F.B.A.R. Assessment and Collections Processes: A Primer

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With the June 30^th deadline fast approaching and the recent cases addressing F.B.A.R. penalties, we thought it would be useful to provide a primer on F.B.A.R. assessment and collections processes.

BACKGROUND

In general, a U.S. person having a financial interest in, or signature authority over, foreign financial accounts must file an F.B.A.R. if the value of the foreign financial accounts, taken in the aggregate and at any time during the calendar year, exceeds $10,000.

The F.B.A.R. must be filed electronically by June 30 of the calendar year following the year to be reported. No extension of time to file is available for F.B.A.R. purposes.

Failure to file this form, or filing a delinquent form, may result in significant civil and/or criminal penalties:

• A non-willful violation of the F.B.A.R. filing obligation can lead to a maximum penalty of $10,000. If reasonable cause can be shown and the balance in the account is properly reported, the penalty can be waived.
• In the case of a willful violation of the filing obligation, the maximum penalty imposed is the greater of $100,000 or 50% of the balance in the account in the year of the violation.

F.B.A.R. Penalty: Recent Cases

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U.S. v. ZWERNER: WILLFUL NON-FILINGS RESULT IN MONSTROUS CIVIL PENALTIES

United States v. Zwerner illustrates the potential for monstrous civil penalties resulting from willful failure to file F.B.A.R.’s. It further confirms the point that, if evidence of willfulness exists even in a sympathetic case, the I.R.S. may assert willful penalties in the case of “silent” or “quiet” disclosures, which the I.R.S. and its officials have consistently warned in official and non-official statements.

The facts of the case in brief are as follows:

From 2004 through 2007, Carl Zwerner, currently an 87-year-old Florida resident, was the beneficial owner of an unreported financial interest in a Swiss bank account that he owned indirectly through two successive entities. He did not report the income on the accounts for the period of 2004 through 2007, according to the complaint filed by the United States, but in his answer to the complaint, Zwerner, while admitting that he filed a delinquent F.B.A.R. for 2007, denied filing an amended return for that year, stating that his financial interest in the foreign account was reported on his timely-filed 1040 for that year. The complaint also alleged that, for 2006 and 2007, he represented to his accountant that he had no interest or signature authority over a financial account in a foreign country. Zwerner denied those allegations.