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Naturalized Citizen Can't Get FBAR Penalties Overturned

Naturalized Citizen Can't Get FBAR Penalties Overturned

According to Law360, A naturalized citizen must face tax penalties for his failure to report foreign bank accounts to the Internal Revenue Service because the government proved he willfully attempted to hide his income overseas, the Eleventh Circuit said Friday.

A three-judge panel affirmed that a Florida federal court correctly held Said Rum liable for the maximum penalty for his failure to file Reports of Foreign Bank and Financial Accounts, according to the per curiam opinion. 

Rum Failed To Prove That The Penalty, Which The IRS Set At 50% Of The Funds In His Unreported Account, Was Arbitrary And Capricious, According To The Opinion.

"In sum, the evidence was overwhelming that Rum sought to hide his overseas accounts from the United States government," the opinion said. "Repeatedly he took steps to conceal the accounts and not report his income to the government."

Rum was born in Jerusalem and has been a naturalized U.S. citizen since 1988, and has owned and operated a number of businesses, including a convenience store and delicatessen, according to the opinion. In 1998, Rum opened a Swiss UBS bank account and deposited $1.1 million to conceal the money from judgment creditors, the opinion said.

Rum failed to report to the IRS the funds in the UBS account, which was eventually closed in 2008 as $1.4 million was transferred to Arab Bank, according to court documents. Rum transferred the $1.4 million to a U.S. account in 2009, and he reported roughly $40,000 of the $300,000 in investment income generated when the funds were held in the foreign banks on his 2009 tax return, the opinion said.

Rum's 2009 tax return triggered an IRS examination that led to the agency's assessment of unpaid taxes and proposal of a maximum willful FBAR penalty for the 2007 tax year related to his failure to report the foreign bank accounts, according to the opinion.

Rum challenged the IRS' assessed taxes and penalty in the U.S. Tax Court, which determined that he would be liable not for civil fraud penalties but for accuracy-related penalties for his understatement of income during the time he concealed his foreign bank account.

The IRS sued Rum in Florida federal court seeking to enforce the FBAR penalty against him, and won summary judgment in its favor, which Rum appealed, according to court documents.

On appeal, Rum argued that the lower court incorrectly applied a standard of willfulness to find him liable for the FBAR penalty and should have determined that the penalty was improper and arbitrary, according to the opinion.

In its opinion, the Eleventh Circuit found that Rum failed to prove how the district court incorrectly interpreted willfulness to include "recklessness," a conclusion that several other appeals courts have determined.

Rum's arguments related to whether there remained issues of material fact during the district court proceedings were also proved insufficient by mounts of evidence presented by the IRS, the appeals court said.

Rum's using numbers instead of his name on his foreign bank accounts and requests that his funds not be invested in U.S. securities while they were held by UBS were clear signs that he willfully attempted to hide his income, the Eleventh Circuit said.

The case is U.S. v. Said Rum, case number 19-14464, in the U.S. Court of Appeals for the Eleventh Circuit.

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Read more at: Tax Times blog

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