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The United States government requires taxpayers with qualifying foreign assets to file a Foreign Bank Account Report (FBAR). A failure to do so can result in criminal penalties. One may think that with the uncertainties that surround us during the current coronavirus pandemic, the shutting down of many government offices and the mass confusion as tax laws are constantly changing that the government would relax its enforcement of this requirement.

One would be wrong.

Government pursues willful FBAR violation

The government recently moved forward after the death of a taxpayer brought attention to some undisclosed foreign account. In Jones v. United States, an elderly couple from Canada moved to the United States in 1954 and became citizens in 1969. During that time, the couple had multiple accounts in New Zealand and Canada. Their accountant never asked about foreign accounts and was not familiar with FBAR filings. The husband died in 2012. At that time, the wife became aware of the obligation to report their foreign accounts. Once aware of the obligation, the wife filed a timely FBAR and amended previous tax returns.

The revenue agent assigned to the case calculated the penalty based on a willful violation — leading to a penalty calculation of almost 50% of the balance in the accounts. As a result, the government sent the taxpayer a bill for over $1.5 million in penalties.

Taxpayer fights back, stating penalty was arbitrary

The taxpayer is fighting back. The Court is now considering whether or not the taxpayer willfully failed to report these assets. The government is arguing that she was “willfully blind” to the requirement and thus should be held accountable to a higher penalty.

The taxpayer has countered, stating the government’ initial penalty calculation was arbitrary and capricious. As a result, she argues it should be set aside. The Court seems to agree that there is an issue with the calculation and has stated if the government can determine willfulness is present, the case will need to return to the Internal Revenue Service (IRS) to recalculate the penalty.

The case continues to progress through the system, as both parties fight over whether or not the violation was willful. The penalty will then be calculated based on the finding of this specific issue.