In a technical legal move Bernhard Gubser, a dual US / Swiss citizen, asked the 5th Circuit Court to hear an appeal of his case against the IRS regarding a $1.4 Million FBAR willful violation civil penalty case which was tossed out by a lower court earlier this year. Mr. Gubser claims to have omitted a singular Swiss account from an FBAR in 2008, and filed an application under the Streamlined Domestic Offshore Procedures agreeing to pay a civil fine of $10,000 based upon his “non-willful” conduct of omission. The IRS disagreed with Mr. Gubser, and found that he had willfully omitted the account resulting in a penalty of $1.4 Million. The civil penalty for a “willful” failure to report an offshore bank account, investment account, asset or income is $100,000 per incident or half of the value of the offshore account at its highest point of the year (regardless of present balance) whichever is greater. The unreported account in question must have had a balance approaching $3 million for Mr. Gubser to face such a hefty penalty.
The key issue in the case is the burden of proof required for the IRS to make a summary determination as to whether a taxpayer’s actions are “willful” or “non-willful” and the complete lack of any public documentation as to how that determination is to be made. Mr. Gubser alleges that attorneys from the IRS office of appeals told him they could prove by a “preponderance of the evidence” that he willfully left the account off of the FBAR in question. The legal question Mr. Gubser initially raised is whether the legal burden of proof on the IRS is “a preponderance of the evidence” or “clear and convincing evidence” which are two completely different legal standards. In it’s ruling to dismiss, the lower court noted that even if Mr. Gubser could prove the legal standard applied by the IRS “injured” him resulting in financial damages, he “cannot satisfy the redressability requirement of Article III standing.” In other words, how would Mr. Gubser receive compensation for the injuries he sustained based upon the Court’s ruling?
In his appeal, Mr. Gubser alleges the IRS will apply the legal burden of proof based upon the lower court’s ruling resulting in a much lower penalty of $10,000 versus the $1.4 Million FBAR willful violation civil penalty satisfying redressability according to his appeal, and asked the 5th Circuit to provide clarification and direction to the IRS as to the legal standards required.
The primary take-away from this case is that the IRS has not established any legal method for determining “willful” versus “non-willful” conduct on the part of a taxpayer as it relates to FBAR violations and civil penalties. The IRS itself maintains the sole discretion (at this point in time) to make the determination, and every lawsuit filed against the agency on this point has received an early dismissal.
As an experienced international tax attorney with decades of experience and expertise in legal and accounting issues, Janathan Allen can provide the insight necessary to help you to come into compliance with IRS offshore compliance and avoid an FBAR willful violation penalty that would be a minimum of $100,000 per incident. We invite you to contact us for a free consultation at 866-631-3470. Ask about the protections of the attorney-client privilege and the importance of multi-disciplinary experience in these matters.
