The US 9th District Court here in California has found that willful failure to file FBAR is a lesser standard of proof for the IRS to bear. The Court rejected the claims of the defendant in the case that the IRS is held to a higher standard of proof – “clear and convincing.” The defendants argued this standard should be applied as it is in criminal trials. Instead the Court found the that the lesser standard of “reckless disregard of statutory duty” applied. It is important to note the Court also completely rejected the defendant’s assertions that the government was required to show “willfulness” under the “clear and convincing” standard of proof and simply applied the civil “preponderance of the evidence” standard of proof.
This is an important ruling, though the defendant’s attorney has announced their intention to appeal. It begins to reveal the government’s hand and therefore the IRS’ policy going forward. It is up to the IRS to decide if it has enough to declare a US taxpayer “willful” based upon the IRS’ own interpretation of a “preponderance of the evidence.” This is an important standard as many FBAR related cases move through federal courts. It is also an important signal for those who may have yet to come into IRS FBAR compliance.
The defendants in the case were accused by the IRS who failed to include three offshore accounts on their FinCEN form 114 or IRS FBAR, one of which the court believed to be intentionally kept secret from all except the taxpayer’s children. This demonstrated the taxpayers were “at least recklessly indifferent to a statutory duty.” The Court also found the taxpayers were “sophisticated” as they ran a successful camera shop. The Court rejected the taxpayer’s assertions that they had failed in their attempt to apply to the IRS Offshore Voluntary Disclosure Program or OVDP and found other assertions at trial showed the defendants lacked credibility.
The IRS has always held willful failure to file FBAR is a lesser standard of proof and believes if you are able to manage offshore accounts you are “sophisticated” enough to know and understand the US tax code that applies to them. This would make all taxpayers who fail to consistently report offshore accounts on their IRS FBAR forms “willful,” exposing them to harsh penalties and interest in addition to back taxes.
Allen Barron has the extensive international tax and FBAR expertise to advise you. We have the internal accounting and tax preparation staff necessary to update and file previous returns accurately. Our international tax lawyers provide insight into your unique circumstances and the protections of the attorney-client privilege as we work together to come into IRS FBAR compliance. Since willful failure to file FBAR is a lesser standard of proof for the IRS it will be more difficult for any US taxpayer to assert the “I didn’t know” defense or “it was an oversight.” Come into IRS FBAR compliance and contact us for a free consultation at 866-631-3470.
