Page 7 - An Update on Civil FBAR Penalties: Decisions Since June 2019 Citing Williams and McBride in Discussing the Willful Civil FBAR Penalty

Given that McBride was not shielded from liability the Defendant acted with reckless disregard to his FBAR
for failure to read the content of his tax returns, Ott reporting requirements.” The government therefore car-
63
should not be able to claim protection here under ried its burden of proving that Ott was willful in failing
that same argument. Ott signed a return each year, to file FBARs. 64
under penalty of perjury—regardless of whether he
actually read the return—certifying that he did not 7. Conclusion
have an interest in foreign accounts. Accordingly,
constructive knowledge of the requirement to file Only one recent case agrees with the government’s asser-
the FBAR is imputed to Ott, supporting a finding of tion that Williams and McBride allow imposition of a
65
willfulness here. 60 willful civil FBAR penalty whenever a taxpayer signs a tax
return that falsely states that the taxpayer does not own
The court did not find that this imputed constructive a foreign bank account, and then fails to file an FBAR.
knowledge was conclusive of willfulness, however, holding While two courts have outright rejected Williams’ and
also that Ott’s failure to “disclose hundreds of thousands of McBride’s constructive notice theory, most courts cite
dollars in a foreign Canadian account to his tax preparer Williams and McBride for the proposition that the ques-
demonstrates that he should have known there was a risk of tion on Form 1040 Schedule B asking whether the tax-
noncompliance, and yet he failed to take any investigative payer owns a foreign bank account may put the taxpayer
or corrective action” and “Ott’s claim that he relied on his on notice of the FBAR filing requirement, but then inquire
own beliefs as to his legal reporting obligations, without further into the facts of a case to determine whether a
verifying those beliefs with his long-time tax preparer, willful civil FBAR penalty is appropriate. These courts’
supports a finding of recklessness”; that the fact that approach leaves room for factual situations that warrant
61
Ott used a Canadian address to open a Canadian bank only a non-willful civil FBAR penalty (which is, again,
account “suggests that Ott sought to avoid the detection the default or baseline penalty under the statute). Under
of his account ownership,” and this met the civil reckless- the current state of the law, however, the non-willful civil
ness standard ; and that the facts that Ott communicated FBAR penalty will apply only when the government, in
62
with his foreign broker weekly, and frequently checked the its unreviewable discretion, decides to seek that lesser
balance of his foreign account online, “also signify that penalty. 66

ENDNOTES
1 Decisions before June 2019 were discussed knowing violations of a standard, but reckless 17 908 FSupp2d at 1207–1208 (citations omitted).
in this publication by Hale E. Sheppard, ones as well.’ … Therefore, ‘willfulness’ may be 18 Id. at 1204.
Constructive Knowledge and FBAR Penalties: satisfied by establishing the individual’s reck- 19 Id. at 1213–1215 (first two brackets added;
Does Merely Filing a Form 1040 Suffice to less disregard of a statutory duty, as opposed remaining brackets in original; citing and quot-
Establish “Willfulness?” (June 26, 2019). to acts that are known to violate the statutory ing G.B. Lefcourt, CA-2, 97-2 ustc ¶50,648, 125
2 Williams, CA-4, 489 FedAppx 655 (2012). duty at issue.” 908 FSupp2d at 1204 (citations F3d 79, 83). The McBride court relied wholly
3 McBride, 908 FSupp2d 1186 (D. Utah 2012). omitted). on Williams’ decision regarding constructive
4 The Secretary does so under the authority of 31 “Under the ‘willful blindness’ standard, ‘a will- knowledge of the FBAR filing requirement, and
USC §5314. fully blind defendant is one who takes deliberate on Lefcourt, in concluding that a taxpayer’s
5 FinCEN, the Financial Crimes Enforcement actions to avoid confirming a high probability of belief that he is not required to file an FBAR is
Network, is a bureau within the Department of wrongdoing and who can almost be said to have irrelevant for purposes of the willful civil FBAR
the Treasury. actually known the critical facts.’ … Where a tax- penalty. Lefcourt, however, addressed willful-
6 Internal Revenue Manual (“IRM”) 4.26.16.6.2(1)(c.) payer makes a ‘conscious effort to avoid learning ness in an entirely different context, failure to
(11-06-2015). about reporting requirements,’ evidence of such file IRS Form 8300, “Report of Cash Payments
7 31 USC §5321(a)(5)(B)(ii). willful blindness is a sufficient basis to estab- Over $10,000 Received in a Trade or Business.”
8 Williams, 489 FedAppx 655 (2012). lish willfulness.” McBride, 908 FSupp2d at 1205 The penalty for failure to file Form 8300 is
9 McBride, 908 FSupp2d 1186 (D. Utah 2012). (first citation omitted; second quotation from imposed for “intentional disregard” of the filing
10 In Williams, the court held: “Importantly, in Williams, 489 FedAppx at 659–660). requirements, Code Sec. 6721, and the court in
cases ‘where willfulness is a statutory condition 11 Id. at 659 (citations omitted). Lefcourt equated “intentional disregard” with
of civil liability, [courts] have generally taken it 12 Id. at 656. willfulness, 125 F3d at 83. But the penalty for
to cover not only knowing violations of a stan- 13 Id. intentional disregard may not be imposed if the
dard, but reckless ones as well.’” 489 FedAppx 14 Williams pled guilty to violating 18 USC §371 and failure to file Form 8300 was due to “reasonable
at 658 (citation omitted; emphasis in original). Code Sec. 7201. 489 FedAppx at 657. cause and not to willful neglect.” Code Sec. 6724.
McBride held similarly that: “Where willfulness 15 Id. So Lefcourt’s holding and language that McBride
is a condition of civil liability, it covers ‘not only 16 Id. at 660. quoted did not necessarily impose strict liability

FALL 2020 45