In a recent case of United States v. J. Bryan Williams, the U.S. District Court for the Eastern District of Virginia found that the government had failed to meet its burden to establish by a preponderance of the evidence that a taxpayer willfully failed to report his interest in a foreign bank accounts that were omitted from the individual’s 2000 tax return.
In 1993, the defendant, J. Bryan Williams, opened up two Swiss bank accounts in the name of ALQI Holdings, Ltd., and over the course of seven years deposited in excess of $7 million in assets to the Swiss account. Williams did not disclose the foreign accounts on his 2000 tax return, nor did he file a Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts) (FBAR).
In January 2002, based on advice received from his tax attorneys and accountants, the defendant disclosed his financial interests in the offshore accounts to an IRS agent. Furthermore, Williams disclosed the existence of the foreign accounts by the following:
- Upon the filing of his 2001 tax return (October 2002);
- In an application to participate in the Offshore Voluntary Compliance Initiative (February 2003);
- In amended returns for 1999 and 2000 (filed February 2003);
- While pleading guilty to tax fraud (May 2003) as well as to conspiracy charges and tax evasion for the offshore funds from 1993 to 2000 (June 2003); and
- Upon filing his filing of form TD F 90-22.1 for tax years 1993 through 2000 (January 2007).
The facts also indicated that Williams met with Swiss authorities in 2000 and learned that his Swiss accounts were frozen on November 14, 2000, “at the behest of the U.S. government.”
The government sought to enforce its assessment of two FBAR penalties against the defendant for willfully failing to report his interest in his offshore accounts for the tax year 2000. Penalty for willful failure to file an FBAR is the greater of $100,000, or 50% of the amount in the account at the time of the violation. See31 U.S.C. § 5321(a)(5)(C) and 31 U.S.C. § 5322(a).
The government argued that the defendant’s signature on his Form 1040 was prima facie evidence that Williams knew the contents of his tax return and willfully failed to disclose his Swiss bank accounts. The court found, however, that while Williams had in fact not disclosed his offshore account on his original tax return, Form 1040, for the 2000 tax year, it occurred after he found out that the U.S. and Swiss authorities found out about the accounts. In the court’s view, Williams was aware that the authorities knew about his offshore accounts by the fall of 2000, long before the FBAR deadline of June 30, 2001. The court said that such evidence demonstrated that Williams lacked any motivation to willfully conceal his offshore accounts on his 2000 tax return, and thereafter.
“Williams’ subsequent disclosures throughout 2002 and 2003 corroborate his lack of intent,” the court said. “Though made after the June 30, 2001 deadline, Williams’ disclosure of the ALQI accounts to the IRS in January 2002 indicates to the Court that Williams continued to believe the assets had already been disclosed. That is, it makes little sense for Williams to disclose the ALQI accounts merely six months after the deadline he supposedly willfully violated.”
The Williams case shows that it may not be easy for the government to meet its burden of proof in order to establish the “willfulness” element. The courts will review all the facts and circumstances, including the taxpayer’s motives and actions, in order to determine if there was requisite willful intent. Nevertheless, it also shows that the government aggressively tries to enforce the FBAR penalties and will continue to pursue cases of undisclosed foreign accounts.
This case, as well as other cases and recent developments, should give those with undisclosed offshore accounts some incentive to seek legal counsel and consider if voluntary disclosure is necessary. Former IRS attorneys of Holtz, Slavett & Drabkin, can assist you with evaluating your options and dealing with this type of tax issues.
Copyright (c) 2010 Igor S. Drabkin. All Rights Reserved.