Law360 Quotes Scott Michel: ‘Willfulness' in Civil FBAR Cases Comes Down to the Facts

A judge’s recent decision to let a pharmaceutical CEO escape civil penalties for failing to report his Swiss bank account doesn’t necessarily signal that courts could be a reliable counterweight against the IRS’ dwindling sympathy, tax specialists say, but instead highlights the fact-dependent approach for determining willful nondisclosure.

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In fact, courts have weakened the willfulness standard on the civil side compared to the criminal side, Caplin & Drysdale Chtd. member Scott D. Michel told Law360. He said that courts have done this in part by concluding that recklessness can constitute willfulness, which is not generally seen in criminal cases.

“The second way the standard has been somewhat watered down in civil cases is the burden of proof,” Michel said. “In civil cases, as courts have interpreted it most recently, the government has to prove willfulness by 'a preponderance of evidence,' which is less than the ‘clear and convincing’ standard you see in civil tax fraud cases, and certainly less than the criminal burden of 'beyond a reasonable doubt.'"

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“What was interesting in Bedrosian, and in the court’s very explanation in this, was the reference to two previous cases that had willful FBAR penalties,” Michel said. “Those cases had very extreme sets of facts and they favored the government.”

But in the Bedrosian opinion, U.S. District Judge Michael M. Baylson looked at those two cases and concluded that the instant action “doesn’t seem as bad,” Michel said, which suggests that those cases appeared to inform the court’s conclusion that the government had not carried its burden of proof.

"The government often chooses cases with egregious facts to begin to establish precedent for penalties,” Michel said. “The court’s analysis here, to some extent, kind of turned that enforcement strategy on its head. It said, 'OK, looking at these two cases — I don’t think it’s as bad as those, so we’re going to rule for the taxpayer.'"

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Excerpt taken from the article “'Willfulness' In Civil FBAR Cases Comes Down To The Facts” by Natalie Olivo for Law360.