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Zhanna Ziering Weighs in on Court's Decision in the FBAR Penalty Case
Caplin & Drysdale

Zhanna Ziering Weighs in on Court's Decision in the FBAR Penalty Case

Date: 3/24/2020

A district court has found that an individual did not willfully violate foreign bank account reporting rules for one year, and that for three others, the IRS miscalculated the amount he owed for willful violations. 

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As a preliminary matter, the court rejected the government’s attempts to assert that Schwarzbaum’s signature on his tax return was adequate to impart knowledge of the return’s information for all years in question, agreeing instead with United States v. Flume, No. 5:16-cv-73 (S.D. Texas 2018), that constructive knowledge was insufficient for a willfulness finding. 

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Zhanna Ziering of Caplin & Drysdale also welcomed the court’s decision on constructive knowledge and said the government’s reliance on Flume was a “correct departure from the previous trend.” She said she hopes to see the court’s reasoning adopted by other courts.

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But for 2006, Schwarzbaum could rely on the faulty advice of his accountant — that an FBAR filing was not required because there was no U.S. connection — to avoid a finding of willfulness, the court held. It cited United States v. Boyle, 469 U.S. 241 (1985), in which the Supreme Court held that reliance on a professional regarding whether, not when, it was necessary to file a return was reasonable.

“The court was correct to apply the reasoning of Boyle to determine whether the defendant acted willfully in failing to report his foreign accounts when the failure was caused at least in part by his reliance on the erroneous advice from the accountant,” Ziering said. “Despite the fact that the statutory willful penalty does not provide for reasonable cause defense, under Boyle, reliance on the advice of a professional goes directly to whether the defendant had the requisite intent to violate the statute, which may negate willfulness.”

For the full article, please visit Tax Notes’ website (subscription required).

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