Another federal court upholds fbar civil willful penalty

In U.S. v. Collins, the Federal District Court in the Western District of Pennsylvania decided on February 8, 2021, to uphold a FBAR Civil Willful Penalty.

The Court found that the taxpayer was sophisticated in financial matters “well beyond that of an average person,” and knew of his foreign accounts. More critically, the Court held that the taxpayer identified an interest in keeping the foreign accounts secret, consciously avoided disclosing the accounts, and that there was an actual intent to deceive the IRS. The Court noted that the taxpayer avoided receiving mail in the U.S. regarding the account and a desire to “discreetly” transfer funds from an offshore account into the U.S.

The Court went on to dismiss the taxpayer’s defenses; arguments that the taxpayer’s reporting of a W-9 to the financial institution was sufficient, advice the taxpayer received in the 1970s from a U.S. embassy, that there may have been withholding on the account and that it would cost more in fees to the taxpayer’s accountant to do the disclosure. The Court also noted that Swiss bank secrecy laws did not protect the taxpayer from disclosing to the taxpayer’s own accountants.

The Court upheld the proposed penalty and noted that the penalty imposed was less than what the IRS could have applied. The Court went on to hold that the penalty did not violate the 8th amendment. On the positive, the Court did use a “de novo” review standard in reviewing the case (at least for much of the case) rather than a much tougher (for the taxpayer) standard of abuse of discretion/ reasoned decision making standard by the IRS.

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