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Zhanna Ziering Speaks to Worldwide Tax Daily on Constructive Knowledge Not Enough for FBAR Willfulness

August 24, 2018, Tax Notes

A district court has bucked the trend of other courts and rejected constructive knowledge as sufficient to support the contention that a taxpayers conduct was willful when failing to file foreign bank account reports.

On August 22, in an order denying the government’s motion for summary judgment in United States v. Flume, No. 5:16-cv-73 (S.D. Texas 2018), the U.S. District Court for the Southern District of Texas noted that although there was some evidence that Edward S. Flume Jr. tried to hide his Swiss account, there were enough facts in dispute about Flume’s conduct that a reasonable fact finder could conclude that the taxpayer neither knowingly nor recklessly failed to file FBARs.

. . .

More Than a Signature Needed

While acknowledging the decision in tor of the most prominent cases to weigh in on willfulness – United States v. Williams, 489 Fed. Appx. 655 (4th Cir. 2012), and United States v. McBride, No. 2:09-CV-00378 (D. Utah 2012) – the district court found those other courts’ rationale that taxpayers have constructive knowledge of the contents of their returns by signing them incorrect.

. . .

Zhanna A. Ziering of Caplin & Drysdale, Chtd. also received Flume’s departure from recent FBAR jurisprudence on constructive knowledge positively.

“The view that a signature on the tax return presumes knowledge of the FBAR requirements is troubling as it seems to eliminate the statutory knowledge prong,” Ziering said.

Looking to Bedrosian

The government asserted that even failing a showing of actual or constructive knowledge, Flume acted recklessly. But the district court looked to Bedrosian v. United States, No. 2:15-cv-05853 (2017-70627) (E.D. Pa. 2017), the case with arguably the most similar facts as Flume, as instructive in setting a high bar for recklessness.

. . .

Ziering found the district court's willingness to follow Bedrosian encouraging.

“The line between recklessness and negligence in the context of FBAR violations is indistinct and fluid at times," Ziering said. “We are in dire need of judicial guidance on where negligence ends and recklessness begins.”

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

Excerpt taken from the article “Constructive Knowledge Not Enough for FBAR Willfulness” by Andrew Velarde for Tax Notes.


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