Michigan FBAR Penalty & Summary Judgment for Willful Penalties
In 2018 the U.S. government filed a complaint for FBAR Penalties against Mr. and Mrs. Ott. The years at issue involving the unreported foreign accounts are 2007-2009. The IRS levied “willful FBAR Penalties,” but the Ott’s never made payment.
Michigan FBAR Penalty & Summary Judgment
In August 2019, the Federal Court in Michigan issued Partial Summary Judgment in favor of the IRS.
Ott Has Not Provided any Genuine Dispute of Material Fact
This case does not hold for the proposition that reliance on a Tax Professional will not justify reasonable cause.
Rather, it stands for the (procedural) proposition that if the U.S. moves for summary judgment on willful FBAR penalties, and the defendant cannot show a genuine dispute of material fact as to willfulness, then defendant cannot just throw out the term “reasonable cause” as justification for the court not issuing summary judgment — absent facts to substantiate defendant’s position.
The Otts did not provide any evidence, and partial summary judgment was granted.
U.S. v. Ott (Case 2:18-cv-12174-GAD-EAS)
The following are excerpts from the complaint (summarizing key allegation) and order (granting summary judgment):
Taxpayers had Foreign Accounts in Canada
In 1993, Dennis R. Ott and Tracey R. Ott (collectively referred to as the “Otts”) opened two joint brokerage accounts in Canada.
For the years at issue in this case—2007, 2008, and 2009—the accounts were held with Octagon Capital Corporation in Toronto, Ontario and had account numbers ending in “589-E” and “589-F” (hereinafter collectively referred to as the “Canadian Accounts”).
Taxpayers Actively used the Foreign Accounts
Between 2005 and 2010, the Otts withdrew $392,000.00 from the Canadian Accounts. The Otts used some of the money they withdrew from the Canadian Accounts to invest in real estate and other business opportunities.
They also used $60,000.00 from the Canadian Accounts to pay for two years of their son’s private high school. And, the Otts also paid $20,000.00 for miscellaneous personal expenses from money withdrawn from the Canadian Accounts.
Prior to 2010, the Ott Never Reported the Foreign Accounts
The Otts did not tell their tax return preparer about the Canadian Accounts at any time between 1993 and 2009.
Despite having these Canadian Accounts since 1993, the Otts did not report their interest in, or authority over, these foreign financial accounts on a Schedule B on their personal income tax returns (Forms 1040) at any time before 2010.
It is not clear from the Complaint if the Tax Preparer ever asked the Otts about Foreign Accounts or if the Tax Preparer utilized a “Tax Organizer,” but the complaint tacitly presumes that either the Tax Preparer asked, or the Otts knew about the requirement.
Ott Marked “No,” on Schedule B
In fact, the Otts signed federal income tax returns for 2005, 2006, and 2008, under penalties of perjury, that included a Schedule B on which they reported that they did not have an interest in, or authority over, a financial account in a foreign county.
Ott had Several Years of Unreported Foreign Income
On their original federal income tax return for 2003, the Otts failed to report $76,955.00 in capital gains earned from the Canadian Accounts.
On their original federal income tax return for 2004, the Otts failed to report $29,342.00 in capital gains earned from the Canadian Accounts.
On their original federal income tax return for 2005, the Otts failed to report $77,650.00 in capital gains earned from the Canadian Accounts.
On their original federal income tax return for 2006, the Otts failed to report $662,144.00 in capital gains earned from the Canadian Accounts.
On their original federal income tax return for 2007, the Otts failed to report $1,515,559.00 in capital gains earned from the Canadian Accounts.
On their original federal income tax return for 2008, the Otts failed to report $27,215.00 in capital gains earned from the Canadian Accounts.
Ott Agreed to Extend the Statute of Limitations
Generally, this is done by the Taxpayer in an effort to fight willful penalties and hopefully avoid any penalties being issued
Then, on or about October 2, 2014, the Otts agreed in writing, through their authorized representative, to extend the time within which the Secretary of the Treasury may assess FBAR penalties for the calendar years 2007 and 2008 until June 30, 2016.
Partial Summary Judgment Issued on 08/07/2019
The Government moves for summary judgment against Ms. Ott, asserting there is no dispute that she violated 31 U.S.C. § 5314 when she failed to report her financial interest in, or authority over, her foreign financial accounts.
But does Ott have “Reasonable Cause?”
Here is the problem in this case:
Taxpayer has not put forward any facts to support her position that she may have reasonable cause.
Therefore, since defendant has not provided any information to show a genuine dispute of material fact, the court must grant Partial Summary Judgment in favor of the U.S. Government.
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