On May 28, a Florida jury sided with the United States government in determining that Carl Zwerner, a Florida resident, willfully failed to file reports of foreign bank and financial accounts (“FBAR”) for years 2004 through 2006. The jury assessed $2.2 million in FBAR penalties, plus interest and additions. The penalty amount equaled roughly 145% of Mr. Zwerner’s highest foreign account balance for the years at issue.
Recently, the attorney for Mr. Zwerner presented the Zwerner jury instructions for the first time. The judge instructed the jury that “the United States can establish that Mr. Zwerner willfully failed to comply with his FBAR requirements if he acted with reckless disregard of his statutory duties, as opposed to acts that he knew violated the reporting requirements.” The judge instructed the jury that the government did not have to prove that Mr. Zwerner knew of the FBAR reporting requirements to prove willfulness. Instead, the instructions linked recklessness with wilful blindness, and the instructions gave an example involving an individual who possessed a package he believed to contain drugs but intentionally avoided verifying his suspicion to deny knowledge of the package’s contents.
Many practitioners criticized the jury instructions. Steven Toscher, an attorney with Hochman, Salkin, Rettig, Toscher & Perez PC, stated that the instructions are wrong as a matter of law. Mr. Toscher cited to ILM 200603026, in which the IRS defined willfulness in the FBAR context as the violation of a known legal duty. Mr. Toscher also argued that this is the standard in the Internal Revenue Manual. Mr. Toscher acknowledged that United States v. Williams and United States v. McBride defined willfulness as wilful blindness, but the facts in those cases were sufficiently detrimental to the taxpayer that the wilful blindness standard was likely unnecessary to the outcome of the cases.
The conflicting interpretations of willfulness in the FBAR context underscore the complexity of this area of the law. Taxpayers with undeclared offshore accounts are encouraged to consult with their trusted advisors to determine the best way to come back into compliance.
See Athanasiou, Amanda. “Jury Instructions Blamed for Florida Man’s Loss in FBAR Case.” Tax Analysts, November 4, 2014. 2014 TNT 213-6.