Foreign Account FBAR Willful Standard – IRS Bedrosian Appeal (Update)
Recently, there was an important case holding update regarding the 3rd circuit court of appeal.
The case was Bedrosian. In Bedrosian, the Government issued willful penalties, BUT the Court disagreed.
As a result, the court held that Bedrosian would not be subject to a 50% penalty on his undisclosed $2M account.
Foreign Account FBAR Willfulness – 3rd Circuit Appeal
The 3rd circuit reviewed the holding and came to the conclusion that the Federal Court may not have used the proper legal standard in evaluating whether or not Bedrosian was non-willful. The 3rd circuit requested that the Federal Court re-review the holding.
Court’s Main Finding
The remainder of the District Court’s opinion does not dispel our concern. Although it discusses whether Bedrosian acted knowingly, it did not consider whether, when his 2007 FBAR filing came due, he
- clearly ought to have known that
- there was a grave risk that [an accurate FBAR was not being filed] and
- if he was in a position to find out for certain very easily.”
Carrigan, 31 F.3d at 134 (quoting 16 Vespe, 868 F.2d at 1335 (internal quotation omitted)). The Court thus leaves the impression it did not consider whether Bedrosian’s conduct satisfies the objective recklessness standard articulated in similar contexts.
As provided by the 3rd Circuit:
In assessing the inquiry performed by the District Court, we first consider its holding that the proper standard for willfulness is “the one used in other civil contexts—that is, a defendant has willfully violated [31 U.S.C. § 5314] when he either knowingly or recklessly fails to file [a] FBAR.” (Op. at 7.) We agree.
Though “willfulness” may have many meanings, general consensus among courts is that, in the civil context, the term “often denotes that which is intentional, or knowing, or voluntary, as distinguished from accidental, and that it is employed to characterize conduct marked by careless disregard whether or not one has the right so to act.”
This holds true as well for recklessness in the context of a civil FBAR penalty. That is, a person commits a reckless violation of the FBAR statute by engaging in conduct that violates “an objective standard: action entailing ‘an unjustifiably high risk of harm that is either known or so obvious that it should be known.’”
What if I am Out of FBAR Compliance?
If you are out of FBAR compliance, the penalties can be severe. Therefore, you may consider entering the IRS offshore voluntary disclosure/tax amnesty, before it is too late.
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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.