The Tax Times: Do Not Enter the IRS' Offshore Voluntary Disclosure Program and Then Withdraw (Without Reasonable Cause)!

Tuesday, August 26, 2025

Do Not Enter the IRS' Offshore Voluntary Disclosure Program and Then Withdraw (Without Reasonable Cause)!

According to Law360, a Michigan doctor clearly met the standard for a willful failure to file reports of foreign bank accounts, the Sixth Circuit said, confirming a lower court decision resulting in a $930,000 penalty against him.

James Kelly Jr. made multiple decisions intended to hide the fact that he did not file reports of foreign bank and financial accounts, or FBARs, for his holdings in Swiss banks, the appeals court said in an order issued February 8, 2024, upholding a summary judgment ruling in favor of the U.S. government.

"The undisputed facts show that Kelly knew about his foreign account, undertook considerable efforts to keep it secret, did not consult with any professionals about his tax obligations, and then failed to ensure that the FBARs were submitted after learning he had not met these reporting requirements in the past," the court said.

"Given All Of This, Kelly's Failure To Satisfy His FBAR Requirements For The Years 2013, 2014, And 2015
Was A Willful Violation Of The Bank Secrecy Act."

The government alleged in court documents that Kelly opened an account at Finter Bank in Switzerland in 2008 when he left the U.S. to avoid a criminal inquiry. The bank advised him to consider joining the IRS' Offshore Voluntary Disclosure Program, the U.S. said.

Kelly joined the IRS' Offshore Voluntary Disclosure Program, but eventually stopped cooperating with the agency, and in 2015, he transferred the funds to Bank Alpinum AG in Liechtenstein, according to the government.

The U.S. requested summary judgment against Kelly in 2022, arguing he hadn't responded to a claim for $930,000 in penalties for failing to report his Swiss bank account to the Internal Revenue Service. A federal district court granted that request in 2023.

The Sixth Circuit concurred. It held that a willful violation includes both knowing and reckless violations. Every other circuit that has addressed the issue has adopted this standard, it said.

There was ample evidence that Kelly willfully failed to file his FBARs, it said.

He designated his account as numbered so his name would not appear on statements, the court said,
he had the bank retain correspondence.
Kelly did not take steps to comply with his reporting obligations until his bank told him it would take steps to notify U.S. authorities, the court said.
He did not consult an attorney or tax expert and
Still did not submit FBARs even after joining the voluntary disclosure program, it said.