A U.S. magistrate judge has recommended that the government be granted summary judgment in a suit to collect a willful failure to file FBAR reports penalty in the case of United States v. Said, USDC Middle District Florida, Case No. 8:17-cv-00826.
The Court outlined the standard to be used to determine if there was willfulness in the context of failure to file the FBAR reports:
In the FBAR context, willfulness “may be proven ‘through inference from conduct meant to conceal or mislead sources of income or other financial information,’ and it ‘can be inferred from a conscious effort to avoid learning about reporting requirements.’” Williams, 489 Fed. App’x at 658 (quoting United States v. Sturman, 951 F.2d 1466, 1476 (6th Cir. 1991))...
The Court decided, as many courts have before, that the taxpayer was aware of the need to report the existence of the foreign accounts, as he had signed his tax returns for the years in question which contained at the bottom of Schedule B questions regarding whether the taxpayer had such foreign accounts and, if so, directing him/her to instructions regarding filing obligations. The taxpayer cannot argue that he did not notice that language, since he signed the jurat indicating that he had reviewed the return.
Thus, the opinion finds:
Here, it is undisputed that Rum signed the 2007 tax return on February 27, 2008, along with other tax returns, charging him with constructive knowledge of the FBAR requirement (Doc. 31-2, at Ex. 2; Rum Dep., at 97). Form 1040 included a plain instruction: “[y]ou must complete this part if you (a) had over $1,500 of taxable interest or ordinary dividends; or (b) had a foreign account . . .” (Doc. 31-2, at Ex. 2) (emphasis added). The instruction clarified that this applies to a person with a foreign bank account. As such, it was irrelevant whether Rum actually believed that his income was not taxable—the question simply asked if such account existed. It is undisputed that Rum knew that such account existed (Rum Dep., at 20-21, 35). Schedule B then proceeds with a plain question, question 7(a): “At any time during 2007, did you have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account? See page B-2 for exceptions and filing requirements for Form TD F 90-22.1 [FBAR]” (Doc. 31-2, at Ex. 2). Based on the record, either Rum or his tax accountant repeatedly typed an “X” for “No” in the relevant box (Doc. 31-2, at Ex. 2; Kerkado Decl., at ¶¶6-7).20 Yet again, it is undisputed that Rum had an interest in a foreign bank account in 2007 (Rum Dep., at 20-21, 35). As such, Rum's pattern of signing his tax returns without reviewing them, along with falsely answering “no” to question 7(a) suffices to support a finding of willfulness to report under the FBAR.
Although the court found the Schedule B issue was sufficient to support a finding of willfully failing to report the account, it notes that the taxpayer took other actions that appeared to be a willful attempt to hide the account from U.S. notice:
Further, the record includes more evidence that, while not necessary to establish willfulness, supports this finding by showing a pattern of conscious efforts to conceal and avoid learning about the FBAR reporting requirement. For instance, Rum admitted that the only reason for opening the UBS account was to conceal the money from potential judgment creditors (Rum Dep., at 42). Rum also owned a “numbered” rather than a “name account” and elected to have his UBS mail withheld abroad (Rum Dep., at 24; UBS Account Opening at Ex. 6, Bates UBS00044-45; Kerkado Decl., at ¶8). Additionally, UBS sent bank statements to Rum for numerous years explicitly noting that those statements could assist Rum in preparing his US tax returns, and that they do not satisfy government reporting requirements in and of themselves (Income Statements USA at Exhibit 6, Bates UBS00378-44). Rum also admitted that he disclosed the UBS account on his mortgage application to assist him financially (Kerkado Decl., at ¶12). These circumstances, along with others,21 allow the Court to find that Rum meant to conceal his foreign accounts and avoid learning about the FBAR filing requirement. McBride, 908 F. Supp. 2d at 1204. Consequently, because Rum is a U.S. citizen, who had an interest in a foreign bank account with a balance exceeding $10,000 during the reporting period, and willfully failed to report such account, the IRS appropriately proposed a willful FBAR penalty against Rum under 31 U.S.C. §5321.