A Pennsylvania Court has denied motions by both parties to dismiss a high profile trial which may shed light on willful conduct in IRS FBAR cases for US taxpayers. The CEO of a pharmaceutical company was accused by the IRS of willful failure to disclose Swiss bank accounts on his 2007 tax return. It is reported that the IRS levied a $2.3 million FBAR related penalty on the taxpayer, who payed a portion of that amount to the agency. The agency is seeking the balance of payment on the assessed penalties and accumulated interest. The taxpayer is challenging the IRS’ determination of “willful” conduct in his case.
“Whether Bedrosian willfully failed to submit an accurate FBAR for 2007 is an inherently factual question and one that cannot be resolved at this stage,” U.S. District Judge Michael M. Baylson said.
What constitutes willful conduct in IRS FBAR cases and how will it affect this case? At the center of the dispute is the disclosure of two Swiss UBS bank accounts. The taxpayer did not disclose the accounts to his account for several years claiming his accountant “never asked.” When he did disclose them his accountant informed him he had “been breaking the law” but did not take corrective action as the accountant’s advice was allegedly “just leave it alone because the damage was already done.”
The taxpayer did not report the accounts for several more years until 2007, at which point he only reported one of them. That account only had roughly $240,000 in assets, but the undisclosed account had more than $2.3 million. The taxpayer amended his 2007 return in 2010 and filed an amended FBAR disclosing both accounts. While the taxpayer filed the amended returns prior to the beginning of an IRS audit, the Judge noted the taxpayer did not take this action until the IRS had discovered the existence of both accounts.
The agency issued the highest penalty possible of $975,789 based on the taxpayer’s “willful failure” to file an accurate FBAR in 2007. The key issue is whether or not the taxpayer’s actions were in fact willful, and this is why the taxpayer is suing the IRS stating the agency “has plaintiff’s money in its pockets and should be ordered to return those funds.”
The Judge noted in his ruling that the information provided to the taxpayer by his attorney and exactly what the taxpayer chose to do with that information (if anything) would be relevant to a determination of his intent.
Willful versus non-willful conduct on the part of the taxpayer plays a crucial role in IRS FBAR compliance, and the choice between the OVDP – Offshore Voluntary Disclosure Program and the Streamlined Domestic Offshore Procedures. This area of law governing willful conduct in IRS FBAR cases is quite complex, and the experienced San Diego IRS FBAR attorneys at Allen Barron can guide you through these issues. If you are concerned about FBAR compliance and the impact of offshore bank and investment account on your taxes we invite you to contact us for a free consultation at 866-631-3470.