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Monday, July 23, 2012


[This entry was prepared by Mitchell Goldberg of our office]

In an unpublished opinion, the Fourth Circuit Court of Appeals in U.S. v. Williams, reversed the district court’s holding that the taxpayer’s failure to file Form TD F 90-22.1 (“FBAR”) was not willful and in so holding, gave the IRS a boost in its efforts to combat offshore noncompliance.  A case out of the District Court of the Eastern District of Virginia, Williams had been one of the few sources of precedent for how willful FBAR penalties will be enforced.  The District Court held in favor of the taxpayer, finding, in part, that mere failure to check “yes” as to whether the filer held an interest in a foreign account on Schedule B of Form 1040 was insufficient, alone, to prove willfulness, and the facts and circumstances had to be examined to determine willfulness.  The Fourth Circuit reversed the lower court’s holding as being clearly erroneous.  Significantly, without examining the facts and circumstances, the Fourth Circuit found that the taxpayer’s signature on his return was “prima facie evidence that he knew the contents of the return.”  Moreover, the Second Circuit found that the instructions to line 7a of Form 1040, which cross referenced the FBAR requirement, put the taxpayer on “inquiry notice” of the FBAR filing requirement.  Such notice, combined with the taxpayer’s admission that he never read his tax return nor consulted the FBAR form, resulted in a “conscious effort to avoiding learning about reporting requirements... meant to conceal or mislead sources of income or other financial information... that constitutes willful blindness to the FBAR requirements.”  (emphasis added).  The Fourth Circuit therefore held that the taxpayer willfully failed to file FBARs and found him liable for willful penalties under 31 USC § 5314.

U.S. v. Williams (4th Circuit, unpublished)

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