Court Holds Taxpayer Liable for FBAR Civil Willful Penalty (2/10/21)

In United States v. Collins, 2021 U.S. Dist. LEXIS 23260 (W.D. Penn. 2/8/21), CL here and TN here, in an FBAR collection suit, the Court starts its Findings of Facts, Conclusion of Law & Order as follows (2d bold-face supplied by JAT) :

Defendant's willful failure to report his foreign accounts

1. Defendant Richard Collins ("Mr. Collins") is a sophisticated taxpayer, with a sophisticated understanding of finance, financial obligations and financial consequences that are well beyond that of an average person. (Trial Tr. at 220:15-19.)

2. Mr. Collins knew that, when he approved his tax submissions in 2007 and 2008, he held financial accounts in foreign countries. (Trial Tr. at 220:21-23.)

a. Mr. Collins identified an interest in keeping his foreign accounts secret in the United States and consciously avoided disclosing his accounts. (Trial Tr. at 221:1-4.) [*2] 

b. Mr. Collins's course of conduct reflects an actual intent to deceive the IRS and others about the existence of his foreign accounts, including his effort to avoid receiving mail from UBS in the United States, as well as his express desire to "discreetly" transfer funds from Switzerland to the United States in connection with a mortgage transaction. (Trial Tr. at 221:5-19; id. at 129:13-133:19; Pl.'s Exs. P25—P28.)

c. Mr. Collins has sought to excuse his conduct based on a multitude of objectively unreasonable beliefs, including those that:

i. By filing an IRS Form W-9 with UBS, he satisfied his reporting obligations for all of his foreign accounts (including those for which he did not file a W-9) (Pl.'s Ex. P63);

ii. The U.S. Embassy in Paris advised Mr. Collins, in the 1970s, that he did not have any obligations to the IRS (Pl.'s Ex. P56);

iii. As long as his foreign banks withheld taxes, Mr. Collins was not obligated to disclose his accounts to the IRS (though Mr. Collins did not ensure that UBS actually withheld funds) (Pl.'s Ex. P58 at *14; Doc. 42 at 7);

iv. Disclosing his accounts to his U.S. accountant, Dale Cowher, would increase the costs required for Mr. Cowher to perform any [*3]  necessary paperwork (Pl.'s Ex. P35, Pl.'s Ex. P58 at *14); and

v. Swiss bank secrecy laws precluded Mr. Collins from disclosing his foreign accounts to his U.S. accountants (Pl.'s Ex. P54).

Well, needless to say, Collins lost the case.

In the Findings and Conclusions, the Court resolves the following key issues:

1. The Court reviews the penalty assessments (pp. 4-6 ¶¶ 14-25), concluding that “The IRS ultimately proposed willful FBAR penalty assessments for 2007 and 2008 that were each half of the average of the penalties calculated under the mitigation guidelines. (Pl. Ex. P42; Trial Tr. at 49:15-50:17.)”  I have not dug into the penalty calculations but I infer that they were consistent with the IRM.

2. The Court applies (p. 8   ¶¶ 36-42) the de novo review standard but alternatively also applies (p. 9-15, ¶¶ 43-73) the APA abuse of discretion / reasoned decisionmaking standard.  Under either standard Collins loses.

3. The Court holds (pp. 16-21 ¶¶ 74-97) that the penalties are not excessive under the Eighth Amendment.

JAT Notes:

1. The Court’s reasoning for its principal holding that the de novo review standard applies rather than the APA abuse of discretion standard echoes the holding that, since Tax Court deficiency review is de novo, abuse of discretion will not apply.  In QinetiQ U.S. Holdings Inc. v. Commissioner, 845 F.3d 555 (4th Cir. 2017), cert. den. ___ U.S., ___, 138 S.Ct. 299 (2017), the Court held:

Given these significant variations in the scope of judicial review under the two statutory schemes, we conclude that the APA's general procedures for judicial review, including the requirement of a reasoned explanation in a final agency decision, were not intended by Congress to be superimposed on the Internal Revenue Code's specific procedures for de novo judicial review of the merits of a Notice of Deficiency.