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Tax Notes Quotes Zhanna Ziering on FBAR Litigation

December 18, 2020, Tax Notes

Jurisprudence on the foreign bank account report willfulness standard has left no room for non-willful conduct, seemingly putting the standard at odds with the applicable penalty structure, according to one practitioner. 

During a Federal Bar Association roundtable December 17, Zhanna Ziering of Caplin & Drysdale cited the Third Circuit’s December 2018 opinion in Bedrosian v. United States as what has become the standard in finding willfulness in civil FBAR cases, but said she finds that standard problematic. Under Bedrosian, “a person recklessly fails to comply with an IRS filing requirement if he or she clearly ought to have known that there was a grave risk that the filing requirement was not being met, and if he or she was in a position to find out for certain very easily,” she explained. 

In most jurisdictions, the government can satisfy the applicable standard of recklessness if the taxpayer was aware of their foreign account, filed a return for the relevant years with the box on Schedule B of Form 1040 checked "no," and signed it under penalties of perjury, Ziering said. “These facts have generally been sufficient for the courts to find willfulness under the objective standard,” even in cases involving sympathetic taxpayers or accountants who gave insufficient advice, she said. 

“Where I am seeing the problem — which is growing with every new FBAR opinion that comes out on the standard — is how it is being applied,” Ziering said. The Fourth Circuit’s October 20 opinion in United States v. Horowitz identified taxpayer conduct that the court categorized as non-negligent, but left open the question of where negligence ends and willfulness begins, she said. “In what kind of a scenario, under this objective standard, would non-willfulness be found?” she asked, adding that if all that’s required for willfulness is knowledge of an account and signing a return under penalties of perjury, that “completely writes out the distinction between the penalties.” 

Thomas Cole of the Department of Justice Tax Division declined to respond to Ziering’s argument that the standard leaves no room for non-willful conduct, but said that “Horowitz doesn’t really change anything because [United States v. Williams already pretty much gave the government the tools it needed to have a broad standard of liability.” Cole added that one nice thing about Horowitz is that it will be a published opinion; the Fourth Circuit’s decision in Williams was unpublished. 

Ziering said FBAR litigation may look different within five years, as education about reporting requirements improves and the pool of non-willful taxpayers gets smaller. “I suspect we may see less willfulness litigation by itself and more litigation on the other issues,” she said, citing as examples the question whether non-willful penalties apply by form or by account at issue in United States v. Bittner and United States v. Boyd, and the Fifth Amendment argument at issue in United States v. Bernstein

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


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