The IRS’ Own Regulation is Successfully Used Against them in Two Willful FBAR Penalty Cases

The IRS’ Own Regulation is Successfully Used Against them in Two Willful FBAR Penalty Cases

Tax Law
By Anthony Diosdi IntroductionIn 1970, Congress enacted what has commonly become known as the Bank Secrecy Act (“BSA”), as part of the Currency and Foreign Transactions Reporting Act. This was codified in Title 31 (“Money and Finance”) of the United States Code. The purpose of the BSA was to prevent money laundering by requiring the filing of reports and the retention of records where doing so would be helpful to the U.S. government in carrying out criminal, civil, tax, and regulatory investigations. One of the most important provisions of the BSA was Title 31 of the United States Code Section 5314(a) which provides in relevant part that: The Secretary of the Treasury (“Secretary”) shall require a resident or citizen of the United States or a person in, and doing business…
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Is the APA Still Relevant in FBAR Penalty Litigation?

Is the APA Still Relevant in FBAR Penalty Litigation?

Tax Law
By Anthony Diosdi The Administrative Procedure Act (“APA”) governs the way in which federal administrative agencies may establish regulations. The APA also provides that federal agencies such as the Internal Revenue Service (“IRS”) may not take final actions that are arbitrary and capricious. When a person is injured by a wrongful agency act (i.e. the agency took an action which was arbitrary and capricious), the individual might consider suing the government agent responsible for the harm as well as the principal, the agency. In private law, the principal is indeed liable for the acts of an agent, and enterprise liability, the liability of an employer for the acts of its employees, is the norm. Enterprise liability, however, is not the case when the principal is the government. “Sovereign immunity,” the…
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Is Constructive Knowledge Enough to Assess a Willful FBAR Penalty?

Is Constructive Knowledge Enough to Assess a Willful FBAR Penalty?

Tax Law
By Anthony Diosdi As reported in the August 27, 2018 edition of Tax Notes International, the Southern District of Texas’ decision of U.S. v. Flume, No. 5:16-cv-73 (S.D. Tex. 2018), “bucked the trend” and rejected constructive knowledge as sufficient to support a government position that a foreign account holder’s conduct was willful when failing to file an FBAR informational return.In Flume, the foreign account holder was a U.S. citizen living in Mexico. He had interests in Mexican and Swiss foreign accounts. The individual in this case reported his Mexican accounts on his U.S. tax returns, but did not report his Swiss accounts. The IRS assessed willful FBAR penalties against the taxpayer based on the assertion that he told the taxpayer about the duty to file FBAR informational returns as far…
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Can a Representative of an Estate be Forced to Defend Against an FBAR Penalty in Court?

Can a Representative of an Estate be Forced to Defend Against an FBAR Penalty in Court?

Tax Law
By Anthony Diosdi It’s no secret, any U.S. person that has a financial interest in one or more foreign financial accounts with an aggregate value that exceeds $10,000 must file a FinCEN 114 (“FBAR”) with the IRS. It’s also no secret that the IRS has been aggressively pursuing U.S. taxpayers that have failed to disclose foreign financial accounts on FBAR informational returns. The Jobs Act of 2004 Permits the IRS to assess a penalty up to $10,000 for a nonwillful violation of the FBAR rules and a penalty up to $100,000 or 50 percent of the value of the undisclosed account for a willful violation of the FBAR rules. These FBAR penalties are assessed per year and undisclosed account. Given the way FBAR penalties are calculated, these penalties can be…
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