Page 4 - 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

willful civil FBAR penalty. The language quoted above As in Williams, however, the facts of McBride’s case more
16
regarding constructive knowledge and willful blindness than amply supported a finding that McBride was will-
was unnecessary to the court’s decision. ful, without the need rely on imputed knowledge of the
The decision in McBride included similar language. After FBAR requirements. Extensive evidence at trial showed
a bench trial, the court held that McBride was liable for a that “McBride was aware that he was engaged in a plan
willful civil FBAR penalty for 2000 and 2001, and wrote: to avoid income taxes by hiding his interest in assets in
overseas shell corporations.” When a purported finan-
20
Knowledge of the law, including knowledge of the cial management firm that orchestrated the plan along
FBAR requirements, is imputed to McBride. … with McBride first laid out the plan, McBride’s reaction
McBride signed his federal tax returns for both the was: “This is tax evasion.” He was apparently persuaded
21
tax year 2000 and 2001. … Accordingly, McBride otherwise, but facts evidencing his willfulness in failing
is charged with having reviewed his tax return and to file an FBAR included that he did not discuss the
having understood that the federal income tax return foreign accounts he controlled with his personal accoun-
asked if at any time during the tax year, he held any tant ; most significantly, he testified that the purpose
22
financial interest in any foreign bank or financial of the plan was to avoid disclosing foreign accounts,
account. … McBride is therefore charged with hav- because “if you disclose the accounts on the form, then
ing had knowledge of the FBAR requirement to you pay tax on them; and he lied to the IRS about the
23
disclose his interest in any foreign financial or bank accounts.” There was no need for the court to rely on
24
accounts[.] 17 the above-quoted reductive analysis of willfulness in the
FBAR context.
The court, writing that “‘willfulness’ may [also] be satis- Because the analyses of Williams and McBride, at least
fied by establishing the individual’s reckless disregard as set out above—under which any taxpayer who fails to
of a statutory duty,” went further, holding that it was file an FBAR for a year for which she signs a tax return
18
irrelevant whether McBride believed that he was not is essentially ipso facto liable for a willful civil FBAR
required to file FBARs, thus imposing what amounts penalty—leave no room for the non-willful civil FBAR
to strict liability for a willful civil FBAR penalty—and penalty, these decisions have been widely criticized by tax
thereby precluding any application of the non-willful practitioners. At least one commentator has also reasoned
civil FBAR penalty: that, if merely signing a tax return that includes incorrect
information on Schedule B, Part III, Question 7a can
[E]ven if the decision not to disclose McBride’s inter- constitute willful disregard of the FBAR filing require-
est in the foreign accounts was based on McBride’s ments, there can never be a case of non-willful disregard,
belief that he did not hold sufficient interest in those and the non-willful statutory civil FBAR penalty will
accounts to warrant disclosure, that failure to dis- never apply. 25
close those interests would constitute willfulness. …
Whether McBride believed [an accountant] had deter- 4. One Decision After June 2019
mined that a disclosure was not required is irrelevant
…[;] the only question is whether the decision not Has Closely Followed Williams and
to disclose was voluntary, as opposed to accidental. McBride
The government does not dispute that McBride’s
failure to comply with FBAR [sic] was the result of In Rum, a court in the Middle District of Florida granted
26
his belief that he did not have a reportable financial the government’s motion for summary judgment assessing
interest in the foreign accounts. However, because it a willful civil FBAR penalty for the year 2007, citing both
is irrelevant that McBride “may have believed he was Williams and McBride, and holding:
legally justified in withholding such information[,]
[t]he only question that remains is whether the law Rum’s contention that there is a genuine issue
required its disclosure.” Here, the FBAR requirements of material fact as to willfulness is unavailing. A
did require that McBride disclose his interests in the taxpayer’s failure to review their tax returns for
foreign accounts during both the 2000 and the 2001 accuracy despite repeatedly signing them, along
tax years. As a result, McBride’s failure to do so was with “falsely representing under penalty of perjury”
willful. 19 that they do not have a foreign bank account (by

42 JOURNAL OF TAX PRACTICE & PROCEDURE FALL 2020