- 1 Is It difficult For IRS to Prove Willful Foreign Account Violations?
- 2 The Mere Preponderance of the Evidence Standard
- 3 No Actual Intent is Necessary
- 4 Even Reckless Disregard or Willful Blindness is Sufficient
- 5 Taxpayers have Their Back Against the Wall
- 6 Courts Have been Siding with the Government on Willfulness
- 7 Golding & Golding: About Our International Tax Law Firm
Is It difficult For IRS to Prove Willful Foreign Account Violations?
When it comes to foreign bank and financial account penalties, the form that most people are aware of is the FBAR aka FinCEN Form 114. Out of all the different international information reporting forms that may be required by the US persons with foreign assets, investments, and income, the preparation of the FBAR Form is typically not as difficult as some of the other forms (5471, 3520-A). The main problem with the FBAR is the fact that the failure to report the FBAR timely and accurately may result in significant fines and penalties. When it comes to these types of penalties, willful penalties are the worst type of civil penalties a taxpayer may face. Noting, that in actuality it is not that difficult for the IRS to prove Willful FBAR. Here are five important facts to know about why it is not so tough for the IRS to meet their burden and assess/enforce willful FBAR.
The Mere Preponderance of the Evidence Standard
First and foremost, the Internal Revenue Service is not required to meet either the beyond a reasonable doubt or even clear and convincing evidence standard in order to establish its burden regarding willfulness penalties for overseas account holders. Rather, all the IRS must do is show the taxpayer acted by a preponderance of the evidence. The preponderance of the evidence is the lowest standard and therefore not a very difficult burden for the US government to meet.
No Actual Intent is Necessary
When a person conceptualizes the term willfulness, they tend to conjure up visions of someone acting intentionally in order to avoid foreign account reporting –– but when it comes to international information reporting and the FBAR this is not a requirement. In other words, the US government is not required to show that the taxpayer acted with any intent in order to establish that the taxpayer acted willfully.
Even Reckless Disregard or Willful Blindness is Sufficient
Some examples of when the US government is able to show a taxpayer acted willfully without any intent is when the taxpayer acted with either reckless disregard or willful blindness. With reckless disregard, the taxpayer simply does not take steps sufficient to learn about the reporting requirement (based on their own set of facts and circumstances). With willful blindness, the taxpayer has an opportunity to learn about the information and the requirements but instead intentionally avoids the knowledge so that they do not have actual knowledge. Still, if the US government can establish constructive knowledge through willful blindness — the same astronomical penalties will apply.
Taxpayers have Their Back Against the Wall
Since there is no bright-line test in order to establish willfulness, it is much more difficult for foreign account holders to defend themselves against this type of nebulous standard. In order to show that the taxpayer acted with willfulness, the government typically utilizes a totality of the circumstance approach. Here lies the problem, in that two completely reasonable agents, examiners or trier of fact(s) who are presented with the same facts and evidence can (and do) come to different conclusions. So that even if the taxpayer is convincing on the issue of non-willfulness, the lack of a bright-line test makes it more difficult to defend against the government’s case.
Courts Have been Siding with the Government on Willfulness
There was a time when the Internal Revenue Service even believed that the government was required to meet at least the clear and convincing evidence standard in order to establish FBAR penalties. In addition, courts were previously less inclined to affirm a taxpayer acted willfully without a showing by the US Government that the Taxpayer acted with intent. But with the number of litigated FBAR cases continuing to grow — along with the introduction of other enforcement protocols such as FATCA — the current trend for courts has been to side with the government on issues of willfulness and FBAR.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm today for assistance.