Wednesday, March 20, 2013

Acquittal in Pflueger Involving Offshore Accounts (3/20/13)

I have previously blogged on the Government's offshore account prosecutions related to the Pflueger family in Hawaii.  See the blogs listed at the end of this blog below.  Some defendants pled.  One defendant, James (Jimmy) Pflueger, the family patriarch, decided to role the dice with a trial.  The trial was to a judge.  The judge acquitted James (Jimmy) Pflueger.  See Malia Zimmerman, Pflueger's Federal Tax Fraud Charges Vacated; Financial and Legal Woes Far From Over (Hawii Reporter 3/20/13), here.  The following are excerpts from  the article:
The 87-year-old retired automobile dealer - who founded the Pflueger dealerships – had been charged with filing false tax returns after the U.S. Justice Department said he hid nearly $15 million in a Swiss bank account without paying taxes on the $27.5 million sale of the Hacienda Corporate Plaza in California. 
 * * * * 
The defense team, headed by Steven Toscher [here], a Beverly Hills attorney from Hochman Salkin Rettig Toscher & Perez PC, and Edward M. Robbins Jr [here]., called just three witnesses including the former IRS acting chief as a summary witnesses and a handwriting expert who claimed Pflueger’s signatures were forged. Pflueger did not testify in his own defense. 
Although the judge said Leslie Osborne, chief of the Fraud and Financial Crimes division for the U.S. Attorney and Special IRS attorneys Timothy Stockwell and Dennis Kihm did not prove beyond a reasonable doubt that Pflueger knowingly conspired to defraud the United States of taxes he owed, the IRS will pursue a civil case against Pflueger to settle some $4.5 million in unpaid taxes from the sale of his California investment property, the Hacienda Corporate Plaza.

Addendum 3/25/13:  The (1) Order on Defendant’s Motions for Judgment of Acquittal and (2) Verdict in Non-jury Trial, is here.  My comments:

1. The Order denies the post-renewal of the Defense's Rule 29(a) motions at the close of the Government's case and then renewal at the close of both cases.  The Court says summarily:\
First, with respect to the original motion made at the close of the Government's case, viewing the evidence in the light most favorable to the Government, the Court concludes that a rational trier of fact could find each element of each crime beyond a reasonable doubt. Second, with respect to the renewed motion made at the close of the entire case, viewing the evidence in the light most favorable to the Government, the Court also concludes that a rational trier of fact could find each element of each crime beyond a reasonable doubt. The Court HEREBY DENIES both the original Rule 29(a) motion and the renewed motion.
In effect, the denial of the Rule 29(a) motion means essentially that the charges must be resolved by the fact-finder rather than by the court.  This division is most clearly seen where a jury is involved as the ultimate fact-finder.  In that case, the office of the Rule 29(a) is to determine whether there is enough evidence to submit the issue to the jury (sort of like a directed verdict in a civil case tried to a jury.)

2.  The Court found that the proof did not establish beyond a reasonable doubt that Pflueger made a conspiratorial agreement or that he had the required intent for a conspiracy, citing Ingram v. United States, 360 U.S. 672, 678 (1959); United States v. Krasovich, 819 F.2d 253, 255 (9th Cir. 1987).

3.  The Court found that the proof did not establish the willful intent required for the tax perjury counts.

4.  The key holdings (##2 and 3) are stated in summary fashion, stating only the elements of the crime and the proof's failure to meet certain of the elements.  In this sense, therefore it resembles a jury verdict, because the court does not detailed the facts and nuances from which it derived its conclusion of not guilty.  (Just a reminder: a not guilty verdict simply means that the prosecution did not prove the crime(s) beyond a reasonable doubt; it does not mean that the defendant did not commit the charged but acquitted crimes.)

Addendum 3/22/13:

The following are excerpts from a Tax Notes Today article:  Shamik Trivedi, Government Fails to Prove Willfulness as Hawaiian Auto Mogul is Acquitted of Conspiracy, 2013 TNT 56-2 (3/22/13)
Steven Toscher of Hochman, Salkin, Rettig, Toscher & Perez P.C. in Beverly Hills, Calif., said in a statement that while the government rarely loses tax prosecutions, it "must objectively and carefully select the cases that it prosecutes. . . . The mere presence of a foreign bank account and foreign trust does not mean there has been a tax crime." 
* * * * 
Presiding over a nine-day bench trial, Judge Leslie E. Kobayashi [Wikipedia here] of the U.S. District Court for the District of Hawaii wrote in her decision that the government had not met its burden of proving beyond a reasonable doubt that there was an agreement between Pflueger and his alleged co-conspirators to obstruct the IRS as in a Klein conspiracy. Nor did the government establish intent for Pflueger, she wrote. "The crime of conspiracy includes an intent element which requires the Government to show that each member of the conspiracy had knowledge of the object of the conspiracy and joined the conspiracy intending to achieve that object," Kobayashi wrote, adopting the defense's arguments. 
* * * * 
[Judge Kobayashi also held that the proscution] failed to establish a violation of section 7206(1) -- filing false tax returns for the 2004 and 2007 tax years. In particular, the government failed to establish willfulness, Kobayashi wrote. "A defendant who acts on a good faith misunderstanding as to the requirements of the law does not act willfully even if his understanding of the law is wrong or unreasonable," she wrote, citing section 9.42 of the Ninth Circuit Court of Appeals Model Criminal Jury Instruction. 
Kobayashi cited Cheek v. U.S., 498 U.S. 192 (1991), which says that willfulness, as construed under criminal tax jurisprudence, requires the government to prove the law imposes a duty, and that the defendant knew of the duty but intentionally and voluntarily violated that duty.
Prior Federal Tax Crimes Blog entries on the prosecutions in this matter:
  1. Another Plea Related to Offshore Activity (10/12/12), here.
  2. Plea for Defendant Charged with Tax Crimes (including FBAR) (5/30/12), here.
  3. Court Holds FBAR Duty is Clear and Willfulness Is a Trial Issue (4/10/12), here.


  1. Hello Jack ,

    I am trying to find details regarding civil lawsuits outside of OVDI/P
    in federal court to collect non-willful FBAR penalties >$50,000 against Minnows –
    besides the standard facts : You are not bound to accept any action the IRS takes to assess the FBAR penalty. The IRS through DOJ Tax will have to sue to collect the penalty. Tax Court
    lacks jurisdiction to address FBAR issues at both the assessment stage
    and collection stage. A federal district court would have jurisdiction
    over such FBAR case under Title 31.
    My second question is regarding procedure details: assuming you are done
    with your civil audit and the examiner will present you his conclusion
    regarding FTF,FTP,FTD (no accuracy-related penalty due to QAR`s) and
    FBAR non-willful penalties and now you either go through Pre-assessment
    Appeals or Post-assessment Appeals‏ and FTA to successfully
    reduce/abate those partially (emphasis is on partially) due to resonable
    cause and lets say you are able to reach an agreement on the first 3
    penalties but not on FBAR`s . You pay the FTF,FTP;FTD penalties but
    refuse to pay the FBAR. What happens now ? Is the case passed over to
    collections and I receive NOD letters and later on form 668 a tax lien ?
    My assets in the US are very small (checking account) and living/working abroad but
    what is the next step from the IRS and DOJ , will the collection clock
    continue to tick until I die or visit the US and get arrested ?

    It looks like that a $5000 (if filed on time) income tax bill for the last 6 years because of not filing will already blow up to $100,000 because of dissalowments of FTC and AMT carryovers and adding FTF;FTP,FTD penalties will further increase this amount to $200,000.

    So the IRS makes a profit of already of $195,000 without even assessing FBAR penalties. I am refusing to pay 1c with regards to FBAR (I have reaonable cause... IRM or and others).

    Jack,any help/suggestions here would be greatly appreciated.. Thank you

  2. Answer to Par. 1: I am aware of no suits to collect the nonwillful penalty. In regard to the current FBAR juggernaut starting in 2009, I think it is too early for such cases to have worked their way through the system to be at the stage of court enforcement. I would say that I suspect that in most cases the process will flush out an offer from the IRS that the taxpayer should not refuse. But looking for "precedent" now in reported results in perhaps comparable cases will be futile. Even if there were a few cases, I doubt that it would be a sample sufficient to extrapolate conclusions and guidance for behavior.

    Answer to Par. 2: The FBAR penalty is not subject to the NOD procedures. The FBAR penalty is not a tax or a tax penalty. Hence, there is no tax lien.

    Answer to Par. 3: The collection clock is a civil enforcement matter. Generally civil enforcement issues do not rise to a criminal issue. If, however, you behave in a way that it appears that you are impairing or impeding the relevant agency (here, Treasury rather than the IRS) (this might conceivably include absenting yourself from the U.S.), then the DOJ might be able to charge a crime that could then result in an arrest on your entry into the U.S. This is pretty far-fetched, meaning not likely unless you really behave badly in attempting to avoid collection.

    Answer to Par. 4: I don't know what you refer to. Are you referring to Section 874(a) which applies to nonresdent aliens who should not have the FBAR issue in the first place.

    Answer to Par. 5: I don't see a question in this paragraph.

    That is all the help I can give you.


    Jack Townsend

  3. provides the answers to my question.

    There are two separate collection limitation periods for FBAR cases and they run concurrently:
    a) 2 year (SOL) on filing suit - period in which the Government may file a civil action to recover an FBAR penalty.
    b) 10-year limitation on offsetting payment - period in which the Government may obtain payment of the FBAR by offsetting payments
    Letter 3708 Notice and Demand for Payment of FBAR Penalty.
    To summarize : I am of a different opinion than Jack here with regards to the acceptance of mitigated civil FBAR penalty offers with regards to your reasonable cause arguments and I even will make a bet here that over the next 2 years I will be proven right.

  4. In my response, I said that I think the process will flush out an offer that the taxpayer should not refuse. I did not say that he or she will like the offer. I just say that considering rationally the opportunities of further risk from collection activities (whatever precisely they are) and the IRS's institutional imperative to not have to undertake expensive collection measures, except in the most egregious of cases, the parties should arrive at a reasonable number (recognizing that the taxpayer may believe that anything in excess of $0 with a warning letter is unjustified).

    Thanks for your comment, particularly the reference to the IRM. I have revised the discussions in the book to add some nuance that you pointed me to.

    Jack Townsend

  5. In several places, I read that going to trial for a FBAR penalty is very expensive for the taxpayer, Hence, depending on the size of the penalty, it might not be worth it.
    Jack, could you please give readers some estimates of how much legal fees we're talking about?

  6. First Switzerland now... U.S. Seeks Answers in Liechtenstein on Tax Cheats …

  7. Thanks, Loverboy. I just posted a blog entry. I have no information other than as presented in the Bloomberg article, but will post more as I receive it.

    Jack Townsend

  8. Cost of litigation is fairly difficult to anticipate. This will be civil litigation and both parties may want or need to undertake extensive discovery, including depositions. And, from the taxpayer's defense perspective, much of that may be a function of how much resources the DOJ is willing to expend to develop the case. And then there has to be a trial which must develop the "facts and circumstances" and nuance relevant to the FBAR penalty. For the big FBAR penalty, it will be facts and circumstances relevant to willfulness. This could require significant trial time. In most case, I doubt that it will be more than a week, particularly if the judge is a good one properly managing the courtroom. But, since the trial is only the tip of the iceberg -- it is often said that 95% of the work precedes the trial -- you can see that a lot of time may be involved. Time is how most lawyers bill, and most lawyers doing this work will have significant hourly rates. So, I would suspect that the trial (including the pretrial work) will significantly exceed $50,000.

    Jack Townsend

  9. you can expect $6-700/H ..... for a good tax trial lawyer and depending obviously how complicated your case is - I would budget at least $10K

  10. Jack, don`t you have to make an adjustment for the Minnows that actually win their cases and the judge awards full compensation (legal representation costs) ? Or will it always be that both parties are expected to bear their own costs. I read within IRM appeals procedure that $125/H is expected to be reimbursed in case the taxpayer is successful , I know Appeals is not DOJ.

  11. I do not think the Government has to go to court to collect a non willful FBAR penalty


    and this line in the document

    "FBAR penalties constitute debts owed to an U.S. executive agency, and the IRS is authorized
    to collect debts using any of the methods enumerated in 31 USC §3711 (2008)."

    31 USC 3711

    the head of such agency shall take all appropriate steps to collect such debt, including (as applicable)—

    (A) administrative offset,
    (B) tax refund offset,
    (C) Federal salary offset,
    (D) referral to private collection contractors,
    (E) referral to agencies operating a debt collection center,
    (F) reporting delinquencies to credit reporting bureaus,
    (G) garnishing the wages of delinquent debtors, and
    (H) litigation or foreclosure.

    So the IRS turns the debt over to Treasury, which can use any of the methods specified above for collection. Debts to the federal government (including FBAR penalties) are not discharged in bankruptcy. I think the 10 year limit on collection via offset payments mentioned in the IRM is an administrative limitation, not a statutory lmitation

    The statute for FBAR penalties is a little messy since it also mentions that a civil action can be brought to collect the penalty in 2 years, but I do not think that precludes other collection methods.

    Now, for willful penalties, the government may need to demonstrate willfulness, so a trial may be needed since willfulness is a factual issue. However, I am not sure that is the case, and the government may only take action where particularly large sums of money are involved, or it looks like penalty collection is in jeopardy (which I believe may have been the case for Williams).

  12. yes they do if A) to G) fail !

  13. for all those Minnows (not egregious) reading this : make no mistake - you do NOT have to accept your examiners FBAR penalty assessment at the end of your civil audit or after opt out when you think that your reasonable cause argument trumps his. You are NOT a criminal by challenging the ``BULLY`` and you have the right to judicial review where you can raise any arguments/defenses about the appropriateness of the penalty -
    IN case of OVDI/P ``victims`` - if you opt out, you are subject to audit, including the FBAR audit. You are not bound to accept any action the IRS takes to assess the FBAR penalty. The IRS through DOJ Tax will have to sue to collect the penalty. This extra FBAR step requiring a Government initiated suit would further stress an already burdened court system and is one reason to doubt that the IRS is going to be especially onerous with opt out FBAR penalties. The IRS will want agreed resolutions that do not require law suits of course that does not mean that the IRS will walk away from a clear willfulness case. So far fact is and yes that could change that the lack of cases prosecuting the non-willful penalty seems to indicate the Goverment`s unwillingness to put the Section 5321 penalty to a judicial test. Further, "hazards of litigation" is a basis for settling controversies, and should be considered when negotiating any IRS/FBAR penalty.

  14. The nonjudicial remedies available to the U.S. for FBARs seem limited to offsets. For most taxpayers that applies to tax refunds. Most taxpayers can manage their tax payments so as to avoid overpaying so that a refund is due.

    Moreover, for what it is worth, here is a recently created footnote for the next edition of the Federal Tax Crimes book that deals with 11 USC 3711:

    31 U.S.C. § 3711(g)(9); see also IRM (11-01-2011), titled FBAR Penalty Statute of Limitations on Collection. An offset expressly allowed is a “tax refund offset.” § 3711(g)(9)(B). The IRS apparently polices the offset by a special computer code, titled descriptively FBAR10. IRM (11-01-2011). Other collection measures expressly authorized are garnishment, litigation and foreclosure. § 3711(g)(G) and (H). These, however, would seem to require court action which, at least in my mind, would be inconsistent with the requirement that suit for collection be brought within two years. Hence, I think these enforcement mechanisms may not be pursued after the two year collection suit period closes. This section also authorizes use of “private collection contractors” and filing notice of the debt with credit agencies. I don’t think either of these would be appropriate after the two year suit window. And, there is a threshold interpretational question as to whether § 3711(g) applies at all, because it seems to apply only “Before discharging any delinquent debt;” it is not clear to me (and I have not researched the issue), that the lapse of a statute of limitations period is the discharge of a debt for this purpose (stated differently, if the agency is not affirmatively discharging the FBAR liability, are these remedies even available?).

    Thanks, Researcher, for your good comments.

    Jack Townsend

  15. here is another little detail with regards to (A) administrative offset what ``Researcher`` was mentioning as a collection tool. Minnows need to know about a little nasty habit the IRS once in a while has which is the (illegal) failure to apply a taxpayer’s payments in a manner consistent with the taxpayer`s instructions. Meaning ,against what ``Researcher`` is saying that outstanding civil FBAR penalties, that have not been litigated in court ,can NOT be collected legally against voluntary 1040ES payments which the overseas Minnow continues to make to stay in compliance with his annual tax obligations. => Disregarding the taxpayer’s instructions as to application of payments is in violation of taxpayer’s rights, because “[w]here a taxpayer makes voluntary payments to the IRS, he does have the right to direct the application of payments to whatever type of liability he chooses.” Salazar v. CIR, T.C. Memo 2008-28, *34 (February 25, 2008); Estate of Wilson v. CIR, T.C. Memo 199-221, *14 (July 6, 1999); Muntwyler v. U.S., 703 F.2d 1030, 1032 (7th Cir. 1983).

  16. In addition to tax refund offsets, the next remedy applicable to a large number of taxpayers would be an offset of Social Security payments. They can take up to 15%, but cannot leave you with less than $700/month.

  17. Jack

    31 USC 5321 says that

    '(2) Civil actions.— The Secretary may commence a civil action to recover a civil penalty assessed under subsection (a) at any time before the end of the 2-year period'

    I am not a lawyer, so I do not know if the statute implies that this is the ONLY method of collecting an FBAR penalty (with a 2 year limit), or if other methods of collecting a Treasury Debt are also available (i.e. this method is provided in addition to regular collection methods). I suppose a clever lawyer can argue either way, so we may not know until (if) a case actually goes to litigation.

    The IRM says

    The FBAR penalty case will usually be received in Appeals pre-assessment.However, upon request, Appeals will also conduct post-assessment hearings as provided in Title 31 CFR 5.4 and 900 to consider FBAR penalty liability and collection.

    Title 31 CFR 5.4 provides alternate means of collection and also says that penalties more than 18 days overdue should be transferred to the Treasury's Financial Management Service for Collection.

    I am not saying that these alternate methods are definitely available, I am just saying that they *may* be available. Also, Congress could change the rules of the game in terms of collection of unpaid penalties retroactively (subject to constitutional restrictions on retroactive laws).

    So, I do not think that anyone who has assets in or revenue streams from the US can necessarily assume that DoJ has to bring suit to collect. I also do not think that the IRS will compromise based on difficulty in collection. The IRS may compromise if it thinks it could lose a reasonable cause argument or a willful argument (depending on the penalty being sought), but I do not think that inability to collect the money easily count as a 'hazard of litigation'.

  18. If someone has no significant assets in the US, then the whole discussion is largely irrelevant. The IRS will be unable to collect even with a judicial order (well, I suppose they could try an international collection under Hague Convention rules, but that would likely be instituted only for extreme cases, so its irrelevant for the general run of the mill expat).

  19. its irrelevant for the general run of the mill expat... I think you are underestimating who the general run of the mill expat is these days !! Excl. dual citizens, military and government employees > 5 mio worlwide .... it is estimated that > 1mio fits my description with little or no assets in the US. You are also forgetting ST/MT greencardholders who have the majority of their assets in their country of origin and NOT the US. You are also forgetting dual citizens and accidental US citizens etc. I think you get my point.- ....If someone has no significant assets in the US, then the whole discussion is largely irrelevant...... I think you are mistaken, because the issues I raised with Jack here were specifically concerning those Minnows and if you have missed it or I was unclear about it - I was not speaking about Homeland residing Whales engaged in actual tax evasion. I was talking about non exceptional, ordinary taxpayers with no exotic financial instruments hidden away in offshore tax shelter accounts. I was talking about Minnows with no other formal structures, corporations, trusts, foundations or entities affiliated with any of the accounts. In other words I was talking about taxpayers that do NOT participate in any exotic investment instruments like credit default swaps, offshore hedge funds, offshore feeder funds, offshore master funds, offshore money laundering funds, PFICs, or special purpose investment vehicles (SIVs). To sum it up for you - their financial arrangements are plain vanilla for ordinary people living fairly ordinary lives overseas with standard checking accounts and for those > 10 mio ... expats and immigrants with ST/MT greencards I think it is kind of arrogant to assume that they are ``just run of the mill`` anything. They might be a minority but one that gets currently ``bullied`` and extorted and it is especially relevant for them -contrary to your believe- how to protect their ``LIFE SAVINGS`` from an IRS out of control.

  20. ... to collect the money easily will be considered a 'hazard of litigation'..... nobody was talking about the inability per se - we were talking about the right to judicial review where you can raise any arguments/defenses about the appropriateness of the penalty and win your case - and not bending over because the ``Bully`` has made an UNCHALLENGED assessment . .....I do not think that inability to collect the money easily will be considered a 'hazard of litigation'...... oh yes exactly !!!! this inability stands for time and money which the IRS does not have with > 30,000 open cases. Closing cases is still their number 1 priority and please lets not play the ``would have ,could have, should have- a.k.a fear mongering game with what Congress might do in the next 100 years.


  21. we were talking about the right to judicial review where you can raise
    any arguments/defenses about the appropriateness of the penalty and win
    your case

    You always have a right to bring a case yourself either in the Court of Federal Claims or an appropriate district court. The ONLY question I was addressing is whether the government has to explicitly bring the case before it can start collection. I think it does not, but I think this could be considered an open issue.

    As far as hazards of litigation, the definition is setting a precedent that is unfavorable to the government. Collection is not considered a hazard of litigation. Jack can confirm that based on his experience with Appeals.

    As far as Congress goes, they have changed the rules of the game in the past very recently (extended SOLs for foreign income etc.), so it is not unreasonable to assume they could change collection rules if a lot of foreign penalties pile up.

  22. It might help your case if you were to post in a coherent, linear fashion.

    You said that other collection methods are irrelevant to expats living outside the US, and I merely said that the whole discussion of collection from such people was largely irrelevant since such people had few assets in the US. In essence, I was saying that such people had little to fear from an FBAR penalty and hence this whole discussion was largely irrelevant to them.

    Your response is then to go on an extended incoherent rant about how its arrogant to refer to expats/immigrants as 'run of the mill' (of course, this is no different from your referral to such person as minnows, but for some reason you do not consider your phrasing arrogant), and making unwarranted assumptions about my beliefs.

    My only point is that I do not think DoJ Tax has to go to court to start collecting a penalty, and I think it would be unwise for someone (on opt out or at the conclusion of an audit) to take actions based on the assumption that DoJ Tax always has to go court or that they would be willing to compromise a (good) case to avoid going to court. If someone has few assets in the US, then they need not care much about FBAR civil penalties. For people with significant US assets, they have to make their own decisions about how strong their case is, and how they should proceed. Based on some of the posts of opt outs here, the IRS has not been draconian, but they have not always waived penalties either.

  23. ...... I think it does not,.... sorry ``Researcher`` but they do ! I think over the next 2 years I will be proven right but until we have actual case evidence in front of us ``LETS LEAVE IT TO BEAVER`` and move on. As far as congress goes like I said before lets not worry what they might do or not do .... to counter your fear mongering they might even support H.R. 597 and if I realy look deep into my crystal ball than Congress will find ways to produce tax revenues for the US comparable to, and possibly even greater than, the current system of citizenship-based taxation;
    • align US tax policy on individuals to that of the rest of the world;
    • align US tax policy on individuals to numerous proposals to tax US corporations on a territorial 
    • increase the competitiveness of the United States and its citizens in world markets;
    • stimulate job creation for Americans at home and abroad;
    • simplify the US tax code (laughable 73,000 pages) and taxation of Americans living and working abroad;
    • rationalize and reduce the administrative burden of the IRS in a cost-effective way;
    • improve the relationship and develop positive synergies between Americans abroad and their 
home country which they dearly love.
    What do you think ``Researcher`` - do you want to be part of that ?

  24. maybe you should take into consideration that some people might think your dripple here is equal to my incoherent rant . I think you have not understood the context in which I used the definition ``Minnow`` because people involved in OVDI/P , VD know what it means. But it seems ``Researcher`` you should do a bit of research regarding this subject.

  25. @disqus_Bw0EEBS8PS:disqus ,

    I thought DoJ had to go to the court to collect the penalty and it was the ONLY way to collect --- that was the base for me to opt-out. Obviously IRS was much more reasonable than I thought they would be. Had I known what you just stated -- I would have 2nd thought of opting-out.

  26. what ``Guest`` explained regarding this issues seems to be correct. The key phrase here is ``enforced collection`` and unless the taxpayer and IRS agree on the FBAR penalty the DOJ has to go to court ....

    Unlike a tax or penalty assessed in the Code, which
    is subject to broad administrative collection remedies
    of liens and levies, the FBAR penalty assessment is
    made under Title 31 and is not subject to these ad-
    ministrative collection remedies. Remedies available
    to collect the penalty would be similar to any other
    creditor and enforced collection would require a
    lawsuit in federal court. This limitation on the IRS’s
    ability to administratively collect the FBAR penalty
    should provide an inducement to the IRS to resolve
    FBAR penalty determinations in a manner which in-
    cludes payment of the penalty. Collection on FBAR
    penalties is made that more diffi
    cult with respect to
    overseas fi
    nancial accounts and assets, which gener-
    ally are beyond the reach of the government. Upon
    assessment, the IRS makes notice and demand for
    payment by sending Letter 3708 to the taxpayer and
    power of attorney on fi
    le, and forwards collection
    information to the Department of Treasury’s Financial
    Management Services (FMS).

    There are two separate collection limitation periods
    with respect to FBAR penalties: (1) two years from the
    later of the assessment date and (2) 10 years from the
    assessment date during which it can collect through
    certain offsets.
    FBAR penalties constitute debts owed
    to an U.S. executive agency, and the IRS is authorized
    to collect debts using any of the methods enumerated
    in 31 USC §3711 (2008).


  27. ij

    Like I said, I am uncertain whether the court case is required or not, or whether the IRS/DOJ Tax can simply assess the penalty and try other collection procedures (leaving it to the taxpayer to bring suit and challenge the penalty). I think the IRS positon is that if DoJ does not bring a collection case within 2 years, then the IRS can collect via administrative methods for up to 10 years.

    You had a good case, and the IRS accepted it. Anyone who has a good case for a reduced or waived penalty should not be deterred from going ahead with an opt out.

    But neither do I think that anyone facing an FBAR penalty can rely on the
    assumption that DoJ has to go to court before collecting. I also think interest may accumulate on an assessed but unpaid penalty after a few days, so letting a penalty stand unchallenged could be costly (as could contesting in court).

  28. See (11-01-2011) FBAR Penalty Statute of Limitations on Collection, stating a 10-year limitation on offsetting payment: "period in which the Government may obtain payment of the FBAR by offsetting payments."\


    Jack Townsend

  29. more to the point :

    If the IRS determines the FBAR penalty is appropriate, the examiner will issue Letter 3709, the FBAR 30-day letter, and transmit with that letter, the Form 13449, FBAR Agreement to Assessment and Collection , which sets forth the basis for the FBAR penalty. No interest accrues on the FBAR penalty prior to assessment or if payment is made within 30 days after the date, a notice of penalty amount due is mailed to the taxpayer. In addition to interest, a 6 % delinquency penalty applies to amounts remaining unpaid 90 days from the date a notice of penalty amount due is first mailed to the taxpayer.

    If the taxpayer agrees to assessment of penalties, the taxpayer should return to the examiner the delinquent FBARs along with the signed and dated Form 13449.
    The examiner places the signed Agreement Form 13449 in the FBAR case file, retains the original and a copy of the FBAR in the FBAR case
    file, and marks the FBAR as secured through examination. The examiner will complete a summary memorandum and a FMD and close the FBAR case to the group manager, who will review the case for technical and procedural issues.
    If the FBAR penalty is not agreed to, the taxpayer must mail a written protest to the examiner within 30 days. The case is then transferred to the IRS Appeals Division.
    The appeal is entered on the FBAR database at the DCC, which has responsibility to monitor the statute of limitations.The DCC is to notify Appeals when the statute of limitations has less than a year to expire.Placing responsibility for monitoring the statute of limitations in the DCC seems to be at odds with established procedures in tax cases which place responsibility on the examination and appeals personnel.
    A Freedom of Information Act request can be helpful in an FBAR examination, and will reveal what` s in the administrative file. In a Bank Secrecy Act investigation, the examiner is instructed to use the Title 31 FBAR lead sheet to commence the investigation. If the examiner finds an FBAR violation, he or she must establish a separate file (distinct from theBank Secrecy Act file) since the FBAR penalties are imposed by the IRS, while non-FBAR related Bank Secrecy Act penalties are assessed by FinCEN.

  30. Thanks, Researcher.

    You research and your comments are good ones. I do plan to post something on this in the next few days.



  31. OVDI-2011-illinois-residentApril 1, 2013 at 3:14 PM

    We are about to sign the 906 and pay the FBAR penalty etc. Now we have to put that behind us, and worry about ammending the Illinois returns for 2003 through 2010. Can someone tell us what all we have to pay i.e. -- tax, penalty and interest and how to calculate it without going through a CPA. We went to the Illinois revenue site, not very clear as to whether we will have to pay any penalty.... Thanks a lot. Also, we assume we need to do this w/i 120 days of federal settlement?

  32. @ovdi2011illinoisresident:disqus ,

    I just finished up with my state two days ago with two pay checks mailed out. I started amend my state in Sept. 2012 --- it took more than 6 months to have it done -- due to lost mails, misplaced forms by my state that I left three years ago.

    Here what you should do first.
    1. Check your state of SOL -- I remember 2 years ago someone posted on this board that he/she called his/her state and was told "doing nothing" due to SOL. He/she just finished up with his OVDP 2009. Most states have three years SOL for assessment just as IRS (assuming less than 25% of gross income under report), however, some states may automatically extend SOL after a taxpayer has consented with IRS on SOL -- that means -- whenever you change your SOL with IRS -- that will change on your state. So please check your state (in my state, I went through the state tax law to find it out).

    2. You can certainly do it without CPA. It is nothing more than under report income (likely it is interest/divided/capital gain/ income -- so you can amend this under report income in your amend tax return and have them sent out to your state -- they will find out how much you owe them (such as tax due, interest and possible penalty). In my case, my state did not impose one penny of penalty -- but for each year, there is a processing fee of $25. The interest is much higher -- like 8%. Over all, I paid less than $200, because of opt-out -- and SOL preventing both IRS and my state to go years earlier than 2008.

    You don't have to worry about any penalty from your state, your offshore income is no different from your inshore income. The worst they can do is to impose accuracy penalty --- that is likely 20% of your additional tax due,.

    Good luck!


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