In part one of this two-post, we will inform you about this case, which exemplifies the kinds of challenges that offshore account holders can face in trying to come into compliance with a complex regulatory regime.
The UBS case was a major battle in the offshore account compliance crackdown that the U.S. has pursued in recent years. In 2009, to settle a tax evasion investigation by the U.S. Justice Department, UBS paid a $780 million fine. The Justice Department's position was that UBS had facilitated tax evasion by U.S. taxpayers.
Two years later, UBS gave U.S. authorities the names of more than 4,000 of its U.S. clients. These were clients who were not in compliance with offshore account reporting rules. The man who is bringing the current lawsuit was one of those clients.
The 66-year-old man grew up in Switzerland, but moved to Texas to work in 1982. He became an American citizen a decade later. But he retained his Swiss citizenship and sent money back to Switzerland regularly, initially with a UBS account. In 2008, he moved his account to another Swiss bank.
The man says he did not realize until 2010 that he was required to file a Report of Foreign Bank and Financial Accounts (FBAR, now also called FinCEN 114). U.S. authorities are trying to impose a fine of $1.35 million for willful failure to disclose. In his lawsuit, the man argues that the failure to disclose was merely an innocent mistake, for which the penalty should be $10,000, not half of the balance of the unreported account at the time of the violation.
What are the rules for defining whether lack of compliance with FBAR requirements was willful? In part two of this post, we will address that broader question.