The IRS’s foreign account reporting rules survived the latest legal challenge.
In 2015, Sen. Rand Paul (R-KY) and several other individuals filed a lawsuit alleging that both the Foreign Account Tax Compliance Act and the reporting mandate that it imposed on U.S. owners of overseas financial accounts were unconstitutional. Looks like someone’s lobbying efforts paid off.
After a district court and an appeals court threw out the case on procedural grounds, the plaintiffs asked the Supreme Court for relief, but it has chosen not to step in and review the case.
The penalty for willful failure to report a foreign bank account is steep, equal to the greater of $100,000 or 50% of the highest balance in the account. Which is why our tax engagement letter has over a page covering this topic.
Meanwhile, the fine for a nonwillful reporting violation is much less, at $10,000.
What is the IRS’s burden of proof in showing that nonreporting is willful?
This was defined recently by the federal district court who answered this question in a case in which IRS assessed a penalty against a man’s estate for his allegedly willful failure to timely report his interest in an overseas account.
The estate argued that the agency must prove by clear and convincing evidence that his failure was willful. But the court says the lesser burden of preponderance of the evidence applies.
I think it may be considered willful if the client signs our engagement letter, knowing that they have foreign assets and do not disclose them.
Garrity, D.C., Conn.