRS and FinCEN (Financial Crimes Enforcement Network) rules and regulations.
Unfortunately, even though the violation may seem minor, since the US government continues to make the enforcement of Offshore and Foreign related matters a key enforcement priority, the penalties can be staggering.
And, FBAR Penalties are some of the most devastating IRS financial penalties available for enforcement — especially Willful FBAR penalties.
*With that said, it still takes a lot to show a person was “willful,” and oftentimes the penalty associated with FBAR violations can be minimized, or even abated.
Understanding FBAR Willfulness
FBAR Willfulness (Civil) Penalties are non-criminal. They are bad but they are not criminal.
Civil FBAR Penalties are limited to monetary penalties. A civil FBAR Penalty is a penalty that is focused on monetary fines or warning letters (waivers) — without any risk of criminal investigation or prosecution.
There are two types of Civil FBAR Penalties:
- Willful; and
|U.S. Code citation||Civil Monetary Penalty Description||Current Maximum|
|31 U.S.C. 5321(a)(5)(B)(i)||Foreign Financial Agency Transaction – Non-Willful Violation of Transaction||$12,921|
|31 U.S.C. 5321(a)(5)(C)||Foreign Financial Agency Transaction – Willful Violation of Transaction||Greater of $129,210, or 50% of the amount per 31 U.S.C.5321(a)(5)(D)|
|31 U.S.C. 5321(a)(6)(A)||Negligent Violation by Financial Institution or Non-Financial Trade or Business||$1,118|
|31 U.S.C. 5321(a)(6)(B)||Pattern of Negligent Activity by Financial Institution or Non-Financial Trade or Business||$86,976|
Willful FBAR Penalties and (Reduced) Willfulness
The Willful FBAR Penalty is typically more severe.
An FBAR Willful Penalty is penalty for acting willful, willfully blind, or with reckless disregard in not filing the FBAR. We have provided detailed explanations and analyses in our free International Tax Law library about these different terms, and what they mean.
A few important considerations:
- Most courts have held that the maximum annual FBAR willful penalty is not limited to $100,000.
- If the court believes you acted with Reckless Disregard, they can still penalize you full Willful FBAR Penalties.
- If the court believes you acted with Willful Blindness, they can still penalize you full Willful FBAR Penalties.
- Even in a non-willful setting, the court can issue $10,000 per account, per year penalty
FBAR Willfulness does Not Mean Intent
There can be “lower” forms of willfulness, which do not require willful or intent — these additional willful standard are referred to as:
If you have any concern of willful vs. non-willful, It is crucial that you consult with an experienced Streamlined and Offshore Disclosure Lawyer before making any submission.
FBAR Willful Blindness?
Willful Blindness is a form of “deliberate ignorance.” It is the concept that a person could readily obtain information, which if they did, would inform them that their actions could be criminal. Instead of seeking out the information, they “intentionally” avoid learning the information (aka burying their head in the sand).
What does Willful Blindness Mean?
It means you are “willfully” staying ignorant to a fact that would inform you that your actions are illegal.
Is Willful Blindness a Crime?
Yes. It is a substitute for willfulness. In other words, while you may have not intended to cause a crime, the fact that had you made yourself uninformed to the fact that your actions were illegal — takes you over the willfulness threshold.
What is the Mens Rea of Willful Blindness?
The idea of Mens Rea of Willful Blindness is the idea that the knowledge of the crime is presumed, due to the intentional lack of knowledge on the part of the participant.
What is Deliberate Ignorance?
Deliberate ignorance is essentially a synonym for willful blindness.
Willful Blindness Law School 101 Definition
Outside of the world of FBAR Penalties, the willful blindness standard is nothing new.
Here’s a typical example you learn in your first-year criminal law and procedures class:
David and his friends are hanging out in a seedy part of Tijuana. A Gentlemen approaches them and tells David and his two buddies that he will pay them each $1 million if they drive a car across the border.
None of the individuals ask the man why he is paying them that much to drive a vehicle for a few hours. Clearly, they should have some questions, but the money is just too good.
Therefore, David and his friends avoid asking any questions, believing if they do not ask, then they cannot know what is in the car – and that will absolve them from liability.
When they get pulled over and the police discover 50 pounds of cocaine in the car, the fact that they “didn’t know about the drugs” would not matter — since they were “willfully blind.”
FBAR Willful Reckless Disregard
Reckless disregard is a lower standard of willful. It does not require intent, but rather behavior which shows the U.S. person could have known and/or could have filed the FBAR.
How do the Courts Define Reckless Disregard?
Reckless Disregard In offshore disclosure, essentially means: “I Could have known better.”
The court in Bohanecs summarizes reckless disregard as:
“Although Defendants assert that “willfulness” encompasses only intentional violations of known legal duties, and not reckless disregard of statutory duties, no court has adopted that principle in a civil tax matter.
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).”
FBAR Willful Court Cases (5 Important Case Holdings)
FBAR Willful Case: Williams (III)
If a person sign the tax return, marks “No” on Schedule B, Question 7 and the facts otherwise show that the person acted fraudulently regarding their taxes, the court can impute willfulness without any true intent to not report foreign counts.
FBAR Willful Case: Mcbride
The government does not need to show intent in order to prove willfulness in the context of FBAR Penalties. Rather, the government must only show reckless conduct, and reckless conduct includes willful blindness, even without direct evidence of willfulness.
FBAR Willful Case: Bohanec
As with the prior, the court again confirms that reckless disregard this efficient the Government to meet the burden of willfulness, and the Government must only meet the preponderance of the evidence standard, and not clear convincing evidence.
FBAR Willful Case: Garrity
The Government can provide Reckless Disregard to establish willfulness and the standard of proof is the preponderance of the evidence.
FBAR Willful Case: Bussell
Despite the fact that in this case the Willful FBAR penalties exceeds $1 million, that in the end FBAR penalties (even willful), are just monetary penalties, and therefore the preponderance of the evidence standard of proof is proper.
Another import aspect of Bussell, is to give you an idea of what arguments are destined to fail on appeal, and that the Supreme Court refuses to hear the matter regarding what constitutes FBAR Penalties.
You may Reduce FBAR Willfulness Penalties
There are 5 main versions of the program. In addition, there is an “illegal” version of Voluntary Disclosure as well, which is referred to as “Quiet Disclosure” or “Silent Disclosure.”
If you were willful, you do not qualify for Streamlined, Delinquency or Reasonable Cause.
(New) Updated Traditional IRS Voluntary Disclosure Program
When OVDP (Offshore Voluntary Disclosure Program) ended back in September 2018, the Internal Revenue Service was unclear as to whether a New “Offshore” Voluntary Disclosure Program would be introduced. Instead of a “new program,” the traditional voluntary disclosure program was expanded.
You can use the disclosure program to submit FBARs for your Foreign Bank Accounts, FATCA, PFIC, along with your Domestic Income
SFCP – IRS Streamlined Filing Compliance Procedures
IRS Streamlined Filing Compliance Procedures are a stand-alone “streamlined” version of the traditional OVDP. The “stand-alone” streamlined filing procedures were created in 2014 by the Internal Revenue Service.
The purpose of the procedures are to assist taxpayers who were noncompliant with offshore reporting requirements – but were also non-willful.
If the Taxpayer can certify under penalty of perjury of being non-willful, the IRS reduces the penalty structure, and even waives the penalty for applicants who qualify as foreign residents.
SDOP – IRS Streamlined Domestic Offshore Procedures
SDOP is the Streamlined Domestic Offshore Procedures, and it is the program designed for for U.S. persons residing in the United States (or do not meet the technical “Foreign Resident Test”)
SFOP – IRS Streamlined Foreign Offshore Procedures
SFOP is the Streamlined Foreign Offshore Procedures. These are the Procedures for U.S. persons residing outside the United States is referred to as the Streamlined Foreign Offshore Procedures.
DIRP – Delinquency Procedures for Offshore & Foreign Accounts and Assets
If you do not have any unreported income resulting in having to amend your tax returns — and all you have is unreported foreign assets, accounts or investments with no unreported income, you may be in luck. In these instances, in which you do not otherwise need to file for traditional offshore disclosure or the Streamlined Filing Compliance Procedures — you may qualify for the Delinquency Procedures and avoid any penalties.
RC – Reasonable Cause for Offshore & Foreign Accounts and Assets
Reasonable Cause may be an option for some taxpayers. Specifically, if you were completely non-willful in your failure to disclosure, and were unaware that there was any reporting requirement, then the thought of paying any penalty may sound absurd.
Fixing Lesser Experienced Law Firm mistakes.
IRS Voluntary Disclosure is complex enough for experienced practitioners who focus exclusively in the area of law, never mind relative newcomers who are trying to handle more than just offshore voluntary disclosure as part of their everyday tax practice.
We know, because those cases usually end up on our door-step.
How to Find Experienced & Reputable Offshore Voluntary Disclosure Counsel
Nearly all the experienced Attorneys in this field will have 5 Main Attributes:
- Board Certified Tax Law Specialist
- Master’s of Tax Law (aka LL.M.)
- Dually Licensed as an Enrolled Agent or CPA
- Around 20-Years of Private Practice experience
- Extensive Litigation, Trial and related high-stakes experience.
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.
How to Retain Experienced Counsel?
Our clients have asked up to prepare an Offshore Disclosure Attorney Fee Summary Guide for you to help separate fact from fiction when selecting an attorney.
Contact Us Today; Let us Help You.
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, and has also earned the prestigious Enrolled Agent credential. Mr. Golding is also a Board Certified Tax Law Specialist Attorney (A designation earned by Less than 1% of Attorneys nationwide.)
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