Tuesday, June 15, 2021

A "Hold Mail" Request for a Foreign Bank is Evidence of Intent To Conceal A Foreign Account From The U.S.

A district court in U.S. v. Goldsmith, (DC CA 5/25/2021) has found several reasons for holding that a U.S. holder of a foreign bank account was liable for a willfully not filing FBARs, including the fact that he opened the account as a numbered account, instituted a "hold mail" order on the account, and divested the account of U.S. securities when the foreign bank said otherwise it would disclose the account to the IRS.

Mr. Goldsmith was the owner of a Swiss bank account that, for the years in question, contained more than $10,000. Although his accountant asked him each year if he held a foreign account, the bank informed him of potential U.S. reporting requirements, there was other evidence that he knew he should have filed FBARs, Mr. Goldsmith did not file FBARs. 

  • The IRS imposed a civil penalty for his willful violation of the FBAR rules.
  • Mr. Goldsmith appealed to district court.
  • The district court agreed with the IRS that Goldsmith's failure to file FBARs was willful.

The district court first reviewed various cases that discussed what a willful violation is and concluded that a willful violation may be found where the violation results from conduct qualifying as either (1) knowing and intentional or (2) reckless, including due to willful blindness. 

The court said that willful intent may be proven by circumstantial evidence and reasonable inferences drawn from the facts; it came to these conclusions because it said that direct proof of the taxpayer's intent is rarely available.

The district court said that Mr. Goldsmith's violation was willful because of the following facts:

  1. Upon the death of Mr. Goldsmith's mother, Mr. Goldsmith inherited both the Swiss bank account and an interest in commercial property. Mr. Goldsmith disclosed the commercial property interest to his accountant but not the bank account despite the accountant explicitly asking him if he had a foreign account.

  2. He set up the account, after his mother's death, specifically as a numbered account, in that his name was not associated with the account.

  3. In 2000, the Swiss bank asked Mr. Goldsmith to sign a form, as part of an IRS program, which referenced "new U.S. withholding tax and reporting obligations" and gave Mr. Goldsmith a choice between disclosing his account to the IRS or divesting all of his U.S. securities. Mr. Goldsmith chose to divest the account of all U.S. securities rather than disclose the account to the IRS.

  4. In addition to avoiding U.S. securities, Mr. Goldsmith also paid a regular fee to the Swiss bank to institute a "hold mail" order, or in other words, for the bank not to send him any mail in the U.S.

 The court pointed out that many other courts have interpreted a "hold mail" request of foreign bank qualifies as evidence of intent to conceal a foreign account from the U.S. government.

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