Oregon FBAR Penalty Violation: Learn why the District Court Issued Penalties

Oregon FBAR Penalty – OVDI Non-Willful IRS Penalty Litigation (Golding & Golding, Board Certified Tax Law Specialist)

As the IRS FBAR Penalty train makes it away across America, it looks like the next stop is the United District Court for the District of Oregon.

Recent Oregon Court FBAR Penalty Ruling

As with many recent FBAR Penalty cases, and in furtherance of the IRS new compliance group for “Post-OVDP Compliance,” this case involves an offshore disclosure and a potential for significant FBAR Penalties.

*It should be noted that the defendants submission to OVDI predated the introduction of the “stand-alone” Streamlined Filing Compliance Procedures.

U.S. vs. Tonisson (Case 3:19-cv-01497-B)

In accordance with 31 U.S.C. § 5321(a)(5), the U.S. is seeking to reduce an FBAR Penalty to judgment against Ms. Tonisson, regarding foreign bank accounts for the 2011, 2012, and 2013 calendar years.

Case Background

Here is a summary of the case, using excerpts from the Complaint.

Who Has to Report the FBAR?

“Federal law requires every resident or citizen of the United States who has a financial interest in, or signatory or other authority over, a bank, securities, or other financial account in a foreign country to report that relationship to the Department of Treasury for each year in which the relationship exists. See 31 U.S.C. § 5314(a); 31 C.F.R. § 1010.350(a).”

To fulfill this requirement, such a U.S. resident or citizen must file with the IRS a“ Report of Foreign Bank and Financial Accounts,” commonly known as an “FBAR.”

To report information for all years through 2012, the proper FBAR form was Form TD F 90-22.1. To report information for 2013 and subsequent years, the proper FBAR form is FinCEN Form 114.

OVDP FBAR Penalty – U.S. District Court

Ms. Tonisson’s Alleged Violations

“Margareta Tonisson is a permanent U.S. resident.

 

She has a history of failing to file FBARs since 2003, despite having interests in foreign bank accounts with annual aggregate balances exceeding $10,000.”

Ms. Tonisson sought to “Fix the Problem” with OVDI

OVDI preceded OVDP, and was referred to as the Offshore Voluntary Disclosure Initiative.

On December 8, 2010, Ms. Tonisson, jointly with her husband, submitted an application to enter the IRS’s OVDI program with respect to years going back to 2003. In that application, Ms. Tonisson acknowledged that:

 

(1) she had bank accounts at six different foreign banks;

 

(2) the highest aggregate annual balance for these accounts was between $100,000 and $1 million;

 

(3) these foreign accounts generated income that Ms. Tonisson did not report on tax returns; and

 

(4) the source of the funds in these foreign accounts was an inheritance from her husband’s

mother.

The IRS Followed-Up Regarding with Ms. Tonisson

On May 13, 2011, the IRS sent Ms. Tonisson a letter explaining that, to participate in the OVDI program, Ms. Tonisson needed to provide documentation for the tax years covered by the voluntary disclosure.

 

The letter requested delinquent or amended returns reporting income from any foreign bank accounts, Treasury Forms TD F 09.22-1, copies of bank statements for any foreign accounts, and other relevant documents.

 

On August 6, 2012, and March 27, 2013, the IRS again sent Ms. Tonisson letters requesting the same information, which she had not provided.

 

On May 6, 2013, the IRS sent Ms. Tonisson a fourth letter requesting the same information.

Ms. Tonisson Disagrees with the IRS Assessment

On May 20, 2013, Ms. Tonisson responded, through a power of attorney, providing copies of tax returns for 2003, 2008, and 2010 and a copy of an FBAR form for 2010.

In addition, Ms. Tonisson claimed that she did not have to file tax returns for the 2004 through 2007 years.  Therefore, Ms. Tonisson did not file all tax returns in the compliance period, because she claimed she did not have to file for certain years.

Needless to say, the IRS disagreed with Ms. Tonisson.

The IRS Required More Information and Filings

Based on its examination of Ms. Tonisson’s foreign accounts, the IRS reached a different conclusion.

 

The IRS determined that income earned from Ms. Tonisson’s foreign accounts alone was sufficient to require that she file tax returns for the 2004 through 2007 years. 

 

Moreover, Ms. Tonisson did not provide reasons for failing to file FBAR forms for 2003 through 2008.

 

In addition, Ms. Tonisson did not provide reasons for failing to file FBAR forms for 2009, 2012, and 2013; for failing to file a timely FBAR form for 2010; and for filing an incomplete FBAR form for 2011.

The IRS Does Not Pursue Willful Penalties

The IRS made the assessments stated in Paragraphs 30 through 32 pursuant to 31 U.S.C. § 5321(a)(5)(B), which imposes a penalty not to exceed $10,000 for each non-willful violation of the FBAR filings requirements in 31 U.S.C. § 5314.

 

The United States is entitled to recover $98,078.78, as of September 26, 2018.

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