A Florida district court jury has found that a U.S. citizen willfully failed to file required Reports of Foreign Bank and Financial Accounts for tax years 2004 through 2006 with respect to a Swiss bank account that he controlled, the U.S. Department of Justice has announced.
The judge in the case will determine later the amount of the penalty – which could be as high as 150 percent of the bank account balance.
U.S. citizens who have an interest in, or signature authority over, a foreign financial account are required to disclose the existence of the account on Schedule B, Part III, of their individual income tax return. Additionally, U.S. citizens must file a Foreign Bank and Financial Accounts Report (FBAR) with the U.S. Treasury disclosing any financial account in a foreign country with assets in excess of $10,000 – at any point during the year – in which they have a financial interest or over which they have signatory or other authority.
Those who willfully fail to file their FBARs on a timely basis – that is, on or before June 30 of the following year – can be assessed a penalty of up to the greater of $100,000 or 50 percent of the balance in the unreported bank account for each year they fail to file a required FBAR.
In this case, Carl Zwerner opened a bank account in Switzerland in the 1960s. Zwerner maintained the account in the name of two different foundations he had created. He was able to use the proceeds of the account whenever he wanted and used it for personal expenses, including European vacations.
For the years at issue, 2004-2007, even though Zwerner filled out a tax organizer provided by his accountant, he answered “no” to questions asking whether “you have an interest in or signature authority over a financial account in a foreign country, such as a bank account, securities account or other financial account” and whether “you have any foreign income or pay any foreign taxes.” He failed to file the FBARs for those years.
The balance of the bank account during each of the years at issue exceeded $1.4 million.
The district court jury found Zwerner should be liable for penalties for 2004 through 2006. Zwerner faces a maximum penalty in excess of $700 thousand for each of the three years. The jury found that Zwerner’s failure to report the account was not willful for 2007. The district court judge will determine the final amount of the judgment after further proceedings.
The Eighth Amendment to the U.S. Constitution prohibits the imposition of “excessive fines.” Attorneys for Zwerner have been reported to be planning to argue that imposing the maximum penalty of $2.2 million (3 years x 50 percent of the account balance per year) – which is what the IRS proposed – would violate the Eighth Amendment.
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