Page 6 - 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

6. Courts That Have Cited Williams and all facts and inferences are viewed in the light most
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or McBride, but Have Required favorable to Defendant.” These disputed material facts
consisted mainly of conflicting testimony about whether
Additional Facts to Find Willfulness the taxpayer’s accountant had been aware of her foreign
accounts when he prepared her tax return, and whether
In Norman, the Federal Circuit affirmed a holding he advised her that she should file FBARs. 48
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that the taxpayer willfully failed to file an FBAR. Citing In Clemons, a court in the Middle District of Florida
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Williams, the court held that, in order to prove willful- similarly refused to grant summary judgment on the
ness, the government need only show that a taxpayer was question of a taxpayer’s willfulness because, although
reckless in failing to file an FBAR. The court rejected the “[a] taxpayer is charged with constructive knowledge of
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taxpayer’s argument that “if willfulness includes reckless- his tax return even if he claims not to have read it[,] …
ness, then every failure to file an FBAR is willful, which this is just one factor to consider in deciding the issue of
would inappropriately render superfluous the portions of willfulness and FBAR penalties.” The court noted that
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§5321 relating to penalties for non-willful violations,” “[t]he Government cites to McBride in which that court
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holding: “For example, an FBAR violation would gener- found the defendant’s willful blindness satisfied the civil
ally not be willful where a taxpayer did not know about, willfulness requirements to support assessment of the
and had no reason to know about, her overseas account. heightened penalty under §5321,” but the court then
Accordingly, our interpretation of willfulness does not discussed how additional facts in McBride demonstrated
render superfluous the portions of §5321 relating to non- willfulness without regard to willful blindness. 51
willful conduct.” The court did not explain under what In Jones, a court in the Central District of California
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circumstances a taxpayer might have an overseas account found “persuasive the reasoning in … Williams, Norman,
that she did not know about, much less how this taxpayer and McBride that signing a tax return and declaring
would only “generally” be non-willful. However, while the under penalty of perjury to have examined the return
court affirmed the trial court’s imposition of a willful civil and accompanying schedules and statements, is evidence
FBAR penalty because “Ms. Norman signed her 2007 tax that the taxpayer was provided constructive knowledge of
return under penalty of perjury, and this return falsely the FBAR requirements[.]” But the court held that this
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indicated that she had no interest in any foreign bank “prima facie evidence can still be rebutted,” and refused
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account,” it stopped short of holding that a taxpayer to grant summary judgment to the government because
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who signs a tax return indicating that she has no interest “signing a tax return on its own cannot automatically make
in a foreign bank account and fails to file an FBAR will the taxpayer’s violation ‘willfull’ as that would collapse the
always subject to a willful civil FBAR penalty; the court willfulness standard to strict liability.” 55
also relied on the facts that Norman signed the tax return Ott, a decision from the Eastern District of
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after her accountant had sent her a questionnaire that Michigan, held that: “In civil cases involving failure to
specifically asked whether she had a foreign bank account, file an FBAR, courts define willful conduct to include
and she later lied to IRS agents about her knowledge of, either recklessness or willful blindness.” The court
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and circumstances surrounding, her foreign account. 44 distinguished recklessness in the criminal context,
The court in de Forrest, a decision from the District which requires subjective knowledge by a defendant,
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of Nevada, refused to grant the government’s motion from recklessness in the civil context, which is judged
for summary judgment on the question of whether a by an objective standard. “A taxpayer may act recklessly
taxpayer willfully failed to file an FBAR. The govern- in regard to IRS filing requirements when he ‘(1) clearly
ment, citing McBride for its most reductive analysis, ought to have known that (2) there was a grave risk that
argued that: “As a matter of law, all taxpayers who sign the filing requirement was not being met and if (3) he
and file a federal tax income return know or should was in a position to find out for certain very easily.’”
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know about the requirement to file an FBAR.” Then, noting that “[t]here is no clear consensus about
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While the court did not reject this assertion outright, the willful blindness definition in civil tax liability
it did so by implication in holding that, although the suits,” the court conflated willful blindness and reck-
taxpayer did sign a Form 1040 with a Schedule B for lessness, holding: “Given the present legal landscape,
the year at issue, “the Government’s allegations as to this Court finds that willful blindness may be proven
Defendant’s purported recklessness and willful blind- by objective recklessness in the civil FBAR context.”
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ness are grounded in genuinely disputed material facts, The court followed McBride in holding that:

44 JOURNAL OF TAX PRACTICE & PROCEDURE FALL 2020