Thursday, May 29, 2014

Zwerner Jury Verdict -- FBAR Willfulness for 3 Years (5/29/14)

Yesterday, the jury returned a verdict, here, in the Zwerner case.  (For all posts on Zwerner, see here.)  Readers will recall that, in that case, the IRS, acting for the Treasury Department, assessed a 4 year willful FBAR penalty at the maximum 50% of the amount in the account on the respective June 30 dates of violations.

The verdict asks:
1. Has the United States established by a preponderance of the evidence that Carl Zwerner's failure to timely file FBAR forms for the following years was willful?
The jury returned a verdict of yes to that question for 2004, 2005 and 2006, but no for 2007.

The verdict then asked:
2. Has the United States established by a preponderance of the evidence that the IRS's calculation of the assessed penalties for any of the years was equal to 50% or less of the balance of the account in question as of June 30 of the following year?
The jury answered yes for each of the years 2004-2006.  The year 2007 was not in issue because of the no answer to question 1.

The verdict then asked:
3.  Has Carl Zwerner established by a preponderance of the evidence that he qualified for the 2009 Offshore Voluntary Disclosure Program?
The jury answered no to this question.

The judge in the case was Cecilia Altonaga, here.

I poked through the docket entries, here, and some of the recent filings this morning.  I will formulate some additional comments later, but do offer one at the end of this blog.

There is a good discussion of this development on by  See Zwerner: Jury Determines 150% FBAR Penalty Applies – Excessive Fines Clause to the Rescue?? (Tax Controversy (Civil and Criminal) Report 4/29/14), here.

I will close with one thought that I have not fully researched yet.  It seems to me that the structure of the statute, 31 USC 5321(a)(5), here, is to provide maximum penalties for nonwillful of $10,000 (perhaps per account) and for willful of the greater of $100,000 or 50% on the key date (June 30, as interpreted).  Each of these maximums could apply per year.  The point is that, as the statute is written, the penalty is not required to be at the maximum.  The jury was not asked to review the IRS's assertion of the maximum willful penalty.  Is the IRS's decision to assert the maximum not reviewable?  That just seems odd to me.

But that also raises the question of what standard the trier -- here the jury -- would apply in determining whether something less than the maximum penalty should apply and, if so, what the lesser penalty should be.  There are of course mitigation guidelines in the IRM, but the IRM is not the law even under relaxed notions of Chevron deference.

I will just have to think more about this.

The DOJ Tax Press Release [link to come later] is [cut and paste]:

WEDNESDAY, MAY 28, 2014 
WASHINGTON -- Today, a jury in Miami found Carl R. Zwerner responsible for civil penalties for willfully failing to file required Reports of Foreign Bank and Financial Accounts (FBARs) for tax years 2004 through 2006 with respect to a secret Swiss bank account he controlled. According to evidence introduced at trial, the balance of the bank account during each of the years at issue exceeded $1.4 million, and the jury found Zwerner should be liable for penalties for 2004 through 2006. Zwerner faces a maximum 50 percent penalty of the balance in his unreported bank account for each of the three years. The jury found that Zwerner's failure to report the account was not willful for 2007, and the court will determine the final amount of the judgment after further proceedings in June 2014. 
"As this jury verdict shows, the cost of not coming forward and fully disclosing a secret offshore bank account to the IRS can be quite high," said Assistant Attorney General Kathryn Keneally for the Justice Department's Tax Division. "Those who still think they can hide their assets offshore need to rethink their strategy." 
U.S. citizens who have an interest in, or signature authority over, a financial account are required to disclose the existence of such account on Schedule B, Part III of their individual income tax return. Additionally, U.S. citizens must file an FBAR with the U.S. Treasury disclosing any financial account in a foreign country with assets in excess of $10,000 in which they have a financial interest, or over which they have signatory or other authority. Those who willfully fail to file their FBARs on a timely basis, due on or before June 30 of the following year, can be assessed a penalty of up to 50 percent of the balance in the unreported bank account for each year they fail to file a required FBAR. 
The evidence at trial showed that Zwerner opened an account in Switzerland in the 1960s, which he maintained in the name of two different foundations he created. Zwerner was able to use the proceeds of the account whenever he wanted and used it for personal expenses, including European vacations. Even though he filled out a tax organizer provided by his accountant, every year, Zwerner answered "no" to questions asking whether "you have an interest in or signature authority over a financial account in a foreign country, such as a bank account, securities account or other financial account" and whether "you have any foreign income or pay any foreign taxes."


  1. I am not sure how much of the jury verdict was ever really in doubt (given the facts) and I imagine counsel weren't allowed to make the excessive fine clause to the jury (wouldn't that more or less be akin to asking for jury nullification?). The real meat of this is in the pending decision on the 8th amendment claim.

  2. This is very helpful. It clarifies things for me. I was searching on line when I
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  3. Please chill with your racist hatred of Swiss banks and focus on individual banks instead. Just because some individuals working for some individual banks didn't comply with US laws, given that they were not US citizens, such doesn't mean that you need to continue wrongly attacking all banks with bigotry. All of this bigotry is causing harm to innocent Americans who did nothing wrong.


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