Order on Motion In Limine and Trial Briefs in Case Involving FBAR Willful Penalty (9/11/17)

In Bedrosian v United States, 2017 U.S. Dist. LEXIS 142793 (E.D. Pa. 2017), here, the Court granted the U.S. motion in limine "to preclude evidence concerning the 'procedures, actions, analyses, or viewpoints of the Internal Revenue Service and its personnel at the administrative level regarding willfulness.'"  Basically, the holding is that the FBAR willful liability at issue is determined by the Court de novo.  That means that Bedrosian's willfulness is determined based upon his own mental state -- willfulness -- and his actions in failing to report his UBS account at issue.  The IRS's administrative actions are irrelevant to that issue.

While downloading the order, I also downloaded the following:

• Bedrosian Docket Entries as of 9/11/17, here.
• Bedrosian Trial Brief 8/28/17, here.
• United States Trial Brief 8/28/17, here.

The docket entries (#59) indicate a Minute entry for proceedings on 9/8/17.  I could not get to that minute entry because, the message said, "You do not have permission to view this document."  I don't know if that was the minute entries of the trial.  But, in view of the court's order the previously indicated trial time of two days was likely much shorter and could have been completed in one day.

Key points from the trial briefs are (keep in mind that, when I state a fact from the briefs, it is what the party asserts the record will establish):

Bedrosian Brief:

1.  Bedrosian told his accountant in the 1990s about UBS account.  His accountant told him that he should have been reporting the account but to "leave the account as it was and that he (or his estate) would pay taxes on the money in the account when repatriated." Plaintiff dutifully followed his accountant's "instructions."

2. The accountant passed away in 2007.  There is no indication that there is any written or otherwise objective evidence of the accountant's advice to Bedrosian other than Bedrosian's testimony.

3.  Bedrosian's new accountant (i) answered the Schedule B foreign account question in the affirmative and indicated the account was in Switzerland and (ii) prepared an FBAR with only one of two accounts listed because he "inadevertently" omitted it and "plaintiff always viewed it as one account with a subaccount."

4.  In 2009, Bedrosian began to question his reporting position, engaged an attorney who, in turn, engaged a "forensic accountant" to prepare amended returns and FBARs and engaged Swiss counsel to obtain the bank records.  Swiss counsel then advised that UBS had turned over the account information to the IRS.  "Significantly, Plaintiff had already decided to file amended returns and FBAR forms when he learned this fact.  He then filed his FBAR reports.  [JAT note:  Significantly, this flurry of activity in 2009 probably occurred after UBS was in the news for its assistance to U.S. taxpayers in evading or avoiding their income tax obligations.]

5.  In 2011, the IRS advised Bedrosian that his 2007 and 2008 returns had been selected for examination.  The following then occurred in the audit activity:

a.  Bedrosian was "very cooperative," according to the agent.

b.  The IRS agent "requested and received plaintiff's FBAR reports for 2006-2009."  It is not clear whether this was the original filing of those reports or was copies of the earlier filing after the activity in 2009.

c.  The IRS agent "ultimately determined, based on the totality of his investigation, that plaintiff's violation of the FBAR requirements was non-willful."

d.  In 2012, the IRS agent and his supervisor "met with the treaty case panel which "recommended that platintiff's case be closed with non-willful violations, thereby sustaining [the IRS agent's] conclusions."

e.  That revenue agent went out on medical leave.  Another agent was assigned to the matter and "decided that the penalty proposed by [the first revenue agent] was not correct."  Bedrosian makes certain claims as to deficiencies in the new agent's investigation.

f.  On July 18, 2013, the IRS imposed a 50% willful penalty "the highest penalty that could be imposed."  [I question this since the statute allows 50% per year, although the IRS will generally not assert more than 50% of the high amount in the open years.]

[JAT Note:  the assertions regarding the IRS investigation appear not relevant based on the Court's order on the motion in limine.]

6.   In the argument portion, Bedrosian makes his arguments about the extant authorities -- Williiams, McBride, and Bohanec.

7.  Bedrosian lists himself, his new accountant and certain IRS personnel as witnesses.  The order noted above would preclude the IRS personnel testimony, so Bedrosian's witnesses for his case in chief would be himself and his new accountant.

8.  Bedrosian lists a slew of trial exhibits including various documents related to the IRS investigation.  In view of the order, I presume that many of these documents will not be admitted.

United States' Trial Brief:

1.  In the introduction,

It is also undisputed that Bedrosian filed an FBAR for 2007 disclosing only one of his foreign accounts, his $200,000 account ending in 5316, and that he failed to report the larger of his two foreign accounts, his $2 million UBS account ending in 6167. He failed to report even after his accountant told him that the law required he do so. His decision to not report was knowing and voluntary (or, at a minimum, reckless), and therefore, willful. See 31 U.S.C. §§ 5314, 5321; United States v. Williams, 489 Fed. Appx. 655, 658 (4th Cir. 2012).
* * * *
While acknowledging that he failed to report his $2 million UBS account as required, he contends that he did not act willfully as he allegedly relied upon advice from an accountant when he chose not to report.

2.  The Government asserts the de novo standard which the Court accepted in its order issued after the trial briefs were submitted.  As to the administrative proceedings, "Bedrosion fails to identify any evidence from the administrative proceedings that reveals his state of mind during 2007-2008."

3.  The Government asserts its standard position that it must prove willfulness only by a preponderance of the evidence.  (I  say standard, because, as readers know, earlier on the IRS had taken the position that the clear and convincing proof standard applied.

4.  The Government takes the facts as claimed by Bedrosian and puts a different spin on them, including at least the suggestion that the Bedrosian's claimed facts may be the product of self-interest.

5.  Bedrosian attempted to join OVDP after learning that UBS was turning his documents over to the IRS.

6.  The Government argues that Bedrosian is not entitled to willful penalty relief under the IRM.

I previously reported on the Bedrosian case:

• Court Denies Cross Motions for Summary Judgment on FBAR Willful Penalty (4/13/17), here.