According to Law360, a woman who operates a New Zealand winery must pay $238,000 in penalties and an extra $105,000 in interest and fees for failing to report her New Zealand financial accounts to the U.S. government, the Ninth Circuit ruled.
Timberly Hughes, who represented herself, failed to show that a district court erred in determining that she willfully failed to file reports of foreign bank and financial accounts, the Ninth Circuit said in its opinion. However, the panel overturned the lower court's decision that the U.S. could not calculate interest from the date of the Internal Revenue Service's notification letter to her. While the letter contained an inaccurate calculation of the penalty, which the IRS later corrected, it put Hughes on notice that she failed to report, the panel said.
The California federal district court had held in March 2023 that Hughes was liable for $238,000 for failing to file FBARs in 2012 and 2013 for bank accounts in New Zealand, but it declined to add over $15,000 in interest and over $90,000 in late payment fees. The IRS originally sent Hughes a demand letter in 2016 with an incorrect amount. A second demand letter recalculated the amount but set interest and late fees from the original date. The district court said the government failed to show why the date of the erroneous letter should still be used for calculating interest and fees. Both sides appealed.
Hughes argued that the lower court conflated negligence with recklessness in determining that she willfully failed to file. If recklessness were sufficient to find willfulness, then nearly every violation of the FBAR rules could be deemed willful, she said in court documents.
The Ninth Circuit disagreed. Other circuits have clearly held that recklessness requires proof of something more than negligence, it said. It requires a finding that the filer ought to have known there was a grave risk that the filing requirement was not met, the panel said.
She Held A Foreign Account And Was Required
To File An FBAR, The Court Said.
The U.S. claimed that it could run interest from the date of the original letter, and the Ninth Circuit agreed, finding the lower court erred in throwing out the interest and fees. The district court cited no authority for determining that the calculation of interest from the initial demand letter was arbitrary, the Ninth Circuit said, and also hadn't required the U.S. to send a new demand letter.
Read more at: Tax Times blog
