In U.S. v. Williams decided 9/01/2010, the U.S. District Court in the Eastern Dist of Virginia entered a decision in favor of the taxpayer rejecting the governments assertion of willfulness and finding in favor of the taxpayer who failed to file timely Foreign Bank Account Reports, FBAR’s (Form TD 90-22.1). The case was one of “first impression” which means that the court found no appropriate legal standard to apply. Why would that be so?
There are several issues that this case addressed. First, the criminal tax issues. The taxpayer pled to criminal conspiracy criminal tax evasion for establishing and maintaining two offshore bank accounts into which he deposited over $7,000,000 and earned over $800,000 for the years in question. Second, as part of the plea he filed amended income tax returns (Form 1040X) and was required to file previously unfiled FBAR’s. Subsequently, FBAR penalties were assessed.
The procedural issues in this case are interesting. The court found that the procedure to contest an FABR penalty was unclear. The penalty itself is authorized under 31 U.S.C.§5321(b)(i) but the legal standard of review is not. The process of FBAR penalty assessment involves a Revenue Agent issuing a Notice of Proposed Assessment to the taxpayer. The taxpayer then disagrees with the proposed assessment and the U.S. then files an action in the U.S. District Court where the taxpayer resides to enforce collection.
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