Another FBAR Penalty Victory For IRS/DOJ

News the other day, shocked most other attorneys and CPAs I spoke with. They found it unbelievable that a 1200% tax evasion penalty FBAR penalty can be assessed. This was a case out of New Jersey, and yet, news from Florida is even more shocking: the Department of Justice strong-armed an elderly widow into accepting a plea deal that included an FBAR penalty equal to 3200% of the total tax evaded.


That's right in this case, the US Department of Justice (DOJ) is proud to say:


"Mary Estelle Curran of Palm Beach, Fla., pleaded guilty today in the U.S. District Court for the Southern District of Florida to filing false tax returns for tax years 2006 and 2007, the Justice Department and Internal Revenue Service, Criminal Investigation (IRS-CI) announced….According to the plea agreement, Curran’s conduct caused a tax loss to the government of approximately $667,716…Curran has agreed to pay a civil penalty in the amount of 50 percent of the high balance of the accounts, which is $21,666,929."


So, fail to report and pay $667,716 and get an FBAR penalty of $21,666,929? And still be subject to 6 years imprisonment? Does this seem fair? Anyway, the debate over the fairness of this offshore crackdown is open, but the debate over whether to come clean or not has to be considered closed. It's hard for me to believe those US taxpayers who have not come forward to use the 2012 Offshore Voluntary Disclosure Program and are in danger of an FBAR penalty. I know because we talk to them every day.


Fair or not, the IRS and DOJ have plenty of muscle and law behind them. Why? Because the FBAR penalty is not calculated on the damage to the US government, but by how much a person's account is worth. An FBAR penalty is based upon highest account value, not how much tax was evaded. Think about how absurd this is. An FBAR penalty based upon "how much you got" vs. "how bad you are."

Absurd or not — here's the thing —if she didn't take the plea, if she lost at trial, her penalty could have been double. The FBAR penalty could be assessed per each year! Also, Ms. Curran could have evaded only $10,000 in taxes, and still be subjected to the same FBAR penalty of $21,666,929 because the account was valued at $42,000,000. If this were a case of domestic evasion, the government would not have the leverage to compel such a huge penalty.


For instance, in another case earlier this month, a Colorado man did something far worse, I would argue, to the US treasury; by attempting to steal $1.3 million in taxes.  Well, actually it is a little bit more than that:


"According to court records, Quintin and his co-conspirator obtained from an online database the names, dates of birth, SSNs and other identifying information of deceased individuals which they used to prepare and file tax returns in their names. They hired at least one individual whose job was to create email accounts for those deceased individuals; establishing email accounts in the names of the deceased individuals was necessary in order to file the tax returns on-line. They also obtained employer identification numbers (EINs) for various businesses, which they used to claim falsely on tax returns that the deceased individuals had worked at those businesses during the year 2008, earned income, and had taxes withheld from that income; all to allow Quintin and his co-conspirator to claim false refunds based on that false income tax withholding."


So Quintin, who created a vast criminal conspiracy, got a penalty of $250,000.00? No more than a penalty of 19.2%. Or the case of Curran, a widow who evaded taxes on foreign accounts she inherited from her husband: 3200%. My in-phone calculator may be broken (or operator error), but I think that is a penalty difference of over 16,000%. What people who have been shielding income tax with foreign accounts must realize is that they will be treated more harshly than someone who takes very specific and deliberate actions to engage in an identity theft ring in order to steal money from the US treasury. Those engaging in international tax evasion will be treated more severely than someone who ring-leads a domestic identity theft and fraud conspiracy.

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Link to the Plea Agreement: United States District Court Southern District of Florida Case No. 12-80206-CR-RYSKAMP 26 U.S.C. 7206(1) United States of America v. Mary Estelle Curran