Recent FBAR Civil Penalty Cases

Foreign Nationals & Expats

Houston Tax Attorney

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Civil FBAR Penalty Cases

An FBAR penalty under 5321(a)(5) requires not just a failure to timely file but also evidence of willfulness.

When willfulness is established, the failure to timely file an FBAR will result in a maximum penalty that is the greater of (1) $100,000 or (2) 50 percent of the maximum balance in the accounts at the time of the violation.

Here are cases where the Government has prosecuted individuals for 5321(a)(5) violations.

U.S. v. Pomerantz

In this filed complaint, the Government is seeking to collect civil FBAR penalties assessed under 31 U.S.C. § 5321(a)(5), also known as the FBAR penalty statute. As discussed in a previous topic, any assessment of civil or criminal penalties under 5321(a)(5) requires evidence of willfulness. Although this case is still in pending litigation, it serves as a good example of fact patterns that can lead to civil FBAR penalties.

Case Facts

  • Defendant Jeffrey Pomerantz (“Pomerantz”) is a U.S. citizen and had an FBAR filing requirement for calendar years 2007, 2008, and 2009
  • Pomerantz had two personal checking accounts at Canada Imperial Bank of Commerce (“CIBC”) which were opened prior to January 1, 2001
  • In 2003 Pomerantz formed a corporation in the Turks and Caicos Islands and retained full rights to act on behalf of the entity
  • The newly formed entity conducted no active business, but was rather a shell entity to hold and manage his personal investments
  • Also in 2003, he opened two portfolio accounts in Switzerland that were titled in his business’s name
  • In 2007 Pomerantz opened an account with the Royal Bank of Canada (“RBC”) also titled under his dba
  • In 2010 the IRS commenced an income tax examination of Mr. Pomerantz’ returns.
  • Prior to the examination, it appears that Pomerantz did not file FBARs for any prior years
  • In 2014 the Government assessed civil FBAR penalties against Pomerantz in the amount of $860,300 due to willful failure to file his 2007, 2008, and 2009 FBARs.

Willfulness Factors

These are some factors that likely caused the government to pursue civil FBAR penalties under 31 U.S.C. § 5321(a)(5):

  1. Creating separate business entities which had no other purpose than to hold and manage his investments
  2. Location of the accounts in jurisdictions that are known tax havens (Turks and Caicos Island, Switzerland)
  3. Opening the foreign accounts using a dba rather than under his own name

It should be noted that he likely did not file any of his FBARs from 2001 onwards, but civil penalties were only assessed for 2007-2009. Presumably he filed in 2010 after being selected for an income tax examination. There is a 6 year statute on an un-filed FBAR that begins to run from the due date of the FBAR. The Government did not assess the penalties until 2014, so there were only three years (2007-2009) for which the statute was still open and the FBAR was not timely filed.

U.S. v. Mani

Here is an FBAR penalty case that resulted in a plea agreement. Link to DOJ press release.

Facts

  • Defendant, March Edward Mani, is a 48 year old U.S. citizen and resident
  • Mani is a plastic surgeon working in Beverly Hills, CA
  • Dr. Mani began to travel to Dubai in 2011 to perform plastic surgery for a foreign medical center
  • Dr. Mani’s accountant, who was aware that he was earning foreign income, informed Dr. Mani in late 2011 that he would be required to report foreign bank accounts under his ownership to the IRS. Defendant reported his 2011 foreign earned income on his 2011 federal income tax return.
  • In 2012 defendant opened a foreign bank account at Mashreq Bank in Dubai, where he deposited income he earned from the Medical Center. By 2013 his account contained $402,000 USD.
  • Defendant then consulted with other accountants whether he had to report foreign earned income and his foreign bank accounts to the IRS. The other accountants confirmed to Defendant that he did indeed have a reporting requirement.
  • Defendant filed his 2012-2014 tax returns, significantly underreporting his foreign earned income from the medical center.
  • Defendant failed to file his FBARs.

Charges

Defendant was charged with a violation of Title 31, USC § 5314 and 5322, and 31 C.F.R. § 1010.350.

The statutory maximum sentence for the above violations is a: five years of imprisonment; a three year period of supervised release; a fine of $250,000 or twice the amount of gross gain or gross loss resulting from the offense, whichever is greater.

The plea agreement can be found here (courtesy of Jack Townsend’s Federal Tax Crimes blog)

Willfulness Factors

The willfulness factors here are easy to spot:

  • There was a significant amount of foreign income that was unreported
  • Defendant had knowledge of the FBAR filing requirements

 

What Should you Do if you have Unfiled FBARs?

Regardless of whether you enter into the OVDP or streamlined program, you’ll need to file your 6 most recent FBARs. This should be the very first thing you do. As a practical matter, the government does not generally assess civil penalties on late FBARs but only on FBARs that have not been filed at the time the noncompliance is discovered.