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Saturday, July 17, 2010

DOES A TAX FRAUD GUILTY PLEA AUTOMATICALLY RESULT IN AN FBAR PENALTY?

A taxpayer through a company had Swiss bank account. He did not report the income from the accounts on his federal income tax return. The taxpayer also did not file the required FBAR disclosure form for the accounts.

The taxpayer eventually plead guilty to tax fraud, conspiracy to defraud the United States and criminal tax evasion in connection with the Swiss bank accounts. The IRS sought to use his guilty plea as requiring an automatic finding of willful failure to file the required FBARs and sought to automatically impose FBAR penalties.

Not so fast, says the U.S. District Court for the Eastern District of Virginia. In denying the government’s motion for summary judgment, the court noted that there may still be valid defenses available to the FBAR penalty even though the taxpayer admitted guilt on the above tax charges. More particularly, the court noted the following issues still remain and thus allowed the case to proceed to trial:

-The taxpayer contends that U.S. authorities were already on notice of the accounts, and indeed, the assets in the accounts had already been frozen.  Thus, according to the taxpayer, he did not have the requisite intent to “willfully” fail to disclose the accounts by filing the Form TDF 90-22.1 because he believed their existence had already been disclosed.

-The taxpayer contends he had no knowledge that Form TDF 90-22.1 existed, nor had his attorneys advised him as to its existence or significance, and thus could not “willfully” have failed to file the Form.

-Lastly, the taxpayer contends he had no “signatory or other authority over” the accounts as required by 31 C.F.R. § 103.24 because the accounts were frozen.

Whether the taxpayer will prevail remains to be seen, but at least he will have his day in court as to these issues.

U.S. v. Williams, 106 AFTR 2d 2010-XXXX, (DC VA), 03/19/2010

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