Wednesday, May 20, 2020

IRS Loses 2 FBAR Penalty Calculation Cases

We recently posted DC Determined That IRS Arbitrarily Calculated $1.5M FBAR Penalty, where we discussed that a California District Court in Margaret J. Jones v. U.S., case number 2:19-cv-04950, in the U.S. District Court for the Central District of California, determined that the IRS arbitrarily calculated a penalty of over $1.5 million for a woman who failed to file foreign bank account reports.

The $1.5 million was an arbitrary figure because it was based on her 2013 account balances instead of 2011,when she had less money in her accounts, Jones added. Had it been based on the latter, she would have owed about $37,000 less, she said. Jones moved for summary judgment to dismiss the penalty and on the charge she willfully failed to file.

We also recently posted DC Finds That FBAR Penalty Not Violate 8th Amendment & Imposed a Penalty of $12.9M Based Upon FMV on June 30, where we discussed that a Florida District Court in U.S. v. Isac Schwarzbaum, case number 9:18-cv-81147, in the US District Court for the Southern District of Florida, has determined that Schwarzbaum, will pay the IRS a $12.9 million penalty for failing to file reports on his foreign bank accounts, a federal court ordered after having determined that the agency erred when it calculated the penalty at $13.7 million or $800,000 more than the court determined to be correct.

According court documents, the USA originally utilized the highest aggregate balance in each account for each year to arrive at a mitigated willful FBAR penalty amount of $35,729,591.00 and then mitigated this penalty based on the highest aggregate account balances, which results in a maximum penalty of $23,826,738.00 (as opposed to $35,729,591.00).
Judge Bloom rejected the agency's arguments, saying it should have obtained the balance information before it assessed penalties. Using the $100,000 figure where the balances were estimated, she added half of the June 30 account balances, calculating the penalty amount at $12.9 million (down from the original $35,729,591.00 or 1/3 of the original assessment).
Finally The Court Concluded That The Penalty Assessed By The Government Did Not Conform To Statutory Requirements Because They Did Not Use Utilizing 50% of The Balance In Each Account At The Time Of The Violation, Which Was The Deadline To File The FBAR or June 30 of Each Year.
The government used the highest aggregate balance in each of the accounts for each year as reported by Taxpayer on a penalty calculation worksheet provided in connection with his OVDI disclosures. 

When representing taxpayers who have rolled out of the OVDP program or are being audited and assessed the willful FBAR penalty, be sure to check the IRS' calculation of the FBAR penalty and ensure that is based upon the balance in the foreign account as of June 30 of the following year!

Have an FBAR Penalty Problem?  
 Contact the Tax Lawyers at 
Marini& Associates, P.A. 
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1 comment:

  1. Isac Schwarzbaum, who the Internal Revenue Service proved neglected to furnish Reports of Foreign Bank and Financial Accounts, must pay the government $15.7 million as opposed to $13.7 million, U.S. District Judge Beth Bloom ruled Wednesday. Judge Bloom said the court previously relied on an incorrect IRS calculation. 

    "Although the court labored in making its own calculation, this calculation is subject to harmless error because the USA is seeking a smaller penalty than the court assessed," Judge Bloom said. 

    The IRS proved that Schwarzbaum, a dual U.S.-German citizen, willingly failed to report his foreign bank accounts, based in Switzerland, from 2007 through 2009, Judge Bloom said. He also failed to report his foreign accounts during 2006, but that action did not constitute a willful violation, she said. 

    The court relied on the $13.7 million figure, which the IRS supplied, when attempting to determine Schwarzbaum's deficiencies from 2007 through 2009. The court's own determination was that Schwarzbaum owed $12.9 million. 

    But such reliance was mistaken, the IRS argued, because the agency's figure incorporated a penalty from 2006 that the court wished to disregard, Judge Bloom said. 

    The new amount the IRS seeks from Schwarzbaum, based on the court's own reasoning, is $12.5 million, before associated penalties and interest are accounted for. After those penalties and interest are added, however, the total exceeds the court's original calculation, clocking in at the approximate $15.7 million.