Wednesday, October 21, 2020

DC Court Finds The Taxpayer Was Reckless & Willfully Blind for FBAR Penalty but Not Fraudulently Fail to File Associated Tax Returns.

A New Hampshire woman owes the federal government around $824,000 in penalties for failing to report her foreign bank accounts but doesn't owe $885,608 of fraud penalties, plus interest because the U.S. didn't show she intended to evade taxes, a federal court ruled.

An Ocean Boulevard woman is alleged to have failed to report interest from $3 million worth of bank accounts she held in Switzerland, then the Czech Republic, for which the Internal Revenue Service now claims she owes $885,608 in penalties.

By not seeking professional tax advice on foreign accounts she knew were earning income, Annette DeMauro was willful in failing to file her foreign bank account reports for 2007 through 2009, the U.S. federal court for the District of New Hampshire ruled.

But while DeMauro took steps to conceal her foreign accounts and money transfers, she did so in an attempt to hide assets from her abusive ex-husband, said the ruling by Judge Joseph Laplante. 

The U.S. Therefore Failed To Meet Its Burden For Assessing Enhanced Late-Filing Penalties, He Said.

In a complaint filed with the U.S. District Court of New Hampshire, Demauro is accused by the federal secretary of the Treasury of failing to file Report of Foreign Bank and Financial Report (FBAR) forms for 2007, 2008 and 2009. The federal government alleges her failure to file the forms was “willful” and she now owes FBAR penalties of $274,695 for each of those three years.

In the court complaint, the government also seeks interest and late-payment penalties, bringing the total Demauro allegedly owes to $885,608, “plus interest or other statutory additions accruing after March 2, 2017.”

Demauro's attorney summarizes Demauro’s defense as claiming the government has not demonstrated she willfully failed to file the reports, that she is not liable for the penalties and she’s owed at least $51,675 in taxes “wrongfully collected” from her.

In her counterclaim, Demauro is described as 80 years old and “not sophisticated in tax and financial matters.” Her suit says she never filed a tax return until after her second divorce in 2001 and first opened the Swiss bank account, on the advice of her divorce lawyer, to protect money from theft by a former husband.

“Ms. Demauro did not even know what an FBAR was until after she was contacted by the IRS and notified of the audit,” her counterclaim states.

In The District Court District Of New Hampshire Decision On 08/28/2020 The Court Finds In Favor of The United States
On Its Willful FBAR-Penalty Claim, See 31 U.S.C. §§ 5314, 5321, But Against The United States on the Counterclaims Challenging The IRS's Fraudulent-Failure-To-File Penalties,
See 26 U.S.C. § 6651.

With respect to FBAR, the United States showed by a preponderance of the evidence that DeMauro acted recklessly, and thus “willfully,” by failing to seek professional tax advice on foreign accounts she knew were earning income, even though she had consistently relied on professionals in the past and also had paid taxes on real property gained through her divorce. Even if DeMauro did not consciously avoid learning about the FBAR reporting requirement, she at the very least should have surmised that there was a grave risk she was not meeting her tax-filing obligations. Her conduct therefore constitutes a willful civil violation.

For DeMauro's Counterclaims, However, The United States Did Not Meet Its Burden of Showing By Clear And Convincing Evidence That DeMauro Failed To Timely File Returns 

With The Specific, Fraudulent Intent To Evade Taxes.

While the United States correctly notes that DeMauro took steps to conceal her foreign bank accounts and money transfers, she credibly testified that she did so in an attempt to hide assets from her abusive ex-husband—an explanation that even the IRS investigating agent believed and found compelling—and because she trusted the many professionals around her to handle the finer details of her finances. Given these mitigating explanations, the counterclaims pose a closer question than the affirmative FBAR claim. 

On this record, the court finds that the United States did not meet its burden for assessing enhanced late-filing penalties by clear and convincing evidence, and thus orders the return of penalties already exacted. A separate entry of judgment shall follow this order.

The case is U.S. v. Annette B. DeMauro, case number 1:17-cv-00640, in the U.S. District Court for the District of New Hampshire.

Have You Been Assessed an FBAR Penalty 
or a 
Fraudulent-Failure-To-File 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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