Page 8 - 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

for all failures to file a Form 8300. In the context 28 Id. (emphasis in original). 51 Id.
of the willful civil FBAR penalty, in contrast, 29 2020 WL 1316232 (S.D. Fla. March 20, 2020). 52 Jones, 2020 WL 2803353 (C.D. Cal. May 11, 2020).
where there is no mitigation for conduct “due 30 Id. at *8. 53 Id. at *7.
to reasonable cause and not to willful neglect,” 31 Id. at *9. 54 Id.
the McBride court’s reliance on Lefcourt does 32 Id. at *10. 55 Id. at *9.
result in strict liability for a willful civil FBAR 33 Id. 56 Ott, 441 FSupp3d 521 (E.D. Mich. 2020).
penalty once a taxpayer signs a Form 1040 that 34 Id. at **10-11. 57 Id. at 528.
includes Schedule B wrongly reporting that the 35 Flume, CA-TX, 390 FSupp3d 847 (2019). 58 Id. (quoting Bedrosian, CA-3, 912 F3d 144,
taxpayer does not have a foreign bank account: 36 Id. at 850–851. 153 (2018) (omitting internal citations and
Moreover, Lefcourt nowhere discussed 37 Id. at 854 n.11. quotations)).
constructive knowledge of a filing require- 38 Flume, 2018 WL 4378161 at *7 (S.D. Tex. Aug. 22, 59 Id. at 528–559.
ment, nor willful blindness. It was therefore 2018) (quoting K. Niewoehner, supra n. 25). In 60 Id. at 530–531.
unwarranted for the McBride court to engraft this earlier decision, the court rejected the IRS’s 61 Id. at 530–531.
Lefcourt’s strict standard of willfulness onto argument that failure to apply a constructive 62 Id. at 531.
its holding that willful blindness may suffice to knowledge standard would allow a taxpayer to 63 Id. at 531–532.
establish willfulness in the context of a willful “escape liability by simply claiming he did not 64 Id. at 532.
civil FBAR penalty. 908 FSupp2d at 1214–1215. read what he was signing.” Id. The court held: 65 de Forrest, 2020 WL 2840152 at *7.
Indeed, the IRS itself recognizes that: “The “The law still imposes a penalty of up to $10,000 66 In more than one recent case, the government
mere fact that a person checked the wrong box, for each non-willful violation. Moreover, a tax- has sought only a non-willful civil FBAR penalty,
or no box, on a Schedule B is not sufficient, in payer who tried to escape liability in this way thus admitting (as it must) that this statutory
itself, to establish that the FBAR violation was might be found willful on a recklessness theory. penalty will apply in certain cases—but appar-
attributable to willful blindness.” 4.26.16.6.5.1(5) … Recklessness, like constructive knowledge, ently only at the government’s unreviewable
(11-06-2015). can be ‘substitute[d] for … actual knowledge’ on discretion. See Hidy, __ FSupp3d __, 2020 WL
In addition, some subsequent cases citing or policy grounds. … Thus, there is no policy need 4516357 (D. Neb. July 7, 2020); Agrawal, 2019 WL
discussing Lefcourt, in the context of failures to treat constructive knowledge as a substitute 6702114 (E.D. Wis. Dec. 9, 2019). There is no expla-
to file Form 8300, have either expressly or by for actual knowledge.” Id. The court then also nation in either opinion for why the government
implication retreated from Lefcourt’s rejection rejected the government’s contention that did not seek a willful FBAR penalty. In Hidy, the
of any consideration of a taxpayer’s subjective Flume was reckless: government sought only non-willful civil FBAR
belief about whether she was required to file penalties even though, between 2009 and 2013,
Form 8300. See, e.g., Purser Truck Sales, Inc., 710 [B]ecause Flume had a tax-return pre- the taxpayers, Rosemarie and Claude Hidy,
FSupp2d 1334, 1340 (M.D. Ga. 2008) (describ- parer, it was arguably not reckless for owned “ten different accounts at eight different
ing Lefcourt as a case in which “the taxpayer him to not “bother” reading the FBAR foreign banks with aggregate maximum account
deliberately, knowingly withheld information instructions. Indeed, Flume testified that balances of about a million dollars a year.” 2020
or avoided filing the Form 8300 for improper he relied on his tax preparer’s compe- WL 4516357 at *2. Maybe the government’s more
purposes.” (emphasis added)); Tysinger Motor tence in preparing the return. If he did, lenient position was because Rosemarie Hidy
Co., Inc., 428 FSupp2d 480, 485 (E.D. Va. 2006) then it is not “so obvious” that he took prepared the couple’s tax returns herself and,
(a company’s prior failure to file Forms 8300 an “unjustifiably high risk” in doing so. in arguing, unsuccessfully, that the couple had
and its “executives’ general knowledge of Form The warning to “[s]ee Instructions for … reasonable cause for failure to file FBARs and
8300” did not, as the IRS alleged, “render any filing requirements for Form TD F 90-22.1” so no penalty should apply: “Rosemarie states
subsequent failure to file automatically willful. also says that there are “exceptions” to that even though she did not understand the
Such an approach impermissibly changes an the duty to file an FBAR. … Flume might question, she did not consult the available
intent-based statute into one of strict liability.” understandably have reasoned that he instructions or do any research before answer-
(emphasis added)); Mycles Cycles, Inc., 2019 WL did not have to file an FBAR because his ing it. Claude says he did not review the couple’s
4193382 at *5 (S.D. Cal. Sept. 4, 2019) (“knowl- preparer had determined that one of returns.” Id. The court described:
edge alone does not lead to an automatic those exceptions applied.
finding of willfulness” (citing Tysinger Motor On every Schedule B the Hidys completed
Co., Inc.)). Id. at *9. for tax years 2009 through 2013, they
20 Id. at 1205. 39 Norman, CA-FC, 942 F3d 1111 (2019). answered the question at Line 7a, “No.”
21 Id. at 1190, 1210. 40 Id. at 1115. In other words, the Hidys incorrectly
22 Id. at 1189, 1199. 41 Id. reported they did not have any financial
23 Id. at 1199, 1205. 42 Id. interest in or signatory authority over
24 Id. at 1220. 43 Id. at 1116. a foreign account. They now admit they
25 See, e.g., K. Niewoehner, Feigning Willfulness: 44 Id. at 1115–1116. should have answered “Yes” but made
How Williams and McBride Extend the 45 de Forrest, __ FSupp3d __, 2020 WL 2840152 a mistake that they then repeated each
Foreign Bank Accounts Disclosure Willfulness (D. Nev. May 31, 2020). year.
Requirement and Why They Should Not Be 46 Id. at *6 (emphasis added).
Followed, 68 Tax Law 251, 257 (2014). 47 Id. at *8. Id. (emphasis added). Citing Williams, the court
26 2019 WL 3943250 (M.D. Fla. Aug. 2, 2019). 48 Id. at *7. granted the government’s motion for summary
27 Id. at *8 (emphasis in original; citations to the 49 Clemons, 2019 WL 7482218 (M.D. Fla. Oct. 9, 2019). judgment imposing non-willful civil FBAR penal-
record omitted). 50 Id. at *7 (emphasis added). ties. Id. at **5–6.

46 JOURNAL OF TAX PRACTICE & PROCEDURE FALL 2020