Skip to Main Content
 

Zhanna Ziering Speaks to Tax Notes on Reasonable Cause Defense in FBAR Case

July 6, 2017, Tax Notes

The boundaries of reasonable cause when applied to taxpayers who fail to file a foreign bank account report are currently being tested in a case being briefed at the Court of Federal Claims.

“The government’s argument in this case is a great example of its application of heightened scrutiny in evaluating reasonable cause defense to FBAR and other international penalties,” Zhanna A. Ziering of Caplin & Drysdale, Chtd. said. “The government yet again demonstrates its position . . . that reliance on a tax preparer is not sufficient to establish reasonable cause,” she said, noting that the taxpayers in the case had been transparent with their return preparers by providing them with foreign bank statements.

. . .

“In light of the government’s position, it becomes difficult to imagine a factual scenario that would be sufficient enough to establish reasonable cause,” Ziering said.

. . .

Ziering noted that the prior version of the Internal Revenue Manual “clearly stated that in order for a reasonable cause to be considered, delinquent FBARs had to be filed.”

“Despite that language, we had started to see the shift in the exam with the agents actually looking to see whether the income from the foreign accounts was reported on timely filed returns before considering reasonable cause,” Ziering said. When IRM provision 4.26.16.6.4 was changed in November 2015 to model the language of the statute, it was anticipated that the reporting of the income would become the new prerequisite to the consideration of reasonable cause, Ziering said.

“The government’s brief seems to suggest that should Jarnagins file the delinquent FBARs now, they will satisfy the reporting prong,” Ziering continued. “It would be interesting to see if in cases where the delinquent FBARs are filed, the government would still argue that reasonable cause is not established because the interest income was not properly reported.”

Ziering also took note that the government was asserting non-willful penalties against both the husband and wife on the same accounts.

“This case was at the IRS’s Office of Appeals when the May 2015 guidance for FBAR penalties was released,” Ziering said in an email. That guidance states that for co-owned accounts, examiners make a separate determination of a violation for each owner and what the penalty should be based on percentage of ownership. “[That] would have resulted in each of the spouses owning 50% of the non-willful penalty. However, Appeals had been consistent in its position that the May 2015 guidance does not apply to cases where the exam was completed prior to the release of the guidance,” Ziering added.

For the full article, please visit Tax Notes’ website (subscription required).

Excerpt taken from the article “Reasonable Cause is Front and Center in FBAR Case” by Andrew Velarde for Tax Notes.

________________________________________________

About Caplin & Drysdale
Having celebrated our 50th Anniversary in 2014, Caplin & Drysdale continues to be a leading provider of tax, tax controversy, and litigation legal services to corporations, individuals, and nonprofits throughout the United States and around the world. We are also privileged to serve as legal advisors to accounting firms, financial institutions, law firms, and other professional services organizations.

The firm's reputation over the years has earned us the trust and respect of clients, industry peers, and government agencies. Moreover, clients rely on our broad knowledge of the law and our keen insights into their business concerns and personal interests. Our lawyers' strong tactical and problem-solving skills - combined with substantial experience handling a variety of complex, high stakes, matters in a boutique environment - make us one the nation's most distinctive law firms.

With offices in New York City and Washington, D.C., Caplin & Drysdale's core practice areas include:

-Bankruptcy
-Business, Investment & Transactional Tax
-Complex Litigation
-Corporate Law
-Employee Benefits
-Exempt Organizations
-International Tax
-Political Law
-Private Client
-Tax Controversies
-Tax Litigation
-White Collar Defense

For more information, please visit us at www.caplindrysdale.com.

Washington, DC Office:
One Thomas Circle, NW
Suite 1100
Washington, DC 20005
202.862.5000
        New York, NY Office:
600 Lexington Avenue
21st Floor 
New York, NY 10022
212.379.6000

___________________________

Disclaimer
This communication does not provide legal advice, nor does it create an attorney-client relationship with you or any other reader. If you require legal guidance in any specific situation, you should engage a qualified lawyer for that purpose. Prior results do not guarantee a similar outcome.

Attorney Advertising
It is possible that under the laws, rules, or regulations of certain jurisdictions, this may be construed as an advertisement or solicitation.

© 2017 Caplin & Drysdale, Chartered
All Rights Reserved.

Related Professionals

Related Practices