A New Willful FBAR Penalty Case in District Court (CA 2023)

A New Willful FBAR Penalty Case in District Court

Now that the Supreme Court has dropped the hammer on the Internal Revenue Service’s per account, per year non-Willful FBAR penalties — instead limiting them to a one penalty per year maximum — there is the additional issue of willfulness FBAR penalties which will now take center stage in upcoming litigation for years to come. Recently, the Supreme Court rejected a case involving willfulness and foreign bank and financial account penalties. The big problem with willfulness penalties is that the IRS has the ability to penalize taxpayers upwards of 50% maximum value of their unreported foreign accounts. In addition, they are not limited to issuing just one year of penalties, but rather multiple years — so the question then becomes, what is willfulness? In recent years, courts have affirmed that both reckless disregard and willful blindness qualify as well for violations. Likewise, there is only a preponderance of the evidence standard and not a clear and convincing evidence standard — the latter which is what the IRS surmised it should be in a prior correspondence from Chief Counsel. Let’s look at the case of US v. Golbahar in the Central District of California:

Golbahar Willfully Failed to Timely Report Foreign Bank Accounts

1. 1. 14. In 2014, Golbahar, through counsel, submitted voluntary offshore disclosures to the Internal Revenue Service admitting he had two foreign bank accounts that he had failed to report to the United States Government.

      15. Golbahar admitted on the disclosure he had two unreported foreign bank accounts with between $2.5 and $10 million dollars between 2003-2010.

      16. Golbahar admitted on the disclosure he had been advised that his foreign account records “were susceptible to being turned over to the US government pursuant to an official request.”

      17. On June 23, 2014, Golbahar signed the disclosure admitting that he previously held the two foreign bank accounts.

      18. Golbahar’s signature on the disclosure appears below the statement that “By signing this document, I certify that I am willing to continue to cooperate with the Internal Revenue Service, including in assessing my income-tax liabilities and making good faith arrangements to pay all taxes, interest, and penalties associated with this voluntary disclosure. Under penalties of perjury, I declare that I have examined this document, all attachments, and accompanying statements, and to the best of my knowledge and belief, they are true, correct.”

      19. Golbahar attached information regarding two offshore accounts to his disclosure.

      20. Golbahar’s disclosure admitted that he had an account at Clariden Bank in Zurich, Switzerland (Clariden account), which he opened in 1996.

      21. Golbahar’s disclosure stated the account number ended in the letters FRASCA.

      22. Golbahar’s disclosure stated the Clariden account was closed in 2009.

      23. Golbahar’s disclosure admitted to meeting with Clariden representatives in face-to-face meetings in 1995 and 1998 in Los Angeles.

      24. Golbahar’s disclosure stated that he left the bank account opening documents with the bank “at the bank’s suggestion.”

      25. Golbahar’s disclosure stated that in addition to the opening deposit he made cash deposits in person.

      26. Golbahar’s disclosure admitted that he had an account at “Bank Cial (Swiss)” (Cial account) in Zurich, Switzerland, which he opened in 1985.

      27. Golbahar’s disclosure stated the account number ended in the letters HARDY.

      28. Golbahar’s disclosure stated the Cial account was closed in 2012.

      29. Golbahar’s disclosure stated that in addition to the opening deposit into the Cial account he made cash deposits in person and made wire-transfer withdrawals.

      30. Golbahar electronically filed delinquent FBARs for the 2006, 2007, 2008 and 2009 calendar years on June 23, 2015.

      31. On the delinquent FBARs Golbahar disclosed his Clariden account.

      32. Golbahar reported a maximum balance of $2,836,789 in the Clariden account on the delinquent 2006 FBAR and $2,864,948 on the 2007 and 2008 delinquent FBAR forms.

      33. Golbahar reported a maximum balance of $1,686,547 in the Clariden account on his delinquent 2009 FBAR.

      34. Golbahar’s Clariden account was nominally held by an entity called Frasca Finance Ltd., a British Virgin Islands entity.

      35. Golbahar closed the Clariden account on March 31, 2009.

      36. Golbahar told the IRS examiner investigating his accounts that he bought black diamonds with the funds from the Clariden account upon closing the account.

      37. Golbahar did not report the Cial account that he previously disclosed in his June 2014 voluntary offshore disclosure as being held from 1985-2012 on any of the delinquent FBARs he filed in 2015 for the 2006-2009 years.

      38. Banque Cial changed its name to Bank CIC (Switzerland) in 2008. See https://www.justice.gov/opa/file/794546/download.

      39. Golbahar refused to sign a waiver to allow the IRS to directly obtain account records from Bank CIC regarding the Cial account.

      40. Bank CIC entered into a non-prosecution agreement with the Department of Justice on November 9, 2015. See https://www.justice.gov/opa/pr/justice-department-announces-threebanks-reach-resolutions-under-swiss-bank-program.

      41. The IRS obtained limited information on United States account holders as a part of its non-prosecution agreement with Bank CIC, including information regarding Golbahar’s previously-disclosed Cial account.

      42. The Bank CIC records received by the IRS show that Golbahar held an account ending in HARDY.

      43. According to the limited information received from Bank CIC by the IRS, transactions occurred on Golbahar’s HARDY account between August 5, 2008 and December 16, 2010.

      44. A deposit of $1,448,506.45 was made into the HARDY account on March 24, 2009.

      45. A withdrawal of $3,030,745.00 was made from the HARDY account on December 16, 2010. Golbahar did not report his foreign accounts on his originally-filed tax returns that he later amended to admit unreported income.

      46. Golbahar filed a federal income-tax return for 2006 on October 15, 2007, and falsely answered that he did not have any foreign accounts, as reflected below:

      47. Golbahar filed a federal income-tax return for 2007 on October 15, 2008, and falsely answered that he did not have any foreign accounts, as reflected below:

      48. Golbahar filed a federal income-tax return for 2008 on October 14, 2009, and falsely answered that he did not have any foreign accounts, as reflected below:

      49. Golbahar filed a federal income-tax return for 2009 on October 13, 2010, and falsely answered that he did not have any foreign accounts, as reflected below:

      50. Golbahar signed his 2006, 2007, 2008, and 2009 income-tax returns under penalties of perjury affirming that he had examined his tax returns and accompanying schedules and to the best of his knowledge and belief, they were true, correct, and complete.

      51. Golbahar admitted he understated his income-tax liabilities by failing to report his foreign bank account income on his originally-filed income-tax returns for 2006 through 2009 in amended returns.

      52. On June 26, 2015, Golbahar filed amended returns for 2006 to 2009.

      53. On his amended returns, Golbahar disclosed a total of $79,726 in previously-unreported income from his Clariden account.

      54. Golbahar willfully failed to timely file an FBAR and report his foreign bank accounts for the 2005 calendar year in which he had a financial interest or signature authority.

      55. Golbahar willfully failed to timely file an FBAR and report his foreign bank accounts for the 2006 calendar year in which he had a financial interest or signature authority.

      56. Golbahar willfully failed to timely file an FBAR and report his foreign bank accounts for the 2007 calendar year in which he had a financial interest or signature authority.

      57. Golbahar willfully failed to timely file an FBAR and report his foreign bank accounts for the 2008 calendar year in which he had a financial interest or signature authority.

      58. Golbahar willfully failed to timely file an FBAR and report his foreign bank accounts for the 2009 calendar year in which he had a financial interest or signature authority.

      59. On October 31, 2019, the IRS issued Letter 3709 and Form 13449 to Golbahar proposing willful FBAR penalties against him in the amount of $1,515,371 for his willful failure to report his foreign bank accounts.

      60. On March 15, 2021, the IRS timely assessed willful FBAR penalties against Golbahar in the amount of $1,515,371 for the 2005 through 2009 calendar years.

Current Year vs Prior Year Non-Compliance

Once a taxpayer has missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.