The IRS has assessed FBAR penalties against Carl R. Zwerner for willfuly failing to file an FBAR (Foreign Bank Account Report) on Form TDF 90-22.1. The news here is that the IRS is seeking to impose a willful failure to file an FBAR penalty against Zwerner for multiple years. Specifically the IRS seeks to impose a separate 50% penalty for each of four years that Zwerner failed to file an FBAR. According to the Complaint the IRS assessed four separate penalties totaling over $3 million as follows:
2004 – $723,762, assessed on June 21, 2011 2005 – $745,209, assessed on August 10, 2011 2006 – $772,838, assessed on August 10, 2011 2007 – $845,527 assessed on August 10, 2011
Perhaps not surprisingly Zwerner didn’t pay the FBAR penalties and the Department of Justice has filed suit to collect the penalties. These penalties, are civil penalties, and separate and apart from any criminal FBAR penalties that could be imposed, or criminal tax fraud charges that could be brought. As a practical matter though it would be unusual for the IRS to bring criminal tax or FBAR charges after a civil suit has been filed.
Tax litigation attorneys sometimes advised clients who are considering quiet voluntary disclosures that in the past the IRS has only imposed one civil FBAR penalty even in criminal tax cases. Apparently, however, there is no guarantee for a client who decides not to enter the IRS’ Offshore Voluntary Program (OVDP) that penalties could total 300%! This is because the statute of limitations on assessing the FBAR penalty is 6 years from the June 30th deadline for filing the FBAR. Whether or not the IRS can impose such a large penalty without running afoul of the prohibition under the 8th Amendment against “excessive fines” is unknown. Perhaps Zwerner’s tax litigation lawyers will raise that as one of his defenses.
The question for those individuals with foreign bank accounts who have not yet entered the IRS’ Offshore Voluntary Disclosure Program is whether the IRS has raised the stakes for all offshore account holders, or were there particularly bad facts in Zwerner’s case which led the IRS to assess multiple FBAR penalties. The complaint, which was filed on June 11th gives Zwerner until August 12th to file an Answer. Perhaps once the Answer is filed we will know more. In any event, this case brings home the point that the decision not to enter the OVDP is not one to be taken lightly. All of the facts and circumstances need to be analyzed to determine what the likely action of the IRS will be if the foreign bank accounts are discovered by the IRS. As our tax lawyers tell anyone who will listen: “There are no cookie cutter answers,” and there is no substitute for exercising careful and considered judgment based upon years of experience.