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On March 7, 2018 we posted 1st Taxpayer Victory in a "Willful" FBAR Penalty Case! where we discussed that on September 20, 2017, the Eastern District of Pennsylvania issued an important taxpayer friendly opinion regarding the "willfulness" standard in FBAR penalty matters. 

In Bedrosian v. United States, Case No. 2:15-cv-05853-MMB (E.D. Pa., Sept. 20, 2017), the court held that the government had not met its burden in proving that Bedrosian had willfully violated FBAR reporting requirements. This opinion could have a major effect on future IRS decisions in the offshore compliance arena and may cause some taxpayers, to seek a more aggressive approach in addressing prior non-compliance.

However now according to Law360, The U.S. government has urged the Third Circuit to reverse a Pennsylvania federal judge’s decision to let a pharmaceutical CEO avoid a nearly $1 million tax penalty over an undisclosed Swiss bank account, arguing the lower court wrongly raised the bar for showing willful conduct. 

U.S. District Judge Michael M. Baylson in September had found that Arthur Bedrosian, the CEO of generic drug maker Lannett Co., may have been negligent when he failed to report a Swiss bank account with UBS that held roughly $2 million to the Internal Revenue Service in a 2007 Foreign Bank and Financial Accounts form. However, Judge Baylson stopped short of concluding that Bedrosian willfully skirted the reporting requirements and accordingly ordered the government to return the 1 percent partial penalty payment he had made.

In pressing the Third Circuit to reverse and remand Judge Baylson’s decision, the government on said the willfulness standard in civil cases only required knowing or reckless conduct, not subjective bad intent. The district court strayed from this benchmark by not judging willfulness based on Bedrosian’s knowledge of his FBAR violation, but by his intent to do wrong, according to the government.

The question of whether a taxpayer willfully avoided filing an FBAR form, or just didn’t know about the reporting requirements, can make a substantial difference in the civil penalties the IRS ultimately assesses. In Bedrosian’s case, he was hit with a maximum penalty of nearly $1 million, or 50 percent of the undisclosed account.

After Bedrosian sued to claw back his nearly $10,000 partial penalty payment, the federal Zovernment lodged counterclaims for full payment of the penalty, plus interest.

Following a one-day bench trial, Judge Baylson on Sept. 20 found that the evidence against the CEO, including the inaccurate FBAR form itself and the fact that he may have known about the account he didn’t disclose, didn’t clear the bar to show a willful violation of reporting requirements.

The district court’s reliance on this and other cases as the minimum threshold for finding willfulness was an incorrect assumption, the government said Tuesday.

The district court compared Bedrosian’s conduct to situations where individuals used Swiss banks to carry out complex tax avoidance schemes, the government said, noting that Judge Baylson ultimately concluded that Bedrosian’s behavior was less “egregious,” and therefore not willful.

“The district court erred in concluding that because Bedrosian’s conduct was not as egregious as the conduct in those cases, he should not be liable for a willful FBAR penalty,” the government said. 

According to court papers, after the accountant learned in the 1990s that Bedrosian had used the account since the early 1970s, he advised his client to ultimately “just leave it alone because the damage was already done” and that the situation would be resolved automatically one way or the other when Bedrosian died.

The government also noted that after Bedrosian’s accountant died, the CEO did not mention his Swiss bank account to his new accountant, who prepared a 2007 tax return and FBAR for Bedrosian, disclosing only the smaller of two UBS accounts, which had about $240,000 in it.

“Bedrosian professed to have simply signed and filed his FBAR notwithstanding that he had no idea how his accountant knew to prepare an FBAR or what it included, and notwithstanding that the filing constituted his first disclosure following decades of willfully violating the law,” the government said. “This cavalier disregard of his legal obligation to fully disclose his foreign accounts was reckless.”

Have Undeclared Income from an Offshore Bank Account?

 

 

Been Assessed a 50% Willful FBAR Penalty?

 

 

Contact the Tax Lawyers at 

Marini& Associates, P.A. 

 

 

for a FREE Tax Consultation

at: www.TaxAid.com or www.OVDPLaw.com or

Toll Free at 888-8TaxAid (888) 882-9243

 

According to Forbes, not even 1,500 highly compensated tech employees at the IRS could keep the website running on Tax Day, the most important day of the year for taxpayers and the IRS.

Although tax season is busy throughout March and April, it all comes down to one day. This year, on April 17, when millions of taxpayers tried to file their 2017 tax returns on IRS.gov, they were halted by a system-wide computer failure, receiving the following notice:

“Planned outage: April 17, 2018 – December 31, 9999… We apologize for any inconvenience. Note that your tax payment is due although IRS Direct Pay may not be available.”

How could the website go down on the biggest day of the year? It certainly wasn’t for a lack of payroll.

To Read More ...



We previously posted All That You Wanted to Know About Form 706NA - Part I, where we discussed that in the area of estate tax compliance, many of us have prepared Form 706’s, the estate tax return for US citizens and domiciliaries.  To be sure, this form is quite voluminous and can take a while to fill out but there are very few mysteries beyond schedule E; what percentage of an asset might be includable in an estate, the value of an annuity, what debts and expenses are deductible, the calculation of the marital deduction, and the generation-skipping tax computation. The Form 706NA, however, preparation of the tax return for the estate of the nonresident alien owning property in the United States, can present a more daunting task.  
Based on my 32 years of experience as a senior attorney at the International office of the IRS, I am revealing some of the strange and exotic problems that I came upon while auditing roughly 1,500 estate tax returns and preparing about 300 of the same in the last few years.

After we get through the information about the decedent himself, we reach an area of the return, Part III, General Information.Most of it is pretty obvious but… The first area of major concern may be whether the decedent died intestate. Many people who have assets in several countries have country specific wills, for instance one for the United States and one for say Canada, England etc. If the decedent did die testate, one should always include the US will. If there are other wills, go through them carefully before you submit them to the IRS because they make contain data which would create questions or problems with the IRS. In the alternative, many folks have a Universal Will which covers the disposition of assets in all countries. Because of the difference of rules from country to country, such a universal will may create problems with assets passing to a surviving spouse or a charity. 

Question five relates to whether the decedent owned jointly held property in the United States. If the taxpayer plans to include 100% of the value of the asset, then this question should pose no problems. Two potential problems come to light: if the decedent came from a community property jurisdiction, is one half of the value of the asset excluded by operation of law in the foreign country? If one wishes to exclude a portion of an asset from a decedent in a non-community property jurisdiction, Section 2040 of the IRC places the onus again, of proving contribution on the surviving co-tenant. This can sometimes be a very difficult task, especially if the property is been held for a substantial number of years and many records/canceled checks etc. have been destroyed over the years. 

Question six asks whether the decedent had ever been a US citizen. If the answer to the initial question is yes but at the time of death, the decedent is no longer a US citizen, it is necessary to include in the paperwork sent to the IRS some evidence that the decedent properly expatriated from the United States. Based on the timing, if this happened shortly before death, it could raise the issue of expatriation to avoid tax. Again, getting this information before preparing the return is a good way to avoiding embarrassment at  the examination.

Have a US Estate Tax Problem?

 

Estate Tax Problems Require

an Experienced Estate Tax Attorney

 

 

 

Contact the Tax Lawyers at

Marini & Associates, P.A.

 

 

 for a FREE Tax Consultation Contact US at

www.TaxAid.com or www.OVDPLaw.com

or Toll Free at 888-8TaxAid (888 882-9243).

 

Robert S. Blumenfeld  - 

 Estate Tax Counsel

Mr. Blumenfeld concentrates his practice in the areas of International Tax and Estate Planning, Probate Law, and Representation of Resident and Non-Resident Aliens before the IRS.

Prior to joining Marini & Associates, P.A., he spent 32 years as the Senior Attorney with the Internal Revenue Service (IRS), Office of Deputy Commissioner, International.

While with the IRS, he examined approximately 2,000 Estate Tax Returns and litigated various international and tax issues associated with these returns.As a result of his experience, he has extensive knowledge of the issues associated with and the preparation of U.S. Estate Tax Returns for Resident and Non-Resident Aliens, Gift Tax Returns, Form 706QDT and Qualified Domestic Trusts.