Must Taxpayer Repatriate Foreign Money for FBAR Fines?

Must Taxpayer Repatriate Foreign Money for FBAR Fines?

Must Taxpayer Repatriate Foreign Money for FBAR

Must Taxpayer Repatriate Foreign Money for FBAR Fines? In the case of US v Schwarzbaum, the Defendant was hit with a $13M judgment for FBAR Penalties – which the Defendant is still appealing. In the meantime, the US Government wants to move forward with enforcement, and seeks to collection of the judgment — by forcing Defendant to repatriate the funds from overseas to satisfy the FBAR Debt. Rightfully so, Defendant disputes the Government’s position – although whether or not the Court will agree with his argument has not yet been determined.  The importance of posting about the Government’s motion in Schwarzbaum seeking to force repatriation of foreign money, is so that Taxpayers can get a glimpse into how far the US government will go when it aggressively seeks to enforce FBAR penalties and FinCEN Violations. For most Taxpayers, being proactive and getting onto compliance voluntarily (through one of the accepted FBAR Amnesty Programs) is usually the path of least resistance.

*At the time of this article, the outcome of the Government’s motion is still pending —

Appeal is Pending But No Bond Has Been Posted

The Government alleges that Defendant can simply file a bond in order to place the collection on hold. The problem with posting the bond for Defendants (in general) are twofold:

  • The cost of the bond is very typically high; and
  • If Defendant loses the appeal, then presumably the Government will have a roadmap to finding the money and/or assets necessary to satisfy the debt.

Defendant Argues that Repatriation for FBAR Penalty does not Apply

Defendant takes the position that since the money was never kept in the US, forcing him to repatriate the money is not (technically) a proper avenue – and also that the FBAR Penalty is not a tax liability.  

The Government argues that is not applicable and refers to the case of US v McNulty:

      • “United States v. McNulty, 446 F. Supp. 90, 92 (N.D. Cal. 1978). There, the Government secured a judgment against McNulty for unpaid taxes. McNulty won the Irish Hospital Sweepstakes and kept the funds outside the United States. Even so, the court determined that it had the authority to order McNulty to bring the money into the United States. In its motion, the Government provided an array of cases in which federal courts ordered judgment debtors to repatriate assets located in foreign countries.

      • None of them distinguishes between assets at one time housed in the United States and ones always housed abroad. There would be no reason to do so. Any such distinction would only encourage gamesmanship by recalcitrant debtors like Schwarzbaum who wish to frustrate a prevailing party’s attempts to collect on a judgment and thumb their noses at a district court’s inherent power to enforce judgments.

      • Footnote 5 – Schwarzbaum also admits what the United States demonstrated at trial, that in 2009 he moved millions of dollars from his U.S. bank accounts to his Swiss accounts. ECF No. 121 at 3. He claims he moved his assets in connection with moving his family to Switzerland, but the reason he moved the funds is immaterial. This explanation does not withstand minimal scrutiny, because the fact remains that Schwarzbaum “expatriated” millions of dollars when he allegedly moved to Switzerland.”

Defendant Relies upon the Concept of Disgorgement Regarding Repatriation Claim

Disgorgement is a very complicated analysis involving the concept disallowing a person to benefit from something that was acquired illegally. Defendant argues that this is merely a standard money judgment. And, since there was neither fraud nor deception, the repatriation order should not apply.

US Government seeks Aggressive Enforcement of FBAR Fines

The outcome of the motion can have a significant impact on how far the US Government can go to recover for FBAR Penalties — and whether the court will rule in favor of forced repatriation of overseas funds.

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