Page 1 - An Update on Civil FBAR Penalties: Decisions Since June 2019 Citing Williams and McBride in Discussing the Willful Civil FBAR Penalty

An Update on Civil FBAR Penalties:
Decisions Since June 2019 Citing
Williams and McBride in Discussing
the Willful Civil FBAR Penalty
By Caroline Rule
Caroline Rule provides a much-needed update on civil FBAR
penalties.
CAROLINE RULE is a Partner at
Kostelanetz & Fink, LLP, New York,
New York.
FALL 2020
his article will discuss cases after June 2019 that have followed, rejected,
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or partially relied on the precedents of Williams and McBride, which cases
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T include language to the effect that, if a taxpayer signs a Form 1040 income
tax return, the taxpayer has constructive knowledge of the question on Schedule
B that asks whether the taxpayer owns a foreign bank account, and the taxpayer
therefore also has constructive knowledge of that question’s additional reference
to whether a taxpayer is required to file a Report of Foreign Bank Accounts and
Financial Institutions, or FBAR. Under this reductive constructive notice theory,
a taxpayer is almost inevitably willful in failing to file an FBAR; the taxpayer
demonstrates willfulness simply by signing a tax return that includes a Schedule
B stating incorrectly that the taxpayer does not have a foreign bank account. The
reasoning of these decisions means that there will rarely, if ever, be a circumstance
where the non-willful civil FBAR penalty applies, even though this non-willful
civil FBAR penalty is the default or baseline penalty under the statutory scheme
imposing civil penalties for failure to file FBARs.
Only one recent decision, however, has adhered strictly to the reasoning of
Williams and McBride, imposing what amounts to strict liability for the willful
civil FBAR penalty; two courts have outright reject these cases’ constructive notice
theory; and most courts either explicitly or implicitly eschew a reductive reading
of these decisions, instead taking a middle ground that, although the question
on Form 1040 Schedule B may be evidence of the taxpayer’s knowledge of the
FBAR filing requirement, this is insufficient, without additional facts evidencing
willfulness, to justify imposition of a willful civil FBAR penalty.
© 2020 C. RULE 39