United States v. Bohance (FBAR Series)

United States v. Bohance, U.S. District Court, C.D. California | September 8, 2016 | Pregerson, J. | No. 2:15-CV-4347 DDP

Short Summary: United States brought action against taxpayers to collect a civil penalty assessed for willful failure to report their interest in foreign bank accounts during tax year.

Key Issue: Whether defendants’ FBAR violations were willful.

Primary Holdings:

Defendants were at least reckless, if not willfully blind, in their conduct with respect to their Swiss UBS account and their reporting obligations regarding the account.2Defendants never provided UBS with their home address, and never told anyone other than their children of the existence of the UBS account, including the tax preparers Defendants hired to help them file tax returns. Defendants never asked a lawyer, accountant, or banker about requirements regarding the UBS account, and never used a bookkeeper or kept any books once the UBS account was opened.
Defendants’ failure to timely file an FBAR for 2007 was willful. The maximum penalty is therefore increased to the greater of $100,000 or fifty percent of the balance in the foreign accounts on June 30, 2008.

Key Points of Law:

Taxpayers were at least recklessly indifferent to their statutory duty to report their interest in foreign bank accounts during tax year, thus warranting enhanced civil monetary penalties; taxpayers owned camera shop that had a worldwide reputation and they sold and shipped to customers around the world, one taxpayer was sufficiently sophisticated to obtain two patents without assistance, they always used tax preparer to prepare camera shop’s tax returns but did not inform preparers of Swiss bank account, they directed customers to deposit payment into that account and made several transfers and withdrawals from the Swiss account to other foreign and domestic accounts, a prior tax return put them on notice that they needed to report their interest from foreign accounts, and they made several misrepresentations under penalty of perjury, including that all of the funds in the Swiss account were after-tax proceeds from their business.

“Recklessness,” for purposes of civil tax liability for failure to report monetary instrument transactions, is an objective standard that looks to whether conduct entails an unjustifiably high risk of harm that is either known or so obvious that it should be known.
The Internal Revenue Service (IRS) manual’s interpretation of willfulness as encompassing only intentional violations of known legal duties, for purposes of statute providing increased monetary penalty for the willful failure to report foreign bank and financial accounts, does not have the force of law.

The preponderance of the evidence standard applied to determination of whether taxpayers willfully failed to report their interest in foreign bank accounts during tax year, as would warrant enhanced civil penalties, since such monetary sanctions did not rise to the level of particularly important individual interests or rights

Insight:

This is another case where the court considered the defendants’ business sophistication to support their determination of willfulness in regard to FBAR violations.[1] First, the court discussed their business sophistication, pointing to the fact that they were the exclusive dealer of a certain brand of camera and had negotiated the deal themselves.[2] Also, the court discussed the defendants’ technical sophistication, evidenced by the fact that Bohanec had obtained two patents without any assistance and had managed the construction of a home on the coast of Mexico.[3] Both of these dimensions of sophistications were listed under the holding that the government had proved that defendants were recklessly indifferent to their statutory duty to file a timely FBAR.[4]

The court also discredited defendants’ arguments that their violations were not willful by pointing to their conduct in the IRS’ Voluntary Disclosure Program for Offshore Accounts.[5] The court discussed the fact that defendants made multiple misrepresentations under oath, such as that that funds in their UBS accounts were all-after tax proceeds.[6] The court again used this conduct as evidence that defendants were at least reckless in failing to file a timely FBAR, and therefore their violation was willful.[7]

[1] United States v. Bohanec, 263 F. Supp. 3d 881, 889–890 (C.D. Cal. 2016).

[2] Id.

[3] Id.

[4] Id.

[5] Id. at 890.

[6] Id.

[7] Id.