Willful FBAR Penalty Sustained​​

In a recent case, United States v. Horowitz, the district court sustained willful violation of FBAR penalties against the taxpayer for signing returns that omit overseas accounts.

 

The case involved U.S. citizen taxpayers, Peter and Susan Horowitz. The taxpayers had lived in Saudi Arabia for most years between 1984 and 2001. Beginning in 1988, the taxpayers maintained a Swiss bank account at the Union Bank of Switzerland (“UBS”). The taxpayers moved back to the United States, but did not close their Swiss bank account. In 2008, Peter transferred the amounts in the Swiss bank account to a new Swiss bank. Because Susan was not present at the time of opening the account, Susan was not named as an owner and was not added as a signatory. It was intended that she would be later added.

The taxpayers used a CPA to prepare their tax returns for the relevant years. The taxpayers prepared and returned to the CPA summaries of tax pertinent information. In the years in question, they did not disclose the Swiss accounts to the CPA. Further on Schedule B of their 1040, taxpayers accountant marked an “X” in the box for “No” next toe questions 7a and 8 related to ownership of foreign bank accounts.

In 2010, the taxpayer attempted to enter the Offshore Voluntary Disclosure Program, based on their delinquent filings. The taxpayer then opted out of the program in December of 2012. In 2014, the IRS sent the taxpayers the penalty assessment.  

The attorneys for the taxpayers argued that the non-filing of the FBAR form was non-willful. The court found in the favor the Government.

In asserting non-willfulness, the attorneys for the taxpayers relied on testimony from the taxpayers. The taxpayers asserted that from talking to other expatriates living in Saudi Arabia that income that was earned in Saudi Arabia was not required to be reported in the U.S., and that U.S. tax was not owed on bank accounts overseas.

In addition, the taxpayer’s attorneys relied on the fact that the taxpayer had used a tax return preparer to assist in preparing the taxpayer’s returns. The tax accountants neither asked about overseas bank accounts nor explained to the taxpayer the FBAR or the question about the foreign accounts on the Form 1040, Schedule B, which they completed on the taxpayer’s behalf. Taxpayers, through their attorneys, insisted that they did not have actual knowledge of the FBAR requirement and therefore penalties for willful violations are not appropriate.

The U.S. government countered that despite the taxpayer’s testimony, there is no genuine dispute that they knew about the FBAR requirement. The government relied on schedule B of the 1040, that the taxpayer signed.

The court accepted the governments position. The court reviewed the fact that the taxpayer discussed their accounts with their friends, and the fact that their friends had provided that they do not need to report the accounts. The fact that the taxpayer had this discussion with their friends, but did not disclose the same accounts to their accountant was a fact the court relied on in determining the taxpayers were willful.

The case continues to show the importance of determining the proper filings requirements. If a taxpayer is delinquent in filings FBAR returns, the taxpayer would should consult with an attorney to discuss options available for the taxpayer to become compliant.

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International Tax

A BLOG BY MEHRDAD GHASSEMIEH

Partner at Harlowe & Falk LLP

© 2020 BY MEHRDAD GHASSEMIEH