By: Steven A. Loeb
A recent case out of the Court of Appeals for the Ninth Circuit should put taxpayers on notice that they may be liable for a Report of Foreign Bank and Foreign Accounts (FBAR) penalties—regardless of how substantial such a penalty might be—when they fail to disclose foreign bank accounts in their tax returns. In the case U.S. v. Bussell (2017), the Ninth Circuit made clear that a multi-million dollar penalty does not, in and of itself, constitute a Constitutional violation, and that numerous other possible arguments against an FBAR penalty are not likely to be accepted by a court. While the Ninth Circuit decision will not be binding in cases in New York and New Jersey, it may provide persuasive authority if a similar case arose.
Learning More About U.S. v. Bussell
In the recent Bussell case, the defendant was found guilty of numerous violations related to financial crimes, include a violation of Code Sec. 7201, or the attempt to evade or defeat tax. The case spans multiple years, beginning in 2002 when the defendant was found guilty of numerous financial crimes and ordered to pay restitution in the amount of $2,393,527. That criminal judgment was amended later in both 2005 and 2009, and then in 2013 the IRS assessed an FBAR penalty of about $1.2 million because the defendant failed to disclose financial interests in overseas accounts.
To better understand the reason the IRS assessed this penalty, it is important to understand what we mean when we talk about FBAR and related penalties. In short, federal law requires any person who has a financial interest or financial authority in overseas accounts that exceed $10,000 to file a Report of Foreign Bank and Foreign Accounts with the U.S. Department of the Treasury. If a person fails to file an FBAR with the Treasury Department, then both civil and criminal penalties can be assessed for that person’s noncompliance. For willful violations, the penalty can total the higher amount of $100,000 or 50 percent of the amount of money in the foreign bank account for which the FBAR was not filed.
The defendant made many different arguments as to why she should not be required to pay the $1.2 million FBAR penalty. To be clear, the defendant admitted her willful failure to file the FBAR. However, she contended that the penalty was improper for numerous reasons, including:
● Violation of the Excessive Fines Clause of the U.S. Constitution;
● Violation of the statute of limitations;
● Due process violation;
● Violation of the Ex Post Facto Clause of the U.S. Constitution;
● Multiple punishments for the same offense;
● IRS abuse of discretion in calculating the amount of the penalty;
● Government claim barred by laches; and
● Use of bank account evidence was in violation of an international treaty.
The court did not find any of the defendant’s arguments persuasive, and it concluded that was liable for the approximately $1.2 million penalty.
If you have overseas accounts of any type, it is important to ensure that all tax documents are filed properly. If you have questions about tax requirements, an experienced tax lawyer can speak with you today about your situation. Contact Fein, Such, Kahn & Shepard, P.C. to discuss your options.
For more information please contact via email Steven A. Loeb, Esq. or by phone at 973-538-4700 ext. 229.
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