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Civil FBAR Penalties

By Sharon L. McCarthy

In an ordinary tax case, the government must show that a taxpayer's actions constituted a “voluntary, intentional violation of a known legal duty.” U.S. v. Pomponio, 429 U.S. 10, 12 (1976). To prove this, a showing that the taxpayer acted with “careless disregard” is inadequate. Id. Furthermore, the seminal case of Cheek v. U.S., 498 U.S. 192 (1991), stands for the proposition that an honest belief that one's conduct did not violate the law, no matter how unreasonable that belief, results in a finding of non-willfulness.

Despite these long-standing legal precedents, under the OVDP, absent some extraordinary facts ' such as proof that the client's return preparer had full knowledge of the foreign account yet failed to both: 1) check the box on Schedule B reporting the account; and 2) include the account income on the return ' the IRS has been unmoved by arguments that taxpayers should receive a lower FBAR penalty for non-willful violations. The IRS's position has been that failure to check the box on Schedule B is, in and of itself, proof of willfulness.

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