FBAR penalties of over $2M on foreign account

 eTax Alert™
Taxpayer Owes Penalties of $2,241,809 on Foreign Account Balance of
$1,545,676
On May 28, 2014, a Florida jury in a Federal District Court determined that FBAR penalties
of $2,241,809 were due for failure to file FBAR forms and pay taxes on interest income from
Swiss bank accounts. The foreign bank accounts had a high balance of $1,545,676 during
the years at issue.
Penalty applies to highest balance in each year. Mr. Zwerner, an 87-year-old resident of
Coral Gables, Florida, had substantial deposits in Swiss bank accounts. He timely filed an
FBAR report in 2007 and reported interest income from the accounts. He also filed
amended income tax returns and delinquent FBAR reports for 2004, 2005, and 2006. The
jury returned a verdict finding Mr. Zwerner “willful” in his disregard of the FBAR rules and
thus liable for an FBAR penalty equivalent to 50% of the high balance in his foreign financial
account for each of the years as follows: (a) 2004 – $723,762, (b) 2005 – $745,209, and (c)
2006 – $772,838.
Why “willful” disregard?
§
Zwerner did not report any of his foreign account interest income on his Form 1040.
§
§
Zwerner expressly told his return preparer on the organizer that he had no foreign
bank accounts.
Zwerner answered “No” to the question on Form 1040, Schedule B asking if he had
§
a financial interest in a foreign bank account.
The foreign accounts were held in an entity name, although Zwerner was the
§
beneficial owner.
Zwerner signed a letter to the IRS in 2010 where he admitted that he was aware of
the foreign account reporting requirements and that he knew that he should have
reported the account and interest earned (although Zwerner claimed that the IRS
agent dictated the letter, and that he signed it because of a promise from the agent
of reduced penalties).
“Quiet disclosure” goes bad. Mr. Zwerner voluntarily filed amended returns and
delinquent FBAR forms. His “quiet disclosure” did not protect him from penalties (see the
IRS FAQ #15 on quiet disclosure). Could Zwerner have participated in the voluntary
disclosure program (OVDP) to reduce his penalties? He applied, but the IRS refused to
allow him to use OVDP (probably because they were already pursuing higher penalties).
www.WesternCPE.com
800.822.4194
Planning idea. Always see an attorney for advice on unreported foreign income and unfiled
FBAR and FATCA forms.
US v. Carl R. Zwerner, Case # 1:13-cv-22082-CMA (SD Florida, June 11, 2013)
Sharon Kreider © 2014 www.WesternCPE.com
800.822.4194