United States v. Hughes: FBAR Penalties and a Willfulness Roadmap

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Jason B. Freeman

Jason B. Freeman

Managing Member


Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine, a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

In the recent case of United States v. Hughes, a federal district court upheld willful FBAR penalties against a taxpayer for failing to report foreign accounts.  The court, siding with the government in two out of four years at issue, found that the violations were “willful”—in part basing its conclusion on the fact that the taxpayer checked “yes” on Schedule B, failed to read the Form 1040 instructions, and failed to report interest income earned in the foreign account.

The Hughes decision provides a bit of a roadmap of the evidence that the government will look at in building a case against a taxpayer for willful conduct. The case originated when the government filed a lawsuit seeking to enforce civil FBAR penalties against the taxpayer, Hughes, for failing to report several foreign bank accounts by filing a “FBAR.”

After weighing the evidence, the Court found that Hughes’s failure to file FBARs in two of the years at issue was “willful,” but also found that the government did not demonstrate willfulness as to the two earlier years.


The Bank Secrecy Act requires that all U.S. persons file a report—known as an FBAR—annually listing their foreign financial accounts if those accounts exceed $10,000 in the aggregate. The penalty for failing to file the report varies depending on whether the violation was willful or non-willful.

The penalty for a non-willful violation is $10,000 (adjusted for inflation). The penalty for a “willful” violation is more significant: generally the greater of $100,000 or half of the balance of the account at the time of the violation.

To assess penalties for a “willful” violation of the requirement to file an FBAR, the government must demonstrate that:

  1. the defendant was a ‘U.S. Person,’
  2. who had an interest in or authority over the subject foreign accounts,
  3. that had an aggregate value of $10,000.00 or more, and
  4. that he willfully failed to file an FBAR Form for the accounts.”

In a civil action, the United States has the burden of proof.  Most courts have held that the standard to show a willful violation is the preponderance-of-the-evidence standard, although this is not a settled issue.  That standard requires that the government “provide evidence establishing that it is ‘more likely than not’” that the elements are satisfied.

Most courts to consider the issue have held that, for the purpose of civil FBAR penalties, either recklessness or willful blindness can suffice to show a willful violation.

The Court’s Holding

The Court found that Hughes’s failures to file FBARs for 2012 and 2013 were “reckless,” and thus constituted “willful” violations of the filing requirement for those years.  It did not, however, find the violations with respect to 2010 and 2011 to be willful. The court’s analysis, in part, follows:

With respect to her 2012 and 2013 returns, there is no doubt that Hughes saw the questions about filing an FBAR, because she answered them (and in 2012, stated that she was required to file one). In 2010 and 2011, Hughes’s returns did not include Schedule B, so the certification that she “examined this return and accompanying schedules and statements” does not encompass that schedule and its admonitions about the FBAR. The United States has identified nothing in Hughes’s 2010 or 2011 returns as actually filed that, if “examined” as she certified, would have put her on notice of the FBAR requirement.

The circumstances of Hughes’s2010 and 2011 tax returns differ from 2012 and 2013. Unlike those later years, there is no indication that Hughesreviewed Schedule B, with its instructions regarding the FBAR requirement, in preparing her 2010 and 2011 returns or any time before she did so. In the absence of any evidence that Hughes was aware of the FBAR filing requirement when she completed her returns for those years, or that she was presented with any information that should have put her on notice of that requirement, the United States has not met its burden to show that her failure to file FBARs in those years was anything more than negligent. The United States therefore cannot assess penalties for “willful” violations for those years.

Hughes’s paid New Zealand taxes on her interest income, but apparently testified that she did not take any steps to determine whether that gave rise to an exception to the FBAR requirement.  The court focused on the Schedule B instruction to “[s]ee Form TD F 90-22.1 and its instructions for filing requirements and exceptions,” which it concluded gave rise to an “unjustifiably high risk of harm that is … so obvious that it should be known.”

During her testimony, Hughes acknowledged that if she had read the instructions—as, the court emphasized, Schedule B instructed her to do—she “would have filed the FBARs.” The court found that the need to file FBARs was “obvious.”


Hughes is yet another case upholding willful FBAR penalties.  As we have discussed previously, the Hughes decision provides some additional clarity on the distinction between willful and non-willful conduct. But, perhaps more importantly, it provides a roadmap of the evidence that the government will look at in building a case against a taxpayer for willful conduct.


FBAR Penalty Defense Attorneys

FBAR penalty defense requires a proactive representation and a deep knowledge of the nuances of FBAR compliance and its defenses. Freeman Law represents clients with offshore tax compliance disputes involving FBAR penalties and international information return penalties. Failing to file an FBAR can give rise to significant penalties, including a non-willful penalty and willful FBAR penalty. The risks of tax and reporting non-compliance have never been more real and the threat of international penalties, particularly FBAR penalties, has never been more clear. Schedule a consultation or call (214) 984-3000 to discuss your FBAR penalty concerns or questions.