Default Judgment Granted in Multi-Year FBAR Willful Penalty Case (12/2/17)

In United States v. Forbes, 2017 U.S. Dist. LEXIS 193856 (E.D. Va. 8/24/17), here, the Magistrate Judge entered a report and recommendation for default judgment on willful FBAR penalties against George Forbes.  The District Court subsequently sustained the recommendation, here, and entered judgment, here.  The complaint on which the default judgment is based is here.

Forbes did not appear or contest the default judgment, although he had been properly served.  So I draw the facts from the complaint which contains more facts than the Magistrate Judge's report and recommendation..

The key facts are that:

1. Forbes worked as an engineering consultant in the oil and gas industry in Qatar from 2004 to 2011.

2. Forbes had foreign accounts exceeding $10,000 in each of the years 2004 through 2011.

3.  Forbes filed FBARs through 2007 and then picked up filing FBARs in 2011. 

4.  FBARs did not file FBARs for 2008-2010.  He did not report the income in excess of $3,100,000 from the unreported accounts in 2008-2010.  In two of the years, he omitted Schedule B and in the third, he answered the foreign account question no.

5.  On 11/28/11, Forbes was accepted into the 2011 OVDP.   "Forbes entered the OVDP with the agreement that his FBAR disclosure would be certified for tax years 2008, 2009, and 2010."

5.  Forbes apparently submitted the OVDP package, including amended income tax returns.  "Forbes failed to make acceptable arrangements with the IRS for payment of the taxes owed, plus, interest, accuracy penalties, and a miscellaneous offshore penalty. As a consequence, Forbes was removed from the program on May 8, 2014.

6.  After exiting the OVDP, Forbes was audited.  "The audits found that, for the years 2008 through 2010, Forbes had failed to report income in excess of $3,100,000.  The audit also found that Forbes had omitted approximately $1,750,000 of income from the tax returns he had submitted in connection with his participating in the 2011 OVDP.

7.  "On May 6, 2015, Forbes was assessed civil penalties totaling $1,454,710.70 [for 2008, 2009 and 2010] for his willful failure or refusal to report his interests in his foreign financial accounts" at certain foreign banks.

JAT Comments:

1.  I infer from the facts that the FBAR willful penalties are the maximum 50% for 3 years.

2.  Note that the multi year penalty was assessed on May 6, 2015, just 8 days prior to the SBSE-04-0515-0025, the IRS memo advising agents to generally assert a single 50% penalty (which might be spread to more than one year if necessary, but in the aggregate not to exceed 50% of the high amount during the delinquency period).  That memo does allow for exceptions in particular cases.  The sparse facts suggest that Forbes conduct through the erroneous OVDP filings was at least somewhat egregious.