- 1 Reckless Disregard and Schedule B
- 2 Kimble Background: Swiss Banks and Numbered Accounts
- 3 Kimble Entered OVDP/OVDI & UBS entered a Deferred Prosecution Agreement
- 4 What is a Deferred Prosecution Agreement (DPA)?
- 5 Kimble Agreed to an OVDP/OVDI Penalty, Opted-Out and was Found Willful
- 6 The “Secret” Numbered Account and Communications with UBS were the Primary Issue
- 7 Schedule B was the Final Nail in the Coffin
- 8 International Tax Lawyer Specialist Team: Golding & Golding
Reckless Disregard and Schedule B
Reckless Disregard and Schedule B: The recent case of US v. Kimble was a court ruling on the issue of Reckless Disregard, Schedule B and Foreign Accounts Compliance. While the case result was not great for Kimble, it is not as bad as some practitioners would like to make it seem for Taxpayers as a whole. In short, the case does not stand for the bare assertion that by simply making a mistake on the Schedule B foreign accounts question, a person is reckless by IRS standards – and therefore willful. Even the Internal Revenue Service seemingly acknowledges this fact on their most current (at the time of this article) FAQ for Streamlined (aka non-willful) submissions:
We realize that many taxpayers failed to acknowledge their financial interest in or signature authority over foreign financial accounts on Form 1040, Schedule B. If you (or your return preparer) inadvertently checked “no” on Schedule B, line 7a, simply provide your explanation.
The facts of Kimble are very crucial in assessing why the Court concluded Kimble was recklesss — and thefefore, willful. Our concern is that some attorneys will use Kimble to “fear monger” taxpayers into VDP instead of Streamlined, Delinquency or Reasonable Cause based on intentionally misconstruing the findings in Kimble.
Let’s take a look at the Kimble Case.
Kimble had Swiss Bank Accounts at UBS at around the time UBS entered into a Deferred Prosecution Agreement. Her accounts were “number accounts” designed to avoid detection. She entered into OVDP and was found willful.
The mere fact that Schedule B was not accurate was not why she was found willful — it was the icing on the cake.
Kimble Background: Swiss Banks and Numbered Accounts
Let’s look at the key facts:
- Kimble has Swiss Bank Accounts
- The account was at UBS (until 2008)
- Kimble had Numbered Accounts (used to avoid detection by substituting a number identifier for a name)
- All Correspondence was intentionally retained by the bank (To keep Kimble out of the loop)
- UBS Income was excluded from the Tax Return.
What does this Mean
Just looking at these facts, the immediate concern is that Kimble went through some lengths to avoid having her name associated with the account. While this does not conclude she was willful, these facts are not favorable to Kimble.
Kimble Entered OVDP/OVDI & UBS entered a Deferred Prosecution Agreement
While Kimble was proactive, she was a bit late. She did not enter OVDP until 2009 and at around the same time UBS had entered into a Deferred Prosecution Agreement (also in 2009).
Read: Her timing was bad.
What is a Deferred Prosecution Agreement (DPA)?
These agreements are used to promote transparency of foreign institutions with US Account Holders who may have committed tax fraud — and they greatly benefit the Internal Revenue Service and Department of Justice. When a foreign institution gets caught aiding US persons with Tax Fraud — the bank and the bank executived are at risk for signficant fines and penalties — if not worse. Therefore, the foreign institution agrees to enter into a Deferred Prosecution Agreement, in which the U.S. and the foreign financial institution agree that in exchange for not pursuing a prosecution at this time, the institution will turnover heaps of information to the Department of Justice. The information generally involves U.S account holders, which are then disseminated to the various different three letter agencies within the U.S. government to enforce the Bank Secrecy Act and other related tax crimes.
Kimble Agreed to an OVDP/OVDI Penalty, Opted-Out and was Found Willful
Kimble entered into an agreement with the IRS to pay a penalty. She then presumably opted-out in order to reduce the penalty.
This strategy backfired and left her in a worse position than when she started the process.
*Back in 2009, there were no stand-alone Streamlined Procedures for non-willful Taxpayers.
The “Secret” Numbered Account and Communications with UBS were the Primary Issue
As provided by the Court:
“The undisputed facts show that Ms. Kimble knew about the numbered account and took efforts to keep it secret by, among other things, not disclosing the account to her accountant.”
As Further Provided by the Court:
“Despite her meetings with bank representatives and the frequency of her transactions with the account.”
Schedule B was the Final Nail in the Coffin
In conclusion, there were several negative facts which impacted the court’s decision to uphold the IRS is finding that Kimble was willful. It is important to review the case in its totality and note that the mere fact that the taxpayer did not accurately sign the IRS Schedule B was not the sole reason the court ruled the way it did.
International Tax Lawyer Specialist Team: Golding & Golding
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