Page 3 - An Update on Civil FBAR Penalties: Decisions Since June 2019 Citing Williams and McBride in Discussing the Willful Civil FBAR Penalty

(i) the maximum penalty under subparagraph (B)(i) In Williams, the Fourth Circuit held that Williams was
shall be increased to the greater of— liable for a willful civil FBAR penalty for the year 2000,
and wrote:
(I) $100,000, or
A taxpayer who signs a tax return will not be heard
(II) 50 percent of the amount determined under to claim innocence for not having actually read the
subparagraph (D). return, as he or she is charged with constructive
knowledge of its contents. … Williams’s signature
(D) Amount—The amount determined under this is prima facie evidence that he knew the contents of
subparagraph is— the return …

* * * Nothing in the record indicates that Williams ever
consulted Form TD F 90–22.1 or its instructions. In
(ii) in the case of a violation involving a failure to fact, Williams testified that he did not read line 7a
report the existence of an account or any identifying and “never paid any attention to any of the written
information required to be provided with respect to words” on his federal tax return.
an account, the balance in the account at the time of
the violation. … Thus, Williams made a “conscious effort to avoid
learning about reporting requirements,” and his false
A taxpayer may avoid the imposition of any penalty if she answer[] on … his federal tax return evidence[s] con-
can prove that the “violation was due to reasonable cause, duct that was “meant to conceal or mislead sources
and … the amount of the transaction or the balance in of income or other financial information[.]” … This
the account at the time of the transaction was properly conduct constitutes willful blindness to the FBAR
reported.” 7 requirement. 11

As a result, the court held that Williams was liable for
3. Williams’ and McBride’s Reductive a willful civil FBAR penalty—and, according to this
language, held so essentially because Williams signed
Reasoning About the Evidence a tax return on which Schedule B, Part III, Question

Necessary to Support Imposition of 7a was answered incorrectly. But there were numerous
a Willful Civil FBAR Penalty, Which concrete facts that supported a finding that Williams
was willful, without resort to a theory of constructive
Renders the Non-Willful Penalty knowledge, including that he opened two Swiss bank
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Essentially Redundant accounts in 1993 in the name of a British corporation ;
that he answered “No” to a question in a tax organizer
In what are perhaps good examples of the adage that sent by his accountant regarding whether he had “an
“bad facts make bad law,” two controversial cases from interest in or a signature or other authority over a
2012, Williams and McBride, both held that, if a tax- bank account, or other financial account in a foreign
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payer signs a Form 1040 tax return, the taxpayer neces- country” ; and, most significantly, that he pled guilty
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sarily has constructive knowledge of Schedule B, Part to a conspiracy to defraud the IRS and to criminal tax
III, Question 7a, and constructive knowledge of that evasion, in connection with the funds held in his Swiss
question’s reference to whether the taxpayer must file an accounts from 1993 through 2000 and, as part of his
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FBAR; and so the taxpayer is either reckless or willfully allocution, admitted that he knew he had an obliga-
blind—and hence “willful” as that term is defined in the tion to report the accounts “to the IRS and/or the
civil tax context—in failing to file an FBAR. Under this Department of Treasury,” but that he “chose not to in
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reasoning, if a taxpayer signs a tax return and fails to file order to assist in hiding my true income from the IRS
an FBAR for the same year, this will almost inevitably and evade taxes thereon,” and that he knew what he
lead to imposition of a willful civil FBAR penalty, even was doing “was wrong and unlawful.” It is not surpris-
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though the default or baseline civil FBAR penalty is the ing that, based on these facts, the court reversed the
non-willful penalty. trial court’s finding that Williams was not liable for a

FALL 2020 41