FBAR Reckless Disregard

Reckless Disregard FBAR Standard: One of the most complicated aspects of determining the FBAR penalty, is assessing whether the taxpayer is willful or non-willful. While this may seem like a relatively easy task — it is not. The IRS does not provide a bright-line test to determine whether or not a person meets the definition of willfulness or non-willful. Making the task even more (unnecessarily) complicated is the fact that there are lesser forms of willfulness that do not require the IRS to prove actual knowledge or actual intent in order to issue a willful FBAR violation — even though the Taxpayer was “less willful,” they are still on the hook for full FBAR Penalties. One of the most common ways the Internal Revenue Service will seek to issue penalties against taxpayers who seem willful but not intentionally willful is by categorizing their violation as reckless disregard. .

Listen to Your Grandma

Remember when you were a little scamp running around, jumping off the bed (or anything with heights), and landing on your knees?  You thought nothing of if then, but your grandma warned you:

      • “Don’t be so reckless with your knees, you’ll miss them when they’re gone.

      • Sure, whatever Grandma.”

      • Now, mid-40’s, playing tennis and you finally get it, right?

      • The IRS is like your much less cool grandma when it comes to recklessness.

Common Questions about Reckless Disregard FBAR Penalties

What are FBAR Penalties?

FBAR Penalties are penalties issued by the IRS for failing to timely file the FBAR. Whether the FBAR is “never” filed or filed late, the same general penalties apply.

What are Willful FBAR Penalties?

Willful penalties are “heightened” penalties for U.S. Persons (not just individuals) who knew (or should have known) about the FBAR, but didn’t file the form

Is Reckless Disregard the same as Willful?

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. The same 50% or $100,000 penalties apply.

What do the FBAR Cases Say?

The FBAR cases generally stand for the proposition that as long as the case is not “criminal,” the willful penalty standard can be met:

  • Without a showing of intent; and
  • By a mere preponderance of the evidence

Are All FBAR Late Filing Penalties, Willful?

No. Just because you file late, does not mean you were willful.

A More Detailed Summary on Reckless Disregard

Let’s take a deeper look at what “Reckless Disregard” is:

What are FBAR Willful Penalties

FBAR Willful penalties are intensified FBAR penalties for persons found to be “willful.”

FBAR Willful penalties can go as high as 50% of the maximum balance of your account. or $100,000 whichever is  greater (so the floor is $100,000).

Even if you transferred money into the account for a few hours, and the account was artificially inflated, they are fair game for Willful Penalties.

In “extreme” situations, the penalty can be higher than 50% (up to 100%) or lower than 50% — but the baseline is 50%.

What does Willful Mean (In the Civil Arena)?

It does NOT mean intent. For criminal willfulness the government must show intent but not for civil penalties.

Rather, the IRS can meet its burden, simply by showing Reckless Disregard.

What is Reckless Disregard?

Reckless Disregard In the FBAR arena essentially means: “I Could have known better.”

The court in Bohanecs summarizes FBAR 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).”

How can “Could I Have Known Better,” be a Standard

Right? I mean c’mon, who in this life couldn’t have known better about something. It doesn’t mean the IRS should get to penalize you half of your stash.

For a recent example of just how absurd this is click here for case that is current pending. (IRS Seeking 50% penalties (a multi-million dollar judgment) against an estate of an elderly widow)

IRS Has to show Clear and Convincing Evidence, Right?

Even through IRS counsel, in a now infamous memo, stated he believed the threshold for willfulness penalties should be Clear and Convincing evidence (about 75% proof), the courts have been enforcing willfulness penalties:

  • Without proving intent
  • Using circumstantial evidence
  • With a mere Preponderance of the Evidence (Lowest Standard)

Golding & Golding: About our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure and compliance, including taxes for expats.

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