IRVINE, Calif., Sept. 29, 2020 /PRNewswire/ — U.S. citizens with overseas assets or offshore bank or financial accounts are required to report these holdings to the IRS each year on a “Report of Foreign Bank and Financial Accounts,” or “FBAR.” Failure to do so can result in fines that will be enhanced if your actions are deemed to have been willful. Aside from this, taxpayers who fail to file FBAR can also be subject to the “fraudulent failure to file” penalty relating to your overall return, but only if their actions were sufficiently deliberate. Since the standards for both of these actions seem essentially the same- the deliberate attempt to avoid tax liability by failing to file documents- you might think that if a court were to sustain the application of one of these penalties, they would sustain the other.  

Logo (PRNewsfoto/Tax Law Offices of David W Klas)
Logo (PRNewsfoto/Tax Law Offices of David W Klas)

In United States v. DeMauro, the case at issue, a woman named Annete DeMauro challenged the IRS’s assessment against her of enhanced civil fines due to willful failure to file FBAR as well as the fine for fraudulently failing to file under § 6663 of the tax code. She conceded that she had failed to file her FBAR reports as required but claimed that she had not done so willfully or with a fraudulent purpose. Civil fraud under §6663 requires “intentional commission of an act or acts for the specific purpose of evading tax believed to be due and owing.”

The government pointed to evidence that DeMauro had not sought a tax professional’s advice regarding the FBAR filings as she had in the past for similar situations and the fact that she took steps to conceal her foreign bank accounts and money transfers. DeMauro countered that she had taken such steps not to avoid taxes, but in order to conceal assets from her abusive ex-husband, an explanation found credible by the IRS agent on the case.

The District Court ultimately ruled that the fraudulent failure to file fines were not proper in this instance.

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Public Contact: Dave Klasing Esq. M.S.-Tax CPA, [email protected]

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