The article is excellent.
Addendum on 6/8/12 at 6:07 pm:
Here are my quick comments on the article:
1. The authors note that, in all cases, the Government must prove willfulness which is the voluntary intentional violation of a known legal duty. This is the same standard in a criminal context for the traditional federal tax crimes and for proving fraud in a civil income tax context. There are some who think there might be a relaxed definition of willfulness in a civil case, but I think it is basically the same definition except that the burden of proof is more stringent in a criminal case.
2. In the criminal cases, that proof of willfulness must be beyond a reasonable doubt. The law is not certain as to the level of proof in a civil case. The issue is whether the Government must prove willfulness by a preponderance of the evidence (i.e., just more likely than not, say 51%) or by clear and convincing evidence (say 65-80%). I have discussed this issue in prior blogs, the most pertinent of which is Burden of Proof for Willfulness in FBAR Violations (9/6/11), here. The authors correctly note that the only case directly addressing the issue, a trial level opinion in Williams (currently on Government appeal to the Fourth Circuit), the district court said it was applying the preponderance of the evidence standard, but it held against the Government so the standard of proof was not critical to its holding (i.e., the Government would lose whichever standard it applied). I personally think that dictum holding is wrong on that issue, but that is just my opinion. See my blog discussion.
3. The authors correctly note that signing the return even with the Schedule B question answered "no" is not enough. In other words, the Government does not win in a criminal or civil case simply by proving a foreign bank account and resulting requirement to file an FBAR, coupled with proof of the "no" answer. More is required. Indeed, I think, much more. The Government had much more in Williams and still lost. In Sturman, the article says, "the defendant admitted knowledge of and failure to answer the question on Schedule B of his Form 1040." There were also some very bad surrounding facts. But most taxpayers are not going to make the type of admission Sturman apparently made.
4. The authors sum up with this conclusion:
With the IRS’ recent commitment to international compliance, we will see a rise in FBAR litigation, both civil and criminal. In such cases, it will often be undisputed that an FBAR form was not filed and that the taxpayer signed a return containing a Schedule B. These cases will turn on whether the taxpayer’s failure to file an FBAR was willful. Given that the FBAR has been a relatively unknown form until recently, the IRS and the DOJ start with the fact that a Schedule B was filed with taxpayers’ returns to establish the taxpayer’s knowledge of the filing obligation. However, more is required and that “more” is what counsel need to focus on. To impose the draconian civil penalties for a willful violation or prosecute someone for failing to file an FBAR, the government must be held to the standard of proving that there was a voluntary, intentional violation of a known legal duty.