Wednesday, April 10, 2013

Helpful article on the FBAR Willful Civil Penalty (4/10/13)

Steven Toscher and Lacey Strachan, Proving Wilfullness in Civil FBAR Cases (Los Angeles Lawyer April 2003), here.  Excerpt - the Conclusion:

The Williams and McBride decisions do not substantially alter the analysis of the types of cases in which the willful penalty will apply, but the dicta in the cases, which suggest that a recklessness standard may apply and impose a lesser burden of proof on the government, will no doubt fuel the government to be more aggressive in selection of the cases that it proceeds with on a willfulness penalty. That, unfortunately, is the way of the common law, and ultimately the courts will find the right balance based upon the facts of the individual cases. However, for now, practitioners should anticipate a more aggressive government stance on the imposition of the willful FBAR penalty.
JAT Comments: The cases do have dicta and off the cuff comments that more thoughtful courts might view differently in different fact circumstances.  I listened in on a tax webinar today on opting out (see here).  John McDougal, a principal IRS spokesman for its offshore account  initiatives, indicated that there is some hyperbole about what these courts said or at least said seriously (my interpretation of what McDonald said).  He said: merely checking the box "no" on Schedule B is not proof per se -- much  less conclusive proof per se -- of willfulness or,  perhaps even the absence of a mitigating circumstance for the nonwillful penalty or reasonable cause relief.  The IRS must have much more nuance facts and circumstances establishing willfulness before it will assert the willful penalty.  I don't know that the authors of this article really say anything different than that, but I just wanted to say it my way.

Addendum on 4/11/13:  Tax Notes Today has an article summarizing the webinar.  Jaime Arora, Few Have Been Disqualified From OVDP After Being Previously Cleared, Officials Say, 2013 TNT 70-7 (TNT 4/11/13).  The relevant excerpt is:
FBAR Penalties and Willfulness 
Considering a recent court decision on the standard of willfulness, Caroline D. Ciraolo of Rosenberg Martin Greenberg LLP deemed United States v. McBride, No. 2:09-cv-00378 (D. Utah 2012) , "a tough case." She said the decision seems to suggest that once the government has proved that an individual has signed the return, it has proven willfulness. The court makes that leap by noting that if an individual signed the return, the individual read the return and had knowledge of its contents and must have known about the report of foreign bank and financial accounts, she said. Ciraolo said that willfulness is then asserted because the taxpayer did not indicate an interest in a foreign account on Schedule B and prepare a foreign bank account report.
Ciraolo called that "a scary argument" but said she would not tell clients that they will be hit with a willfulness penalty if they sign a return. "I think it was a case of bad facts making bad law," she said, adding that the IRS is generally reasonable and is still likely to consider all the facts and circumstances of every case. 
McDougal said that he does not read McBride as providing strong support for a per se willfulness penalty. In that case, he said, the judge gave importance to the type of transaction the individual entered into, concluding that it was so inherently risky that the taxpayer was on notice that he would need to read the return carefully. (Prior coverage .) 
The IRS is training agents not to assert willfulness penalties based on failure to check the box on Schedule B, McDougal said. Instead, they should make a unique evaluation of the taxpayer, considering factors like the individual's level of training and the nature of the activity, he said. McDougal said that agents will consider all the facts and circumstances, but the IRS may try to make the case for willful blindness if the transaction is "the kind that you should be nervous about."
As someone noted in webinar, opting out is not routine but still a sufficient number of cases have opted out and have obtained good results that we can fairly conclude that checking the box no and not including the offshore account income is not per se proof of willfulness.

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