Schoolteacher Disputes IRS Willfulness – Appeals $800K in FBAR Fines
Mindy P. Norman is a schoolteacher in New York. She held more than $1,600,000 in foreign bank accounts.
She played hooky from the IRS, and failed to report the accounts.
The IRS caught her in the act, discovered the accounts, and gave her detention — but instead of forcing her to write “I am sorry” 500 times on the blackboard, the IRS penalized her more than $800,000 — which is 50% value of the maximum balance of her account ($1.6M) for tax year 2007.
She disputes the penalty, but the IRS won’t budge.
In fact, the IRS is adamant that the fine should stand.
*The case is currently on appeal. The following is a brief summary of the facts showing the long climb Appellant will have to make to convince the court the penalty should not stand.
It should be noted that it wasn’t just any foreign country (it was Switzerland – a haven for offshore tax schemes) and it wasn’t just any bank, it was UBS (Number one on the list of “Bad Banks.”)
One of the biggest problems for Ms. Norman, is that her statements about the existence of the account were contradictory – and specifically her statements on matters impacting the key issue of Willful vs. Non-Willful.
The Main Issues
There are a few serious facts that do not fall in Defendant/Appellant’s favor.
Defendant’s statements were at best inconsistent, and at worst a failed attempt to mislead the IRS and court.
At one point, Defendant stated she did not know about the accounts until 2009. But, in subsequent letter(s) to the IRS, she acknowledged that she knew about the account prior to that.
In addition, Defendant transferred the funds out of the UBS account just one week before UBS stated it was entering into a cooperation agreement with the U.S. to divulge U.S. Account Holder information to the IRS.
Quiet Disclosures are bad, and it appears Appellant may have attempted to put one past the IRS.
For a summary on what the Quiet Disclosure is, and why it is bad, Click Here.
As provided by the court:
In 2009, in order to encourage disclosure of foreign accounts in exchange for leniency in the application of FBAR penalties, the IRS implemented the Offshore Voluntary Disclosure Program (“OVDP”)
To apply to the OVDP, a taxpayer had to specifically inform the IRS of a desire to participate by
letter or telephone. OVDP Q&A Nos. 4, 50. If the taxpayer qualified for participation in the OVDP, the taxpayer’s FBAR penalties could be reduced to 20 percent (rather than 50 percent) of the account balance.
The IRS specifically noted that taxpayers electing to file a “quiet disclosure” “should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years.”
A taxpayer makes a quiet disclosure by filing amended tax returns and FBARs and paying related tax and interest for previously unreported offshore income, without otherwise notifying the IRS or admitting any culpability for violating § 5314
Rather than applying to the OVDP in 2009, Ms. Norman filed a “quiet disclosure” through her Swiss accountant,
Ms. Norman’s quiet disclosure contained amended tax returns and FBARS for the years 2003-2008, but 2007 is the only year for which Ms. Norman was assessed the 50 percent penalty.
Defendant’s Mitigating Factors Did Not Move the Court
While she stated she was not in a good place at the time, and just simply failed or neglected to fully read or comprehend her statements to the IRS before reading them – the court seemed not to give it much weight.
As provided by the court:
In addition to the uncertainty of Ms. Norman’s testimony, her many admitted “inaccuracies” and “misstatements” – all of which would skew the facts in her favor if true – further impeach her credibility. Ms. Norman provided false and inconsistent statements in relation to her knowledge and control of her foreign account.
The Court cannot believe that this long string of “inaccurate” statements – to the IRS and to the Court, in tax documents, oral statements, letters, pleadings, and testimony at trial – is due entirely to happenstance, and is the fault of everyone involved but Ms. Norman.
Because of her false statements and because her memory of every other issue is so uncertain, the Court does not find Ms. Norman’s testimony credible, and the Court therefore cannot rely on her testimony, when she claims that she did not know of her duty to report her foreign income until 2009 and she tried to apply to the OVDP when she learned of it.
In contrast to Ms. Norman’s questionable testimony, the evidence at trial was clear. Ms. Norman signed documents6 to open a numbered bank account – which, by definition, concealed her income and financial information – with Union Bank Switzerland (“UBS”) in 1999, as the only accountholder.
Ms. Norman further concealed her financial information from U.S. authorities by signing to waive her right to invest in U.S. securities in 2000.
OVDP has Ended, but We Can Still Help You!
Even though OVDP has ended, there are still other options for applicants who were willful.
What Can You Do?
Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.
Golding & Golding, A PLC
We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.