Bedrosian Court Finds Willful FBAR Violation
Important of the Bedrosian Remand & Shift to Willful Penalties: A few years back, there was an important District Court case on FBAR reporting and penalties involving Mr. Bedrosian. The Court had found that Mr. Bedrosian was non-willful when he violated certain IRS FBAR compliance rules. The case was complicated, because Mr. Bedrosian had first submitted to the offshore voluntary disclosure initiative (OVDI), before opting-out and claiming non-willfulness. It was not clear that Bedrosian acted non-willful, especially in light of the reckless disregard and willful blindness rules.
*For reference, OVDI was introduced in 2009 and before the streamlined disclosure program was available as a stand-alone program for non-willful taxpayers.
Initially, the United States District Court for the Eastern District of Pennsylvania had found that Mr. Bedrosian was non-willful. The matter then went up on appeal to the Third Circuit Court of Appeals where the appellate court remanded it back to the District Court. On remand, the court held that in fact Mr. Bedrosian did act willfully in failing to report his Swiss bank account on the FBAR.
Let’s see how the court came to this conclusion:
Swiss Bank Account and Deferred Prosecution
To put the original case in some perspective, it was a few years after multiple Swiss financial institutions had entered into deferred prosecution agreements with the United States.
The United States was seeking to obtain as much information they could about US taxpayers who may have been caught up in the mix of hiding bank accounts and obtaining number accounts at Swiss banks (the account owner is identified as a number instead of the person’s name). This was about the time OVDI was created (later transitioned into OVDP before it was finally closed in 9/2018)
Bedrosian on Remand
The Court of Appeals had found that it did not believe the Circuit Court had not considered sufficient facts and circumstances to show that taxpayers conduct was non-willful.
Key Facts as put forward by the U.S. Government:
“Bedrosian’s cooperation with the Government, which this Court emphasized as negating willfulness, began only after he was exposed as having hidden foreign accounts
Shortly after filing the 2007 FBAR, Bedrosian sent two letters to his Swiss bank directing closure of two accounts, but only one of these accounts had been disclosed on his FBAR. The second account was moved to a different Swiss bank and the funds were not repatriated to the United States.
Bedrosian does not dispute he saw an article in The Wall Street Journal about the federal government tracing mail coming into the United States and was therefore alerted to the possibility of the United States finding out about his foreign bank accounts if the bank sent information through the mail.
Bedrosian’s Swiss accounts were subject to a “mail hold.” He does not dispute the existence of the mail hold or that he signed a form and paid a fee to the bank for this benefit. The Government relies on this point of evidence for the fact that Bedrosian paid a fee for a service, the purpose of which was to prevent correspondence from the foreign bank being tracked by the IRS.
Bedrosian also acknowledged that he was aware of the significant amount of money held in his foreign bank accounts.”
On Remand, the Court relied on U.S. v Horowitz
On remand, the District Court relied on U.S. v. Horowitz.
U.S. vs Horowitz is an important case that Golding & Golding summarized previously.
As provided by the court:
“The most factually similar case to this one is Horowitz. In Horowitz, the Fourth Circuit found that even if the Horowitzes were not aware of the FBAR reporting requirement, based on their knowledge of taxes on interest income, it did not make sense for them to conclude that their foreign accounts would not be taxed.
Here, Bedrosian knew about the FBAR requirement because his prior accountant told him about it. The Fourth Circuit also noted that the Horowitzes used “hold mail” service, as did Bedrosian.
The Horowitzes had a significant amount of money in their accounts, which the Court found meant the accounts were not easily overlooked. The amount in their account was comparable to the amount in Bedrosian’s accounts (around $1.6 million compared to around $1.9 million).
Lastly, the Fourth Circuit found that even if the Horowitzes did not review their taxes, they signed them and were thus representing their answers to the government under penalty of perjury. Bedrosian also claims to not have reviewed his FBAR closely, but he like the Horowitzes signed the form.”
In conclusion, the court finds the following:
“This Court, after review of the evidence, concludes that it must use a more expansive concept of willfulness that includes reckless conduct considered from an objective point of view. Accordingly, this Court concludes that Bedrosian’s conduct was willful under settled case law. An appropriate Order follows.”
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