The #FBAR Fundraiser and the penalty jackpot

Those interested in the saga of Carl Zwerner – the 86 year old Florida resident – who was assessed multiple year willful FBAR penalties, AFTER having made a traditional voluntary disclosure at a time before OVDP was available – need to read this post by Charles Rettig. Mr. Rettig does a nice job of laying out the chronology. Leaving aside the specifics (I encourage you to read his post) he summarizes the main point as follows:

Moving Forward. The case involving Mr. Zwerner represents more than an effort to collect civil FBAR penalties from Mr. Zwerner. The Answer asserts instances where the IRS agent conducting the audit attempted to “mislead and bolster his position for the FBAR penalty,” displayed an “unrealistic aggression” towards Mr. Zwerner, and asserts that Mr. Zwerner signed a letter dated August 9, 2010 admitting to “willful misconduct” in failing to file FBARs but neglected to disclose that the letter was actually dictated by the agent coercing Mr. Zwerner into signing it as “the only way he would be able to obtain a reduction of the penalties that might otherwise apply.” Recent events support the conclusion that the system is far more important than any single U.S. taxpayer; the IRS and those representing the IRS must remain objective and conduct themselves with the highest degree of integrity at all times. If the foregoing allegations of agent misconduct are true, the Government is pursuing the wrong person involved in the underlying audit.

Worldwide respect for the integrity of the U.S. system of tax administration depends, at least in part, upon how the Government continues to treat those who pursue some type of timely and truthful voluntary compliance with the filing and reporting requirements associated with their foreign financial accounts. A system of tax administration based in large part on voluntary compliance cannot ignore the potential impact associated with the manner in which those who voluntarily comply, even if in a somewhat awkward fashion (but before any contacts by the Government), are treated.

Heightened tax enforcement efforts and increased penalties for non-compliance must be coupled with ongoing efforts to encourage taxpayers to voluntarily come into compliance. The perception of fairness (or unfairness) in the process can have a significant impact on the decisions of millions of other U.S. taxpayers presently contemplating whether to come into compliance with their filing and reporting requirements.

Many will continue to watch U.S.A. vs. Carl R. Zwerner before making any decision to pursue any form of voluntary disclosure regarding previously undisclosed interests in a foreign financial account. Undoubtedly, the Government recognizes that this action is about much more than Mr. Zwerner and should not likely represent the battleground to test applicability of the Excessive Fines Clause in the context of multiple year 50 percent FBAR penalties.

If you read the complete post you will see that Mr. Zwerner would have fared better if he had NOT made a timely disclosure and had waited for OVDP. He is being punished for attempting to come into compliance and fixing past problems.

This reminds me of the treatment of Ms. Curran – an elderly widow – in Florida. You may remember her as the woman who paid – and may well have been coerced into a 21 million dollar FBAR penalty based on accounts she inherited from her late husband – I repeat accounts owned by her late husband. One blogger referred to this as a “Penalty Jackpot for the IRS“. Yup, definitely a good return for a small amount of work. The facts in the Curran case are here.

But, for those of you who think IRS Penalty Abuse is restricted to rich Homelanders you should take the time to read this submission to the Ways and Means Committee from  this disabled 68 year old British born woman who was:

– first naturalized as an American citizen;

– who then married a Canadian citizen and moved to Canada;

– who then became a naturalized Canadian citizen

and has lived in Canada since 1988 AND has filed U.S. tax returns every year since that time.

Her story is described in her submission to the Ways and Means Committee.

I find it particularly upsetting that these are all elderly people. These are people who lived their lives and accumulated their savings at at time when few if any people knew about Mr. FBAR and the “FBAR Fundraiser”.

These people:

– in the case of Ms. Curran she inherited the accounts from her husband and that she knew little about his financial affairs;

– in the case of Mr. Zwerner he tried to fix his problems without being contacted by the government;

– in the case of the 68 year old disabled Canadian who had tried her whole life to be U.S. tax compliant and used professional tax preparers (who didn’t tell her about Mr. FBAR) – my God you must read the description of this! This particular story needs to be spread far and wide!

I am not suggesting they aren’t in violation of the law. I am suggesting that their treatment by the IRS is unconscionable and unjustifiable. It’s reaching the point where a course in U.S. constitutional law could revolve around the IRS and “penalty” administration.

For many people, their “Golden Years” have become their “FBAR Years”.

What does it all mean?

Could it be, just could it be, that when it comes to fixing up past tax and FBAR problems, the harder you try the harder it will be!

Time to revisit the issues canvassed in:

#IRS abuse of Americans Abroad – The greater the effort! The greater the punishment!

It’s becoming more and more clear that this is NOT about tax compliance. It’s not about FBARs. It’s about using tax and FBAR to win the “penalty jackpot”!

If taxpayers perceive themselves as being nothing but potential “penalty jackpots”, are they more or less likely to come into tax compliance? Interesting question.

Of course, the IRS has also served notice that they reserve the right to accept people into OVDP and then kick them out of OVDP. (Although they recently reversed their position, the damage to IRS integrity has been done.) It’s beyond me why anybody would enter OVDP under these circumstances. How could a lawyer possibly advise a client to  enter OVDP in the face of such uncertainty? On this specific point see this excerpt from a post by Phil Hodgen “Another FBAR Minnow to the Guillotine”:

The government is not your friend.  In any way whatsoever.  If there is a lesson the world should have learned since the whole Voluntary Disclosure Debacle started in 2009, it is that ordinary people should stay the f— away from it.  The IRS, in its enthusiastic embrace of procedural due process (if we process everyone through the system in the same way, we are being fair) will impose equal penalties on the grandmother living on Social Security and the multimillionaire tax evader.  Because equality matters.

That’s what Anatole France first told us:

The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.


How is it possible for there to be “worldwide respect for the integrity U.S. system of tax administration” when it doesn’t seem to have any integrity? And we are not even considering the damage done by the IRS Tea Party Scandal!

But, for mere mortals …

It’s about the “FBAR penalty jackpot” stupid!

For those who have read this far, what do you think?



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