IRS Sues Taxpayer to Collect $1M for Hidden Swiss Offshore Account

In a Complaint filed by the IRS against SANDRA DONATH KOCHAV aka SANDRA SAENZ, the IRS is moving full steam ahead against Defendant.

In this particular case, the defendant (a Florida Resident) is accused of acting willful in her FBAR non-compliance.

Switzerland Bank Accounts & Willfulness FBAR

The term “Willful” in the realm of Civil FBAR penalties is not the same as non-legal “willful” — in fact, a person does not need to be willful at all, to be hit with Willful Penalties.

There can be “lower” forms of willfulness, which do not require willful or intent — these additional willful standard are referred to as:

If you have any concern of willful vs. non-willful, It is crucial that you consult with an experienced Streamlined and Offshore Disclosure Lawyer before making any submission.

Swiss Bank Account & Willful Blindness

Willful Blindness is a form of “deliberate ignorance.” It is the concept that a person could readily obtain information, which if they did, would inform them that their actions could be criminal. Instead of seeking out the information, they “intentionally” avoid learning the information (aka burying their head in the sand).

What does Willful Blindness Mean?

It means you are “willfully” staying ignorant to a fact that would inform you that your actions are illegal.

Is Willful Blindness a Crime?

Yes. It is a substitute for willfulness. In other words, while you may have not intended to cause a crime, the fact that had you made yourself uninformed to the fact that your actions were illegal — takes you over the willfulness threshold.

What is the Mens Rea of Willful Blindness?

The idea of Mens Rea of Willful Blindness is the idea that the knowledge of the crime is presumed, due to the intentional lack of knowledge on the part of the participant.

What is Deliberate Ignorance?

Deliberate ignorance is essentially a synonym for willful blindness.

Willful Blindness Law School 101 Definition

Outside of the world of FBAR Penalties, the willful blindness standard is nothing new.

Here’s a typical example you learn in your first-year criminal law and procedures class:

David and his friends are hanging out in a seedy part of Tijuana. A Gentlemen approaches them and tells David and his two buddies that he will pay them each $1 million if they drive a car across the border.

None of the individuals ask the man why he is paying them that much to drive a vehicle for a few hours. Clearly, they should have some questions, but the money is just too good.

Therefore, David and his friends avoid asking any questions, believing if they do not ask, then they cannot know what is in the car – and that will absolve them from liability.

When they get pulled over and the police discover 50 pounds of cocaine in the car, the fact that they “didn’t know about the drugs” would not matter — since they were “willfully blind.”

Switzerland Offshore Bank Account & Reckless Disregard

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.

How do the Courts Define Reckless Disregard?

Reckless Disregard In offshore disclosure, essentially means: “I Could have known better.”

The court in Bohanecs summarizes 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).”

Swiss Bank Account FBAR Willful Facts in Kochav

Kochav was born in Argentina in 1969.

She immigrated to the United States, and she became a United States citizen prior to 1994.

Kochav is a United States citizen and was a United States citizen during the years at issue, 2006 through 2010, when she had one or more foreign bank accounts.

Kochav resided in the United States from 1996 to 2010.

In July of 1996, Kochav opened two accounts at Union Bank of Switzerland (UBS) with money she inherited.

So Far, Not Entirely Bad…Right?

So far, it is clear that the Defendnt was not originally from the U.S. and she inherited the money. It is not as if she was money laundering or taking part in any crime per se.

It Starts to Go Downhill…

From the facts alleged, it does appear defendant may have attempted to keep the accounts hidden:

Kochav opened UBS 1798 under her maiden name, Sandra Leonor Donath.

On account documents, she identified her nationality as Argentinian and claimed she lived in Argentina.

On November 2002 UBS account documents for UBS 1798, Kochav signed as “S. Donath.”

On November 2002 UBS account documents for both accounts, Kochav signed forms waiving her right to invest in U.S. securities, indicating her awareness of new tax regulations, and “expressly agree[ing]” that UBS would not invest in U.S. securities.

On it’s fact, it could appear that she had only been living in the U.S. for a relatively short-period of time and since she was the sole beneficiary, she used her maiden name.

Still not a clear cut case of “willfulness” or “intent.”

Schedule B – Is Where it Begins to Fall Apart

Schedule B is a killer. It’s what got Manafort, and many more like him.

Kochav’s 2007 income tax return included a Schedule B, Part III, Question 7a, to which she answered “No,” that she did not have a foreign bank account.

Kochav failed to disclose to her tax return preparer the existence of her UBS and Baumann accounts. As a result, her preparer could not properly report the accounts and account income on Kochav’s tax returns.

Nor could the preparer file an accurate FBAR for Kochav for the tax years at issue, 2006 through 2010.

IRS Seeks A Lot of Penalties

On May 16, 2017, a delegate of the Secretary of the Treasury timely assessed civil penalties against Kochav pursuant to Section 5321(a)(5) of Title 31 for willfully failing to file timely FBAR’s for the years 2006 through 2010 for the two UBS accounts and the Baumann account in the amounts indicated in the table that follows, and gave her notice of the penalties in Letter 3709:

2006: $211,665

2007: $235,156

2008: $230,936

2009: $154,920

2010: $149,455

TOTAL $982,132

Out of IRS Offshore Compliance?

If you are out of Compliance for Offshore and Foreign Accounts, Asset, Income and Investments, we can help you.

Golding & Golding, A PLC

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We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.