Willful Blindness & FBAR Offshore Penalties

Willful Blindness & FBAR Offshore Penalties

Willful Blindness & IRS FBAR Violations

Willful Blindness FBAR: The FBAR is the Foreign Bank and Financial Account reporting form (aka FinCEN Form 114). U.S. Persons who meet the threshold for filing are required to file the form electronically each year. When a person “could” know they were required to report, but forego reporting, they may become subject to Willful Blindness offshore penalties. And, with the IRS taking a hardline on matters involving foreign accounts compliance — it is important to timely and accurately report the FBAR each year it is required.

What is Willful Blindness FBAR?

What makes this standard so incredulous, is that in the realm of FBAR penalties, the IRS does not even have to prove that you were actually “willful” to enforce “willful” penalties against you.

With that said, how does the IRS then use the term willful, and connect it to the term “blindness” and then make the leap that a person can be willful, without showing they were intentional, by claiming they were “willfully blind.”

Common Questions we received about Willful Blindness & FBAR Penalties

Here are some of the more common questions we receive:

What is 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 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.

Willful Blindness vs. Negligence

They are not the same.

For example, in the above referenced example, David would not be considered negligent because the the facts would be so egregious with respect to the fact that a he never inquired why the person is offering him $1 million just to drive a car a few hours.

To compare on the example, let’s say along the way David picks up a Hitchhiker, because David forgot what his parents told him about not picking up hitchhikers (any probably never saw the movie the Hitcher).

If the car was pulled over, drugs uncovered, and everybody was arrested – chances are the Hitchhiker would not be willfully blind, since he arrived in the car, after-the-fact, solely to hitch a ride.

Courts Ruling on Willful Blindness FBAR

In a recent case of the U.S. vs. Horowitz, the court summed up the standard nicely:

“The Horowitzes argue that their friends told them they did not need to pay taxes on the interest in their foreign accounts.

Maybe so, but their friends’ credentials are not before the Court, nor is there any information from which I could assess whether it was reasonable for them to have accepted what their friends told them as legally correct.

And, in any event, their friends’ views would not override the clear instructions on Schedule B, which, as noted, requires a “Yes” answer if the taxpayer has an interest in a foreign account, regardless of whether the funds within it constituted taxable income.

Moreover, the fact that the Horowitzes discussed their tax liabilities for their foreign accounts with their friends demonstrates their awareness that the income could be taxable.

Their failure to have the same conversation with the accountants they entrusted with their taxes for years, notwithstanding the requirement that taxpayers with foreign accounts complete Part III of Schedule B, easily shows “a conscious effort to avoid learning about reporting requirements.” Williams II, 489 Fed. App’x at 658 (quoting Sturman, 951 F.2d at 1476).

On these facts, willful blindness may be inferred. See Poole, 640 F.3d at 122 (“[I]n a criminal tax prosecution, when the evidence supports an inference that a defendant was subjectively aware of a high probability of the existence of a tax liability, and purposefully avoided learning the facts pointing to such liability, the trier of fact may find that the defendant exhibited ‘willful blindness’satisfying the scienter requirement of knowledge.” (quoted in Williams II in the context of civil liability)).

Thus, even without the additional evidence that was present in Williams II, I find based on these undisputed facts that the Horowitzes recklessly disregarded the FBAR filing requirement. See Williams II, 489 Fed App’x at 659. This suffices for a finding of willfulness. See id.; Safeco, 551 U.S. at 57. 

Are you Willfully Blind, or Negligent?

This is a complicated question, and before you make any representation to the internal revenue is it is important that you speak with an experienced offshore disclosure attorney.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.

Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.

*Please beware of copycat tax and law firms misleading the public about their credentials and experience.

Less than 1% of Tax Attorneys Nationwide Are Certified Specialists

Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.

Recent Golding & Golding Case Highlights

  • We represented a client in an 8-figure disclosure that spanned 7 countries.
  • We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
  • We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
  • We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
  • We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.

How to Hire Experienced Offshore Counsel?

Generally, experienced attorneys in this field will have the following credentials/experience:

  • Board Certified Tax Law Specialist credential
  • Master’s of Tax Law (LL.M.)
  • 20-years experience as a practicing attorney
  • Extensive litigation, high-stakes audit and trial experience
  • Dually Licensed as an EA (Enrolled Agent) or CPA

Interested in Learning More about Golding & Golding?

No matter where in the world you reside, our international tax team can get you IRS offshore compliant. 

Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.