Lately, I keep hearing people say that ignorance of the law is no excuse and it does not constitute “reasonable cause” in the eyes of the IRS. Both notions are false with regard to the Foreign Bank Account Report (FBAR).
When rules and regulations have their basis in natural law then ignorance is no excuse. Because everyone who is morally responsible should know that it is wrong–because natural law is patently obvious to everyone to the point that a law is hardly necessary to point out what is right and wrong: murder, theft, kidnapping, and fraud are such crimes against another person that no one needs a law to know that they are serious crimes. Natural law teaches us that if we do damage to another person or to a community that we become guilty.
But what about reporting our bank accounts according to the Bank Secrecy Act (FBAR)? In this case, ignorance is indeed an excuse. But first we should understand that the ignorance of the law cuts both ways: the IRS should also know the law, and the ignorance of the law is no excuse for them not following the law. Natural law teaches us that people shouldn’t have to report their wealth to government. Natural law protects private property rights. In history, government consists of a powerful entity which uses its force either to protect or to steal from the people. Since the people want protection but they don’t want to be impoverished, they set limits on the king whom they set over themselves to govern and protect. The natural law of private property rights is thus epitomized in the saying, “A man’s house is his castle.” A person is king over his own realm, and the Crown has no right to enter, to inventory or to seize what is in the possession of the citizen. This is natural law, which is expressed in ancient law codes, including the Ten Commandments, “Thou shalt not steal”. It is also enshrined in the US constitution in the Fourth Amendment. So I contend that FBAR, FATCA, and 8938 are violations of natural law, because it requires that we inform the king of the contents our castle without the king obtaining a specific warrant based upon a reasonable suspicion of an actual crime. The requirement of providing the king with an inventory is tantamount to saying, “If and when the king hath need, he may confiscate it for the good of the realm.” Therefore, the people require that the king recognize their own right to have kingship over their own possessions. So when the law itself violates the moral principles of natural law deeply entrenched in the English-speaking peoples’ tradition of rights, it is ridiculously absurd for the government to scare-monger by telling us there is no excuse for us not knowing the law. Thus, the FBAR law itself violates natural law and is a crime against a free people. The people may turn the question back to the IRS: Why is it that the IRS is ignorant of the law? What is their excuse?
Now when it comes to FBAR, the excuse of ignorance of the law is actually enshrined into the law itself. This is what is meant by “wilful” or “non-wilful” violation. Once the law itself recognizes that the will has to be involved then it tacitly acknowledges that ignorance is indeed an excuse, as Hale E. Sheppard summarizes: “‘Ignorance of the law’ may indeed be an excuse where willfulness is a necessary element, …” Ignorance thus excludes the person from the most severe consequences of FBAR. Suppose a person has $1,000,000 in a foreign bank account for one year. The wilful FBAR penality could be as high as $500,000. But the government would have to prove several things: (1) that you had a foreign bank account with $1,000,000; (2) that you knew about the FBAR law; and (3) that you deliberately chose to ignore the law; and (4) that there is no other reasonable cause, such as, that you were in a coma or you were stranded on a desert island. Ignorance is an excellent defense, when a law has a wilful and a non-wilful penalty structure.
This very fact favors go-forward or quiet-disclosure compliance, if the person feels they must comply (I do not). The IRS fake-amnesty program called Offshore Voluntary Disclosure Initiatives (OVDI) is a very bad choice. In the OVDI, the taxpayer tacitly admits that the failure to file was wilful and therefore fesses up and accepts the 27.5% fine. This is a very bad deal for foreign residents with innocent accounts; if you were ignorant of the FBAR law and that is the reason you weren’t in compliance, then good for you. That is an excellent excuse written into the very fabric of the reporting requirement. Let’s stop letting the IRS tell us that “ignorance of the law is no excuse”. That is once again, the IRS acting in bad faith towards taxpayers.
We may add one more principle of a law, mens rea, which shows that ignorance is indeed an excuse in the case of a reporting requirement. There is absolutely no way that any person living in a foreign jurisdiction could know via natural law that they had committed a crime by not reporting their innocent bank accounts. I feel sorry for Bubblebustin who feels guilty for having opened 51 different accounts. There is nothing in natural law that would indicate that she has done anything wrong by having so many accounts. So mens rea means for many laws that the person must have committed the crime with intention:
Many serious crimes require the proof of mens rea before a person can be convicted.
In other words, the prosecution must prove not only that the accused committed the offence (actus reus) but that he (or she) did it knowing that it was prohibited; that their act (or omission) was done with an intent to commit the crime.
A maxim rich in tradition and well known to law students is actus non facit reum, nisi mens sit rea or “a person cannot be convicted and punished in a proceeding of a criminal nature unless it can be shown that he had a guilty mind”.
Thus, the principle of mens rea would require that a person must knowingly act in violation of a law, and this would apply to FBAR because the law itself makes a distinction between wilful and non-wilful violation. But I would argue that none of us living in foreign jurisdiction could possibly have mens rea because our violation is just simply one of ignorance of a reporting requirement: we did not open bank accounts to hide money and income from the United States, but to live our lives: how can the United States criminalize an act which is normal human behaviour in a Western democracy? Suppose they made it illegal to shop on Monday? Or to accept payment for work? That would be absurd. The FBAR law is indeed an absurd violation of natural law, for it is normal and right for us to have accounts in banks. I don’t care if Bubblebustin had 51,000 accounts–she committed no crime under natural law.
Rather, it is the United States government which is committing a crime against Bubblebustin and her husband. The question is whether the United States government commits this crime with mens rea: I would argue that they do. They are, according to Steven J. Mopsick, the best and brightest lawyers, from the most prestigious institutions. How could they not know the law? Their ignorance is thus no excuse.
NB: Jack Townsend discusses mens rea and FBAR in a couple of comments at his blog.