Prologue – Department of Justice Exhibits Trophies from FBAR Fundraiser (http://www.justice.gov/tax/offshore_compliance_intiative.htm)
Disclaimer: I want to make it clear that I support the principle that one should obey the law. I do believe tax evasion should be punished. But, I also believe that punishments should be proportional to the crime. It is becoming increasingly clear that FBAR penalties violate any conceivable principle of fairness and morality. Good citizenship requires one to support the principle that it is important that the government adhere to high moral principles and standards. Given a choice of having offshore tax evasion and a completely unprincipled and predatory government, I would opt for the former.
@AtticusinCanada The DOJ is "The Ministry of Love" http://t.co/PSYbgqYlAQ – What an #Orwellian World! http://t.co/p7ldrDJUjp
— U.S. Citizen Abroad (@USCitizenAbroad) June 12, 2013
Note that they proudly include the Curran widow who they simply extorted 21 million dollars from. This makes me sick for the reasons given here. The U.S. government is not A predator. The U.S. government is THE predator. The time has come for these “so called” lawyers to put their energy into a search for justice rather than a search for fees (click on the previous link – really).
It appears that the names on the trophy list are people who have agreed to pay the fines. They probably thought that by “paying” they would put their adventures in FBAR behind them. They are wrong. They will need counseling the rest of their lives.
Q. What options are available to the Government if you don’t pay your FBAR penalty?
A. They have to sue. Looks like we finally have somebody who “might” be willing to “get it on” with the Department of Justice.
Advice: Make sure you get yourself a lawyer with courage and principle.
The Lawsuit for the FBAR Penalty
DoJ Files Action to Collect Multiple 50 Percent Civil #FBAR Penalties in U.S.A. vs. Zwerner http://t.co/ly523P2y7Y – May be 8th am test!
— U.S. Citizen Abroad (@USCitizenAbroad) June 19, 2013
It’s not called the “FBAR Fundraiser” for nothing. The facts are described in the Forbes article as follows and a copy of the complaint is here.
U.S.A. vs. Carl R. Zwerner. On June 11, 2013, the U.S. government filed a Complaint to collect multiple civil FBAR penalties in the amount of $3,488,609.33 previously assessed against Carl R. Zwerner of Coral Gables, Florida for his alleged failure to timely report his financial interest in a foreign bank account, as required by 31 U.S.C. § 5314 and its implementing regulations. See United States v. Carl R. Zwerner, Case # 1:13-cv-22082-CMA (SD Florida, June 11, 2013). According to the Complaint, from 2004 through 2007, Mr. Zwerner, a U.S. citizen, had a financial interest in an account at ABN AMRO Bank in Switzerland (hereinafter, “the Swiss bank account”). The Complaint alleges that the balance of the Swiss bank account from 2004-2007 was at all times greater than $10,000 and that, as such, on or before June 30, 2005, 2006, 2007, and 2008, Mr. Zwerner was required to file an FBAR reporting his financial interest in the Swiss bank account for each year from 2004, 2005, 2006, and 2007, respectively. However, the Complaint also asserts that prior to October 2008, Mr. Zwerner had never reported his financial interest in the Swiss bank account on an FBAR, nor had he reported income he earned from that account on his federal income tax returns.
To many, pursuing multiple year, maximum penalties following submission of amended returns and delinquent FBARs appears punitive. The nature of the underlying actions, if any, that may have led to the filing of the Complaint are unknown. However, the Excessive Fines Clause of the Eighth Amendment and relevant Supreme Court caselaw support a conclusion to the effect that a civil penalty or forfeiture is unconstitutional if the penalty or forfeiture is at least in part “punishment” and such punishment is grossly disproportionate to the conduct which the penalty is designed to punish.The touchstone of the constitutional inquiry under the Excessive Fines Clause is the principle of proportionality – the amount of the penalty must bear some relationship to the gravity of the offense that it is designed to punish.
The Complaint in Zwerner further alleges that on or about October 13, 2008, Mr. Zwerner filed a delinquent FBAR reporting his financial interest in the Swiss bank account during 2007, along with an amended income tax return for 2007; on or about March 27, 2009, Mr. Zwerner filed amended income tax returns and delinquent FBARs for 2004, 2005, and 2006. The basis of the Complaint is that Mr. Zwerner’s alleged failure to timely report his financial interest in the Swiss bank account for 2004-2007 was willful. Apparently, Mr. Zwerner did not hold the Swiss bank account in his own name. The Complaint alleges that from 2004 to 2006 he held the account in the name of any entity called the Bond Foundation and that, in January 2007, he transferred the account to an entity called the Livella Foundation. However, the Complaint asserts that at all times, however, Mr. Zwerner was the beneficial owner of the account.
According to the Complaint, Mr. Zwerner’s original tax returns for 2004 to 2007 did not report any income earned from the Swiss bank account; that the first time he reported such income was when he amended those returns; and that Mr. Zwerner represented on Schedule B of his original tax returns for those years that he did not have an interest in a foreign financial account. The Complaint asserts that Mr. Zwerner “expressly represented to the accountant who prepared his original tax returns for 2006 and 2007 that he had no interest in or signature authority over a financial account in a foreign country.” Further, it asserts that in a “letter dated August 9, 2010, Mr. Zwerner admitted to the IRS that he was aware that he should have reported both the existence of the account and the income he earned from it.”
Why would the DOJ launch this lawsuit?
It is obviously vindictive. Presumably this is punishment for not entering the OVDP program. As we know the GAO criticized the IRS for allowing people to come into tax compliance without offering to pay penalties.
The message from the U.S. government is:
You do NOT under any circumstances fix your tax problems without participating in the FBAR Fundraiser.
This is particularly significant because:
The government is seeking (what appears to be the unusual step of seeking) a multiple year FBAR penalty! Well, this is breaking new ground. In other words, the DOJ is sending a message that we can and we will seek a multiple year FBAR penalty IF WE WANT TO! (How is a lawyer to advise a client.)
The likely effect of this …
The incentives for coming into compliance are deteriorating.
What effect does his have on U.S. citizens abroad?
Probably not much (at least at the moment). As Mr. Rettig writes in his article:
Given the complexities of the Internal Revenue Code, other relevant statutes and life in general, many of the indiscretions associated with an income tax return or FBAR are anything but willful or intentional and definitely not fraudulent in nature. It is also likely that long-term residents of the U.S. might be deemed to have a higher degree of knowledge and will be treated differently than long-term non-residents of the U.S. In each situation, the actual facts and circumstances of each matter must be carefully reviewed before anyone can determine the appropriate method of coming into compliance with the various filing and reporting requirements associated with offshore financial accounts.
Possible conclusion …
If you agree that the FBAR Fundraiser is outrageous – get thee to a consulate and renounce immediately. The United States of today is a country where law has become a substitute for morality! Furthermore, the United States has far too many laws.
Your thoughts …
I think you mean, It’s “about” time!
Hopefully their greed will be slapped back by SCOTUS, but stand by to be disappointed.
I assume these cases take a few years to get into Court
Nobody will stop these people. I lost faith in America.
What does it matter? A country which can even think of implementing such drastic punishments cannot be trusted. Someone is supposed to wait five years for – maybe – the SCOTUS to bring back a modicum of reason? Suffer the threat of personal bankruptcy because some forms weren’t filled out?
I have been disabused of the notion that there is any morality in their laws or the way they will apply them. They have been told to fund raise despite the circumstances. They know what they are doing, they know most ex pats would owe zero tax to them so FBAR became the means that justified the ends. Though they are trying to claim us all their laws, constitution and any other protections are not extended to us at all.
Their media is a huge infotainment marketing scam so none of this will be honestly covered. What their courts will do is something many don’t have time to wait for that outcome or decision. Are they violating their constitution? Yes, in many ways. It makes it easier to renounce knowing they have stomped all over those rights and protections. They’re the biggest bully on the block now while Obama gives his speeches reported on over and over always with the final sentence given by the reporters ending on a positive note. You know, just to give the home landers a good feeling about things. “Next up….Michael Jackson’s daughter Paris, gives testimony!”
I hope in the future there is an avenue for a lot of this FBAR witch hunt to be challenged. For their sake. I just no longer trust or have good faith in their motives, their laws or their courts. I’m very interested to see over the next few years how many ex pats they’ll have left. It’s just not worth it to be one of the “theirs” and to try and live a normal life outside those borders.
See the poll here:
Over 90% of those who responded feel they must renounce their citizenship to protect themselves from the U.S. government.
And things will get worse for the ex-pats in the meantime. Beginning July 1, 2013, the FBARs apparently have to be filed electronically. US persons abroad will have to have access to a computer to obtain a FinCen login (which will be sent to them at their email address, assuming they have one) in order to file the FBAR electronically. It’s not clear whether thereafter, FinCen/IRS communications to them regarding the FBAR will be to the email address given. If you want to file a paper FBAR, you have to call a special telephone number and explain why you need the dispensation. Apparently, there could be a $500 fine for not filing electronically. These are rules designed with Homelanders between the ages of 18 and 45 in mind, not the 6 million plus US persons of all ages scattered everywhere else on the planet.
One of the things that will be interesting is whether the computer will be assessing penalties. For example, what if there is no record of your having filed a previous years FBAR? My gut feel is that those who want to become FBAR compliant should consider getting their paper FBAR in before the July 1 deadline. Hopefully it will be processed in the next year.
Who comes up with these ideas! There are so many elderly expats and still so many who never heard of FBAR. My sister can’t do online forms and doesn’t trust them even if she could. She won’t bank online and has trouble figuring out these things. Filing online should be an OPTION not a demand. How hard is it to figure out ways to make it simple to do this for everyone if indeed that is the goal? Frankly, the idea of doing forms online with all the info gathering and privacy invasion going on right now is not appealing at all.
Interesting information on 90 percent of ex pats feeling they HAVE to renounce. Now a reasonable country would say “maybe this is too onerous and we ought to look at why these people are taking such a drastic decision.” Being the U.S. though what they will do is say “All these traitors need to be punished severely to discourage others from leaving us!” Now folks, that’s the way an abusive spouse behaves. Somehow they cannot just recognize the fact that it’s their issue causing the problem. There’s nothing “wrong” with us. It’s their ridiculous, expensive, egregious application of this issue with no support at all to us. Do the embassy’s here have IRS and treasury advisors for us? They still don’t mention FBAR when I talk to the IRS or when calling the embassy. It’s all been online! IF you aren’t searching for it you still aren’t going to know fully what this is about.
I did a quick and dirty analysis of the ratio of penalty to tax liability and come up with around 30x. My assumptions are that Mr. Zwerner’s account was held in USD. That the entire account balance was held in cash or interest bearing securities and none of it in shares. That the incremental increase in the high balance from year to year was entirely due to accumulated interest income and that none of the increase was due to unrealised capital gains (which, of course, don’t generate a tax liability). Further I assumed he earned $50,000 in interest income in 2004.
2004 – High balance $1,447,524; interest income $50,000 x 36% = $18,000 tax liability
2005 – High balance $1,490,418; interest income $42,894 x 36% = $15,442 tax liability
2006 – High balance $1,545,676; interest income $55,528 x 36% = $19,893 tax liability
2007 – High balance $1,691,054; interest income $145,378 x 36% = $52,336 tax liability
The penalty is $3,087,336 ($3,488,609 including interest and other penalties accrued since assessment) and the total tax liability under my assumptions is $105,671. Of course, the income and tax liability could have been very considerably less if he held shares or if all or part of the account was not held in USD. It also could have been higher if he had been making withdrawals.
I seem to recall that the fraud penalty is 75% of the tax liability, in which case Mr. Zwerner is about 40x worse for having received an FBAR penalty than if he had received a fraud penalty under my assumptions.
The only amendment that the people of the United States care about is the 2nd amendment.
I don’t know if you’ve read about my latest contacts with Congress here. I’ll try harder in my next meeting. The insanity has to stop.
Ain’t that the truth, which is pretty ironic, given that they have the kind of government that they have, and yet they do nothing but talk up a good game about their second amendment.
‘Murrica! Hell no!! 8^O
Boy they really have it in for that guy, or maybe they want to make an example out of him.
@Edelweiss: Aren’t you assuming that he didn’t pay any Swiss taxes on his interest? I don’t know anything about Swiss law, but in my country I would owe 0 tax to the US and still, according to the FBAR penalties, be bankrupted if I hadn’t filled in the papers. That’s absurd. A country which says basically, “If you are caught speeding, then you can be fined between 100 and 1M Usd, depending on our whim, is not a country with the rule of law. It’s as arbitrary as anything from Kafka.
Mr. Zwerner is a US resident living in Florida.
On second thought, I don’t think I gave your question enough consideration. I think the answer is it depends on how it was invested. If he held a savings account then it might have been subject to 35% Swiss withholding. If he held Swiss listed shares, he also could have been subject to 35% withholding on dividends. If he held USD denominated bonds, for instance, then I don’t think he would have been subject to withholding. There’s no information in the complaint (I don’t think) about how the funds were invested.
@USCitizenAbroad and others,
This is only somewhat related to the above, but I am having a discussion with a US-residing US person on whether a mandatory departure tax could be unconstitutional from a “freedom to leave” standpoint if the tax were “unreasonable,” “punitive,” or “confiscatory.” I am guessing that the answer is known.
—What is the answer on whether the US exit tax needs to be reasonable with respect to freedom to leave guarantee in US constitution–assuming such guarantee exists?
Being in Canada, I was asked as to the situation on Canada exit tax and movement rights.
Our Charter guarantees simply: “6.(1) Every citizen of Canada has the right to enter, remain in and leave
—So, if the Canada exit tax were unreasonable or punitive, this would be a Charter violation? Yes?
IS the present Canada exit tax unreasonable or punitive?
There is an update on this case, on Jack Townsend’s blog.
Like him, I am happy that someone with the resources to fight excessive penalties is doing so. There is hope that FBAR penalties will be considered unconstitutional.
An anonymous user posted the following:
“Update: After mediation was ordered on Aug. 9, Mr. Zwerner filed an answer to the complaint on August 12. I have no inside information on the case but am only commenting on the answer, which is a public document.
The facts appear not as bad as they seemed in the original complaint:
In October 2008 he filed his 2007 return (I presume, under extension) and properly reported the foreign accounts on Sched B, the interest income, and filed an FBAR for 2007 at that time (of course Oct. 2008 is after the 6/30/2008 deadline.) He contends that the FBAR penalty should not apply since the income and account were properly reported on the timely 2007 return.
His disclosure began in 10/2008, before the first OVDI even existed. He is being treated worse than the UBS customers who got a 20% penalty even though their data was about to be disclosed. If he had chisen to delay his disclosure he would have been subject to 20,25 or 27.5% maximum, not 200%.
Even in criminal cases the government has capped the penalty at 50%.
The legal firm he used initially was, to put it mildly, not what it seemed.
After he initiated his disclosure he was audited and treated as if he had not already disclosed the accounts.
The answer to the complaint states that Aug 9, 2010 letter was dictated by the IRS to Zwerner and, at most, it says that he knew of FBAR as of the date of that letter but NOT that he knew of FBAR previously.
He was asked about foreign accounts on a tax organizer but he did not answer one of the questions and he states one of the questions was unclear, since the account was not in his name but that of a foundation.
The use of a foundation was suggested by the bank to Mr. Z.
(Like most of us!) his accounts consisted of legal source income, and he has no history of criminal or Bank Secrecy Act convictions or FBAR assessments.
He mentions the recommendations in TAS public pronouncements.
He raises an 8th Amendment defense, citing Bajakajian.
He is represented by Edward A. Marod and Martin R Press of Gunster Yoakley & Stewart PA in Florida.
(My comments:) Mr. Zwerner’s answer addrsses many of the issues that have been addressed through past comments on this post. I am happy that someone with the resources to fight excessive penalties is doing so. Also, many have commented that the facts must be really bad for the government to seek a 200% willful penalty, but this does not appear to be the case.”
Thanks Chris for highlighting that. Someone has to challenge these bastards and their egregious FBAR penalties. I don’t know if mediation is the best route for precedent setting, but good to see this getting more attention.
There is what looks like a new update on this case here, in a very readable article:
As well as the excessive fines argument, some new (or at least new to me) details are assertions that the IRS attempted to “mislead and bolster [their] position for the FBAR penalty,” displayed an “unrealistic aggression,” and coerced Mr Zwerner into an admission of “willful misconduct.” Sounds like business as usual at the IRS…
@Watcher, thank you for the update. I’m off to catch a train to T.O. but, look forward to catching up when I get back tonight.
My comment made palatable for the homelander:
“With all due respect, Mr Rettig, your statement “Under the Bank Secrecy Act, U.S. residents or a person in and doing business in the United States must file a report with the government if they have a financial account in a foreign country with a value exceeding $10,000 at any time during the calendar year” reveals that you may be unaware of the fact that non-resident US persons are also being swept up in the IRS’s pursuit of wilful tax evasion and non-reporting of foreign bank accounts. The IRS is doing this through the Foreign Account Tax Compliance Act (FATCA), which is in part responsible for the current surge in Americans renouncing US citizenship. Bank accounts that everyday US persons living abroad use to deposit pay checks, pay mortgages and save for their retirement and children’s educations are threatened by the same draconian penalties as Mr Zwerner’s are. The biggest threat to the wellbeing of Americans abroad is not from beyond the US borders, but from the US government itself in its enforcement of its unique and outdated policy of taxing its citizens everywhere as though they were living within the US. Citizenship based taxation enforced by FATCA will be the end of American global migration. ALL Americans should support a switch to Residence Based Taxation in allowing Americans a level playing field with America’s competitors and to preserve our stature in the world.”
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FBAR Penalty to Face Excessive Fines Clause Test
Carl Zwerner strikes back, with the constitutional argument! I expect this will go all the way to the Supreme Court. Will we finally see justice?
I suggest this news be placed in a new thread.