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Zhanna Ziering Weighs in on Recent FBAR Decisions in Forbes

March 25, 2021, Forbes

United States v. Jane Boyd and Kimble v. United States, decided within two days of each other, delivered very different messages to taxpayers who have foreign financial account reporting obligations. Boyd, decided in the Ninth Circuit, holds that the IRS may impose only one non-willful penalty when a taxpayer files an untimely, but accurate, Report of Foreign Bank and Financial Account (FBAR), no matter how many accounts the taxpayer should have originally reported. Kimble, decided in the Federal Circuit, held that taxpayers who sign their tax returns under penalty of perjury “cannot escape the requirements of the law by failing to review their tax returns,” and that the failure to review tax returns, which would have directed the taxpayer to file an FBAR, is enough to show willfulness.

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The Kimble decision holds that signing a tax return that does not disclose a foreign bank account means that a taxpayer is reckless in not filing an FBAR and hence is liable for a willful FBAR penalty. This essentially leaves no room for the non-willful penalty, since an individual who voluntarily files an untimely FBAR, like the taxpayer in Boyd, will very likely have previously signed and filed a tax return that did not disclose her foreign accounts. But the taxpayer in Kimble did more than merely sign the tax returns, carrying out her father's wishes to preserve the secrecy of a foreign bank account and giving instructions to the foreign bank that would ensure that the account was not disclosed to the U.S.  Her affirmative acts to ensure the account's secrecy evidenced that the she knew there was a requirement to disclose a foreign account in the U.S. and she was avoiding that requirement. There was therefore evidence to support a willful penalty without a need for the court's reductive holding based only on her signing a tax return.

Zhanna Ziering, a Member with the law firm of Caplin & Drysdale agrees, noting that the way that courts are currently interpreting the willfulness requirement under the FBAR statute leaves very little room for courts to find non willfulness or reasonable cause, and has resulted in strict liability that was not intended by the statute.

For the full article, please visit Forbes' website.

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