FBAR Civil Willful Penalty Sustained Against Long Time Accountant and Tax Preparer Who Claimed He Did Not Have Time to Read the Schedule B Instructions (6/4/21)

In United States v. Kronowitz (S.D. Fla. No. 19-cv-62648 Findings of Fact and Conclusions of Law dated 6/3/21), CL here, the Court sustained the Government’s assertion of the FBAR civil willful penalty.  The facts were bad for Kronowitz in trying to avoid the penalty.  He was an accountant and regular tax return preparer over many years.  He claimed inter alia (slip op. 11):

He admitted to seeing hundreds of Schedule Bs, and being familiar with the purpose of Schedule B and its requirements, but testified that he probably did not read the instructions because he was more concerned with providing for his family and taking care of his clients. Indeed, he testified that “my purpose in life at the time was to get clients, bill them, and collect the money, not spending the whole year reading[.]”

Well, he lost.

JAT Comments:

1. Another example of a taxpayer who certainly knew about the OVDP and for  some reason chose not to timely join the program.  (Of course, he did have some relationship to a UBS which could have meant that UBS turned his name over  to the IRS early and thus was disqualified.

2. The Court found the taxpayer was sufficiently reckless that he met the standard for willful for  the civil penalty.  The Court said that Kronowitz's defense was that he was not "willful or reckless."  As stated, Kronovitz's argument was that willful and reckless are alternative bases for the penalty.  That is not true.  The statute imposes the penalty only on willful conduct which, for FBAR civil penalty purposes, is interpreted to include reckless conduct.

Foreign Account Holder Claiming Ignorance of FBAR Obligation Loses on Willful Penalty Because of Reckless Disregard (5/17/21)

In United States v. Goldsmith,  (S.D. Cal. 3:20-cv-00087-BEN-KSC Order dated 5/25/21), CL here and TN here, the Court granted summary judgment to the Government in a FBAR civil willful penalty FBAR collection suit.  The Court held that on the facts presented on the motion for summary judgment, the Government was entitled to summary judgment on Goldsmith’s liability.  

It is a long opinion (73 pages).  The facts are ugly for Mr. Goldsmith and are recounted in detail on pp. 2-12 of the opinion.  On the facts presented and found for purposes of the motion, the Court held that 

1. Mr. Goldsmith Fails to Show a Genuine Issue of Fact Exists as to Whether He Concealed the Swiss Account from his Tax Preparer

2. Mr. Goldsmith Fails to Show a Genuine Issue of Fact Exists as to Whether He Informed Mr. Zipser [Tax Preparer] About the Italian Account

3. Mr. Goldsmith Fails to Show a Genuine Issue of Fact Exists as to Whether He Concealed Information from the Government

4. Mr. Goldsmith Fails to Show a Genuine Issue of Fact Exists as to Whether He Controlled the Account

5. Mr. Goldsmith Fails to Show a Genuine Issue of Fact Exists as to Whether He Chose to Divest U.S. Securities

The Court then found that, although there was a triable issue as to whether Goldsmith knew of the obligation to file the FBAR, there was no triable issue as to whether Goldsmith recklessly disregarded his FBAR obligations and that reckless disregard was enough for FBAR civil willful penalty liability.

FBAR Civil Willful Penalty Collection Suit for $17+ Million with Damning Allegations (5/17/21)

Some FBAR willful penalty collection suits are relatively bare bones, asserting only the essentials.  In United States v. Gaynor, (M.D. Fla. Dkt.  2:21-cv-00382 Dkt # 1 Complaint 5/14/21), CL here, the Government goes beyond the essentials with a detailed recounting of damning facts (see pars. 13-92).

The Complaint breaks down the damning facts in the following categories:

A. Decedent inherited her late husband's Swiss bank account

B. Decedent repeatedly met with Swiss bankers

C. Decedent moved her assets to other Swiss banks to avoid tax compliance

D. Decedent hid the offshore accounts from her CPA

E. Decedent failed to file timely FBARs

F. Decedent belatedly made a “quiet disclosure”

G. Decedent attempted to deceive the IRS during its audit

JAT Comments:

1. One allegation that I found interesting is:

90. In a June 2018 filing with the IRS, Decedent asserted through her attorney that she “knew nothing about Gery or its foreign bank accounts” until 2012. She contended, with emphasis in the original, that her “lack of knowledge” was both “obvious and easily provable.”

Since she made the allegation through her attorney, perhaps it was necessary to say it was through the attorney.  On the other hand, on the facts pled in the earlier paragraphs she certainly knew the allegation was false and, if she knew, why didn't the attorney know.  Of course, sometimes clients do not tell their attorneys the truth, with the result that the attorney can make false representations.  It is interesting in this regard that the complaint does allege that the decedent kept the truth about the foreign accounts from her CPA (see par. D, above).  No such allegation is made about the decedent keeping the truth from the attorney.  Perhaps that is because the IRS or DOJ Tax did not try to go beyond the attorney client privilege.

New IRM provision on Offers in Compromise Including FBAR Penalties (10/8/20)

I just picked up this provision in the IRM, here:

5.8.4.24.2 (09-24-2020)

Foreign Bank and Financial Reporting (FBAR) Assessments

An offer may be submitted which includes FBAR assessments or a taxpayer who submitted an offer to compromise their tax liabilities also has assessments based on FBAR. Since, the IRS does not have authority to compromise assessments based on FBAR, the taxpayer should be requested to submit an amended offer to remove FBAR liabilities which are included on the Form 656.

Note: FBAR penalties are assessed under Title 31 and do not appear in IDRS.

If the taxpayer has a liability for assessments under FBAR, an offer for tax liabilities other than the FBAR may be investigated. During the review of the taxpayer’s financial information, the OE/OS should conduct additional investigation actions to determine if the taxpayer continues to have assets outside the United States. Review the ICS history to determine what research may have been conducted by a field revenue officer. The OE/OS may also issue an other investigation (OI) to an ATAT or International RO group to research FinCEN and/or CBRS to assist in identifying current foreign assets in which they retain an interest.

Note: The taxpayer may also have pending assessments related to Offshore Voluntary Disclosure Initiative.

If the taxpayer is unable or unwilling to submit an amended offer removing the FBAR liabilities, the offer should be closed as a processable return.

JAT Comments:

1.  I am not sure how or if compromises of the FBAR penalties may be achieved.  I assume that there is some way to do that outside the IRS processes for tax liabilities.

2.  The known route to compromises of tax liabilities may be a side benefit of avoiding an FBAR penalty assessment under the various IRS programs (e.g., OVDP and Streamlined) where a substitute penalty is assessed as a miscellaneous tax penalty (sometimes called the “in lieu of” penalty).

This blog is cross-posted on the Federal Tax Procedure Blog, here.

Court Denies Motion to Dismiss FBAR Collection Suit (4/30/20)

In United States v. Green (S.D. Fla. Dkt. 1:19-cv-24026-KMM, Order dated 4/27/20), CourtListener here, the Court denied a motion to dismiss, holding (i) that the FBAR willful penalty survived the death of the person penalized and (ii) that the Government’s complaint adequately alleged willfulness.  These are, by now, standard holdings, so I do not discuss them.

I do note the following interesting fact (Slip Op. p. 6-7.):

On October 31, 2013, Marie applied to enroll in the IRS’s 2012 Offshore Voluntary Disclosure Program (“OVDP”), which offered a coordinated, standardized settlement to U.S. taxpayers who had failed to report foreign bank accounts by filing FBARs and failed to pay income tax on income received in those foreign bank accounts. Id. ¶ 49. After Marie enrolling into the 2012 OVDP, she attempted to “directly enter” another offshore disclosure program offered by the IRS. Id. ¶ 51. After Marie was informed that she was not allowed to directly enter the other program, she informed the IRS that she intended to withdraw from the 2012 OVDP and the IRS removed her from the program. Id. ¶¶ 51, 52. On June 1, 2017, a duly authorized delegate of the Secretary assessed civil penalties against Marie for willfully failing to file FBARs for 2010 as to the BoJ and Templaide Accounts, and 2011 [*7] as to the BOJ account. Id. ¶ 60. 

Court Grants Summary Judgment on FBAR NonWillful Penalty Collection Suit (12/15/19)

In United States v. Agrawal (E.D. Wisc. Dkt. 18-C-0504 Order Dtd. 12/9/19) (CL here and GS here), the Court granted summary judgment to the Government on its complaint (CL here) for judgment on 4 years of nonwillful FBAR penalty at $10,000 per penalty (plus interest and costs).  (Note:  CL is Court Listener and GS is Google Scholar.)  Since he had the account, his only defense to the nonwillful penalty was reasonable cause.  He tried to defend himself against the penalty, acting pro se without an attorney.

His deposition testimony quoted in the opinion is interesting and shows that he was lucky to have avoided the willful penalty.  (Of course, the IRS did not have his deposition testimony when it imposed the penalty.)  The following is from the opinion:

At his deposition, Agrawal testified that he prepared his own tax returns in 2006 and 2007, but relied on CPAs to prepare his tax returns in 2008 and 2009. He testified that he did not tell the CPAs of the existence of the UBS account. Regarding the 2008 tax return preparation, Agrawal testified as follows: 

Q. Did [the CPA] ask you whether you had a foreign financial account?
A. I said no.
Q. You told him no?
A. Yes.
Q. But at this time you still had the UBS account, correct?
A. Yes.
Q. Why did you tell [the CPA] no?
A. Because again, the word of [the UBS representative] that these — this account is not — non-taxable in the U.S.
. . .
Q. You didn't tell [the CPA] that you had a UBS account but were told that it was non-taxable and didn't need to be reported?
A. I didn't tell him.
Q. Okay. Why not?
A. Because when I trust somebody, like [the UBS representative], I didn't tell him.

ECF # 32-17 at 65-66. Regarding the 2009 tax return, Agrawal testified as follows: 

Q: Did you review the Form 1040 of your tax return to 2009 with [the CPA] before you filed it?
A: Yes.
. . .
Q. The Part III, the information about foreign accounts and trusts is blank?
A. Yeah.
Q. Did you ask [the CPA] why it was blank before you filed your return?
A. No.
Q. It didn't cause you any concern?
A. No.
Q. Why not?
A. Because I didn't notice. He should have said no.
Q. Did [the CPA] ask you if you had any accounts in a foreign country?
A. No. 

Id. at 68. However, with his response to plaintiff's motion for summary judgment, Agrawal submitted an affidavit reversing some of this testimony; he now claims that both CPAs asked whether he had foreign accounts; that he told them he did have a foreign account; that the CPAs did not file FBARs on his behalf or report the UBS account on his tax returns; and that he relied on the CPAs' expertise. ECF # 36 at 2-3. Along with this affidavit, Agrawal also filed an errata list amending portions of his deposition testimony, including the portions cited above. Many of these amendments simply change "yes" answers to "no" or vice versa; Agrawal's explanation for these amendments is that he "misspoke." ECF # 37-1 at 11-13.

 And, as often the case, he had other bad facts.

But, to repeat, he is lucky to have avoided the willful penalty which would have been much more.

JAT Comment:

Outstanding Presentation on Collection of Title 31 International Penalties (Including FBAR) (5/19/18)

I offer here, with permission, an updated version of Caroline Ciraolo's outstanding PowerPoint presentation (with co-panelists Sandra Brown, Jeremy Herndon, Niles Eber, and Charles Pillitteri), titled Collection of Title 31 International Penalties.  This is from a presentation at the ABA Tax Section May Meeting.  Caroline's bio is here.  I highly recommend to all who have an interest in this area.

From the "Topics" page, the subjects covered are:

• Title 31 – Bank Secrecy Act
• FBAR Penalties
• Authority to Assess and Collect
• Statute of Limitations
• Federal Debt Collection Procedures
• Administrative Collection Tools
• Suits to Collect - Tax Division, U.S. Department of Justice
• Collection of Judgments
• Suits to Challenge FBAR Penalty
• Bankruptcy Procedures re: FBAR Penalties

Of the foregoing, probably the most interesting for readers of this blog is Taxpayer Suits to Challenge FBAR Penalties (slides 33-35).

Thanks to Caroline.

I posted the prior version of this presentation in 2013:  FBAR Penalty Collection -- Beyond the Collection Suit, Administrative Offsets Loom Large and Long (Federal Tax Crimes Blog 4/2/13; Updated 4/10/13), here.

Letter 3708 Demand for Payment of FBAR Penalty Assessment (5/10/16)

A colleague has provided a redacted copy of Letter 3708, here, which a client received after having been assessed FBAR penalties that remained unpaid.  Basically, the letter is a demand for payment.

The letter discusses payment options such as an installment agreement.  The letter also discusses interest and penalties that accrue after 30 days.  Interest accrues at 1% per year; penalties accrue at 6% per year after 90 days.

If the payment is not made within 30 days, the letter advises that the IRS has following collection enforcement options which may result in additional costs:

• Referral to the Department of Justice to initiate litigation against you.
• Referral to the Department of the Treasury's Financial Management Service. (This referral involves an additional debt-servicing fee that is approximately 18% of the balance due.)
• Referral to private collection agencies. (Referral to a private collection agency increases the additional debt-servicing fee from approximately 18% to 28% of the balance due.)
• Offset of federal payments such as income tax refunds and certain benefit payments such as social security.
• Administrative wage garnishment.
• Revocation or suspension of federal licenses, permits or privileges.
• Ineligibility for federal loans, loan insurance or guarantees

The letter also advises that (i) Administrative Appeals rights are available if not previously offered and (ii) refund suit may be available in the district court or the Court of Federal Claims.  In a refund action, one early issue will be whether the penalty is subject to a full-payment rule of the type that applies in income tax matters under the Flora rule.  I don't think so, but won't go down that rabbit-trail right now.

Among the bulleted options above, the Government's maximum leverage will come from a DOJ suit to reduce the assessment to judgment.

My colleague who provided the letter asked for input from readers whether the Government has exercised any of the listed collection alternatives other than suit to reduce the assessment to judgment.  My understanding is that the Government can do the Treasury offset and the garnishment whether or not a suit was filed within the key two year period.  And presumably the Government can do the actions that are not directly collection actions (the latter two).  But I wonder whether the Government could refer the debt to private collection agencies without obtaining a judgment in the required two year period.  I and he would appreciate hearing from others on this issue.

FBAR Penalty Collection -- Beyond the Collection Suit, Administrative Offsets Loom Large and Long (4/2/13; Updated 4/10/13)

ADDENDUM ON 4/10/13:  I HAVE PROVIDED A NEW LINK, HERE,  TO CAROLINE CIRAOLO'S REVISED, OUTSTANDING, AUTHORITATIVE, TIMELY, DEFINITIVE PRESENTATION IN THE ABA TAX SECTION WEBINAR ON OPTING OUT ON 4/10/13; SEE HERE.  DOWNLOAD AND READ CAREFULLY CAROLINE'S PRESENTATION AND YOU DON'T HAVE TO READ THE REST OF THIS BLOG ENTRY.

A reader named Researcher made a cogent comment the other day that I think is worthy of elevating to a full blog.  Researcher's comment is quoted in full below and may be viewed in the context in which made here.  The context for the comment was the IRM provision, as currently offered on the web, that the IRS has 10 years to collect the FBAR by administrative offset.  The IRM provision is 8.11.6.3.1.1  (11-01-2011), titled FBAR Penalty Statute of Limitations on Collection, here.

Researcher's comment is as follows:

I do not think the 10 year limit on administrative offset payments is valid any more. This is what I found in the law for offsets: 31 USC 3716(e) 

(1) Notwithstanding any other provision of law, regulation, or administrative limitation, no limitation on the period within which an offset may be initiated or taken pursuant to this section shall be effective. 

I think there WAS a 10 year limit on collection via offset, but Congress removed that limit in 2008 or 2009. I think this provision applies to ALL undischarged federal debt for which the 10 year limit had not expired at the time of enactment. (So much for the contention by 'Guest' that it is scaremongering to be concerned about retroactive changes of the law by Congress). Although the IRM section you reference postdates this statute, it probably hasn't been updated and the 10 year limit on collection is not valid any more. 

Now, its easy to avoid getting tax refunds by adjusting withholding, but most people do expect to get Social Security payments (and possibly other federal benefits) in their lifetime. A federal debt that never expires, and moreover accrues interest could easily wipe out a significant chunk of an expected SS pension (although a basic SS amount could still be paid out even under offset). Equally, there is the possibility of such a debt being reported to credit agencies, which could impact a person's credit and mortgage rates etc.

Section 31 USC 3716 is here; subsection (e)(1) is indeed as quoted by Researcher.