Monday, October 6, 2014

Zwerner Case Jury Provides for a Cumulative 150-Percent FBAR Penalty!

We had previously posted on May 29, 2014 "IRS Successfully Assesses 50% FBAR Penalty for "Quiet Disclosures"! where we discussed that on May 28, 2014, the Department of Justice released the outcome of that trial declaring that a jury in Miami found Carl R. Zwerner responsible for civil penalties for willfully failing to file required Reports of Foreign Bank and Financial Accounts (FBARs) for tax years 2004 through 2006 with respect to a secret Swiss bank account he controlled.

According to evidence introduced at trial, the balance of the bank account during each of the years at issue exceeded $1.4 million, and the jury found Zwerner should be liable for penalties for 2004 through 2006. Zwerner faces a maximum 50 percent penalty of the balance in his unreported bank account for each of the three years. The jury found that Zwerner’s failure to report the account was not willful for 2007, and the court will determine the final amount of the judgment after further proceedings in June 2014.

The evidence at trial showed that Zwerner opened an account in Switzerland in the1960s, which he maintained in the name of two different foundations he created.

Zwerner was able to use the proceeds of the account whenever he wanted and used it for personal expenses,including European vacations. Even though he filled out a tax organizer provided by his accountant, every year, Zwerner answered “no” to questions asking whether “you have an interest in or signature authority over a financial account in a foreign country, such as a bank account, securities account or other financial account” and whether “you have any foreign income or pay any foreign taxes.”

U.S. persons must report their worldwide income on their taxes. Plus, they must file an FBAR annually if their offshore accounts total over $10,000 at any time.  If you have both failures, the IRS wants you to go into the Offshore Voluntary Disclosure Program, also known as the OVDP. It involves reopening 8 tax years, and paying taxes, interest and penalties, but no prosecution.

  • The IRS is reviewing amended returns "Quiet Disclosures" and could select any amended return for examination.
  • The IRS has identified, and will continue to identify, amended tax returns reporting increases in income.
  • The IRS will closely review these returns to determine whether enforcement action is appropriate.
  • If a return is selected for examination, the 27.5 percent offshore penalty would not be available.
  • When criminal behavior is evident and the disclosure does not meet the requirements of a voluntary disclosure under IRM, the IRS may recommend criminal prosecution to the Department of Justice." 

Many have been wondering whether the IRS will pursue examinations of "Quiet Disclosures" of taxpayers residing in the United States in some manner.  Now these Taxpayer's have their answer: They Will!

As Mr. Zwerner  discovered a incomplete attempt to make a voluntary disclosure on an anonymous  basis will not  protect you from  the assertion  of the 50%  intentional failure to file penalties. You are either in  the OVDP program or you are not!

The court did not have a chance to determine whether such penalties could be unconstitutional pursuant to the Excessive Fines Clause of the Eighth Amendment, which provides that a civil penalty may be unconstitutional if it is part punishment, and if the punishment is grossly disproportionate to the conduct, since the taxpayer subsequently settled with the government.

In a blog post by by  CHARLES P. RETTIGJury Determines 150-Percent FBAR Penalty and U.S. Seeks FBAR Related Forfeiture of $12 Million! he comments that the government assessed civil FBAR penalties equivalent to 50 percent of the highest account balance for each of tax year 2004, 2005, 2006 and 2007, aggregating $3,488,609.33 for an account that appears to have had a high balance of $1,691,054 during the relevant time period! 

Essentially, the assessed FBAR penalties upheld by the jury aggregate $2,241,809 on an off-shore account that had an apparent high balance of $1,691,054 during the years at issue. This is a significant win for the government in their efforts to encourage certain US persons having undisclosed interests in foreign financial accounts to come into compliance with the applicable filing and reporting requirements.

U.S. taxpayers should carefully review the underlying factual scenario set forth in C.R. Zwerner before making any decision to pursue any form of voluntary disclosure regarding previously undisclosed interests in a foreign financial account. Many taxpayers are considering opting out of the OVDP and some might reconsider in light of the jury verdict in Zwerner for multiple FBAR penalties.

Various taxpayers who have opted out of the OVDP have already received notices asserting multiple FBAR penalties for the years involved.

Not Sure if the IRS Will Find You as "Non-Willful"? 
Want To Avoid a 50% FBAR Penalty?
Contact the Tax Lawyers
at Marini & Associates, P.A.

for a FREE Tax Consultation
or Toll Free at 888-8TaxAid (888 882-9243).


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