Can I Rely on Tax Lawyer Advice to Conceal FBAR Info from CPA?
- 1 Reliance on Lawyer Advice, FBAR & Reasonable Cause
- 2 U.S. vs. Dadurian Tax Attorney Reliance
- 3 Defendant Withheld Reporting Some Accounts On Advice of her Attorney
- 4 Why is This Important?
- 5 Defendant Argues for Reasonable Cause
- 6 The Court Denies Defendant’s Motion for Summary Judgment
- 7 What is at Play Here?
- 8 The Problem
- 9 Golding & Golding, A PLC
Reliance on Lawyer Advice, FBAR & Reasonable Cause
While the case is important to the dergee that the IRS takes the position that reliance on a Tax Professional may not suffice for Reasonable Cause — it is not that cut and dry.
U.S. vs. Dadurian Tax Attorney Reliance
In this case, the Defendant (Dadurian) sought summary judgment regarding willfulness and FBAR penalties.
As provided in the Summary Judgment Order:
The Defendant now moves for partial summary judgment, seeking a judgment that she is not liable for penalties for her failure to report certain financial accounts for certain years. DE 26. Specifically, the Defendant argues that there is no evidence that she willfully failed to report.
Defendant Withheld Reporting Some Accounts On Advice of her Attorney
The Defendant contends that she did not willfully fail to report the Ayaba and Sparkassee Bodensee Bank accounts for 2010 because she relied on the advice of tax attorneys that she was not required to disclose those accounts on a 2010 FBAR
Why is This Important?
It should be noted that it was not her Accountant (person responsible for preparing her FBAR) who told her not to report the accounts.
Rather, she did not even tell the Accountant that she had these additional accounts — so the Accountant could not have advised her.
According to the complaint, while Dadurian had filed FBARs for Swiss and German accounts before 2007, she failed to tell Anthony Caruso, her tax return preparer for the years at issue, about her foreign assets. The defense, however, asserts that she did not willfully fail to report her accounts because she relied on her tax attorneys’ advice that she did not need to disclose them.
Defendant Argues for Reasonable Cause
The Defendant relies on one case involving FBAR violations — United States v. Flume — to support her assertion that “reliance upon counsel is a defense to a willful FBAR penalty because it negates the element of willfulness.”
The Court Denies Defendant’s Motion for Summary Judgment
Lastly, while reliance on professional tax advice may demonstrate reasonable cause for underpayment of a tax liability, see 26 C.F.R. § reasonable cause is not a defense to a willful FBAR reporting violation, see 31 U.S.C. § 5321(a)(5)(B)(ii), (C)(ii).
What is at Play Here?
Reasonable Cause has never been a defense to willfulness. Why? Because willful presumes intent or reckless avoidance of a responsibility — and that can never be “reasonable.”
But, it is pretty tough for the IRS to just make the “leap” that a person was willful — and use that to negate any defense of Reasonable Cause.
The bigger issue is whether the Defendant can rely on a Tax Attorney (Who did not file the FBAR) to show reasonable cause in withholding information from an accountant who files the FBAR.
Is it Reasonable Cause for a Taxpayer to rely on a Tax Attorney (who is not filing the FBAR), when the Attorney tells her that she does not have to report certain accounts on the FBAR, and the Taxpayer is then within her right to withhold account information from the Accountant who is actually filing the FBAR — without giving the Accountant a chance to weigh-in on reporting the other accounts?
If it had been the Accountant who filed the FBAR that had told Taxpayer she did not need to file, that would presumably go a lot further in proving reasonable cause, since it would have been the actual FBAR preparer who told her not to file.
The problem here is that the Accountant (the person who actually filed the FBARs) was never able to weigh-in on whether the other accounts should be reported — because the taxpayer never presented that account information to the CPA.
Golding & Golding, A PLC
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