Failing to file an FBAR carries a steep penalty—$10,000 per account per year in most instances, or the greater of $100,000 or 50% of the account balance for violations that are deemed willful. A willful failure to file an FBAR may also result in criminal prosecution, which carries a penalty of up to $250,000 and five years in prison. Do you have questions about filing an FBAR? Contact a Roseville tax lawyer of NewPoint Law Group, LLP for more insight on your legal matter.
What is Willfulness?
Courts have defined willfulness as a voluntary, intentional violation of a known legal duty. On the other hand, non-willful conduct is generally due to negligence or mistake, or a good faith misunderstanding of the law.
In the context of failure to file an FBAR, the government has the burden of proving that willfulness exists. To do so, the government must show two things:
If the taxpayer has a good-faith misunderstanding of the law, or a good-faith belief that the law is not being violated, willfulness does not exist, even if the belief does not appear objectively reasonable. However, a willful violation can exist where conduct constitutes willful blindness to the requirements of the law.
What Is the Burden of Proof?
To prove that failure to file an FBAR was willful, the government has the burden of proving willfulness. If criminal charges are brought, the government must prove beyond a reasonable doubt that the failure to file an FBAR was willful. In the civil context, however, the standard is less clear. IRS guidance suggests that willfulness must be proven with clear and convincing evidence; yet in a 2012 case, a district court applied the less burdensome preponderance of evidence standard. In other words, the government must prove that it is more likely the failure to file an FBAR was willful.
Examples of Willfulness
Direct proof of willfulness such as an admission or confession is generally impossible to obtain. Below are some examples in which willfulness may be inferred:
- Consistent pattern of under-reporting large amounts of income;
- Providing a return preparer with inaccurate and incomplete information;
- False statements given in defense;
- Unavailable books and records under suspicious circumstances;
- Making or using false documents;
- Putting property or a business in someone else’s name;
- Extensive use of cash or cashier’s checks; and
- General educational background and experience.