This is the central question as to whether a taxpayer enters Offshore Voluntary Disclosure or Streamline. It also fixes potential penalties under 31 U.S.C. §5321.
31 U.S.C. 5314 is the statute that requires reporting of foreign bank accounts. Pursuant to the statute, reporting is required by the following:
- a United States Citizen,
- a resident of the United States or
- a person in, and doing business in the United States.
Incidentally, the term “person” has broad meaning, which includes corporations.
Pursuant to 31 U.S.C. §5321, the amount of penalty shall not exceed $10,000 unless the case is “willful“. In cases of willfulness, the maximum penalty increases to the greater of $100,000 or 50 percent of the account balance. It is also noteworthy that, pursuant to subsection (d), a criminal penalty may be stacked on top of this civil penalty.
A lot is riding on the meaning of “willful” so let’s turn our focus to it. If you would like to read what is required of the Secretary of Treasure to prove an FBAR case, click here to read the 7 elements.
Legal standard and Burden of Proof
To affix the civil penalty under 31 U.S.C. §5321 the Secretary of Treasury must establish willfulness by the preponderance of the evidence. This is a lower standard than beyond a reasonable doubt. The Burden of Proof is on the United States Government.
Meaning of “Willful”
31 U.S.C. §5321 does not define “willful”. In United States of America v. McBride, 908 F. Supp. 1186 (D.Utah 2012), The United State District Court analyzed the meaning of “willful” as it is used in 31 U.S.C. §5321. The Court gave heavy weight to the fact that taxpayer signed the tax return.
Signature alone is sufficient proof of a taxpayer’s knowledge of the instructions contained in the tax return form and in other contexts, the Court stated. This is an inference of “willful” conduct by mere signature alone. The Court went on to analyze the proposition that signature by itself does not prove knowledge, but knowledge may be inferred from the signature and the signature is prima facie evidence that the signer knows the contents of the return.
In either case, taxpayer’s signature shifts the burden of proof to taxpayer to prove non-willfulness. The Court held that knowledge of the law, including knowledge of the FBAR, requirements, is imputed to taxpayer, which is sufficient to inform taxpayer of the requirement to file Form TD F 90-22.1. The Court held that signature alone imputed knowledge to taxpayer of the FBAR requirement.
It is noteworthy that the Court analyzed taxpayer’s credibility in detail. Taxpayer alleged that he did not know he had a legal duty to file FBAR’s, which is common and understandable assertion. Rather than just dismiss this argument on the basis of his signature on tax return, the Court found taxpayer not credible because of prior testimonial inconsistencies.
Implicitly, there is a defense that taxpayer did not know of FBAR requirements despite signature on a tax return. After all a signature is prima facie evidence of willfulness, not the end-all and be-all of willfulness.
In the end, “willfulness” is determined by the facts and circumstances of each case that must be analyzed in the context of that particular time period in question.