On June 6, I wrote about the impending FBAR deadline and a use of “quiet disclosures” by foreign account holders to come into compliance with the FBAR requirements. As I stated in that post, the IRS was looking into penalizing individuals that attempt to skirt the OVDP process the IRS set-up to bring taxpayers into compliance. One June 11, 2013 the IRS filed suit to enforce the assessment of the 50% willful failure to file FBAR penalty. See United States v. Carl R. Zwerner, Case # 1:13-cv-22082-CMA (SD Florida, June 11, 2013).
This case is alarming for at least two reasons. The first is the actual filing of the lawsuit. Generally, the IRS has 10 years to collects amounts assessed against taxpayers. This same rule is applicable to assessed FBAR penalties, see Internal Revenue Manual. However, 31 USC §5321(b)(2) provides a time limitation for filing suit to collect the FBAR penalty. In this case, it appears the IRS was up against the deadline to file suit. We do not have any facts at this time to know whether the defendant was attempting to make payments or was being uncooperative. What we do know, is the IRS recently acknowledged the need to pursue quiet disclosures, and by filing this suit they were able to make public some of the defendants confidential tax matters. These tax matters just fortunately coincided with the IRS’ public position that taxpayers should not pursue quiet disclosures. In a very public manner, the IRS laid their cards on the table and alerted taxpayers to the cost of a quiet disclosure.
The cost in this case is the second area of concern. The defendant admitted to an interest in a Swiss bank account that had an approximate balance of a $1.5 million. The IRS has now assessed against the defendant penalties totaling over $3 million. The penalties alone are more than twice what the account is worth. Had the defendant pursued the OVDP process, he could have been looking at a penalty of approximately 20% of the highest account balance. Whether the penalties are fair under the Constitution is another matter, and one I cannot answer. But what is clear, is the IRS is quickly letting the tax practitioner and taxpayer community know of their intention to pursue these quiet disclosures. Should you have an FBAR matter, please contact a competent tax attorney.