FBAR Willfulness 2022 (4 Important Appeals Court Rulings)

FBAR Willfulness 2022 (4 Important Appeals Court Rulings)

FBAR Willfulness

Recently, the Supreme Court of the United States agreed to hear the Bittner case on the issue of Non-Willful FBAR Penalty violations. In Bittner, the Fifth Circuit Court of Appeals ruled in favor of the US Government and issued non-willful FBAR penalties on a per account basis instead of a per form basis. This squarely contradicts the outcome in the case of Boyd in the Ninth Circuit, in which the court limited penalties to one FBAR form per year — and not each account on the form. Beyond the key issue of non-willful FBAR violations, another crucial issue involving FBAR penalties involves willfulness, and specifically what is the standard in Civil Non-Willful FBAR Penalties. Let’s look at four important appellate court cases from 2022, with an emphasis on reckless disregard.


In Collins, the Court held that the Taxpayer was willful and that not only were his actions reckless, but they also amounted to an intent to deceive. There were many facts supporting the Court’s ruling, but one of the key facts, in this case, was that Taxpayer proactively requested that the foreign bank in Switzerland where his accounts were located not send him statements or other information about his financial accounts. While Collins presented various justifications for his noncompliance, the Court found them unreasonable.


The Bedrosian case has had a lot of back-and-forths. In Bedrosian, the Court took the position that the Taxpayer acted with reckless disregard, and therefore could be found liable for willfulness. This is important because it confirmed the fact that actual intent is not required to prove FBAR willfulness. Some of the key facts that the Court relied upon was that Taxpayer supposedly understated the value of his account(s) and had even received a warning from his own accountant about inaccurate foreign account reporting, but did not take any action to remedy those inaccuracies at that time.


The Rum case set the stage for the next case on the list as well (Schwarzbaum). In Rum, the court found that the Taxpayer was willful for several reasons. Taxpayer faced a steep uphill battle after admitting the purpose of opening overseas accounts in the first place was to hide assets from creditors.  Like many Taxpayers before him, Rum opted for a Swiss numbered account to avoid being personally connected with the account – and similar to the Collins case paid to have UBS (an IRS ‘Bad Bank’) keep him in the dark about the value of the accounts.


In the case of Schwarzbaum, the Court took the position that simply misunderstanding the reporting requirements is not sufficient in a case where the court believed the Taxpayer should have known the requirements. If the court truly believed the Taxpayer misunderstood the requirements, the outcome may have been different, but the Court was not convinced by Taxpayer’s rationale for misunderstanding the reporting requirements. While the Court did take issue with how the penalties were calculated, they affirmed the finding of willfulness.

Current Year vs Prior Year Non-Compliance

Once a taxpayer misses the reporting requirements for prior years, they will want to be careful before submitting their current year’s international reporting forms. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass file previous forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign IRS tax forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

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