United States

Lower "willfulness" standard applied for heightened FBAR penalties


A recent case, Bedrosian v. United States, reaffirms the government’s interest in pursuing the higher willfulness penalty in cases involving failure to disclose foreign bank accounts on the Report of Foreign Bank and Financial Account (FBAR or FinCEN 114).

U.S. persons are required to file the FBAR to report foreign accounts, with a balance in excess of $10,000, in which they have a financial interest in or signatory authority over. Failure to file the FBAR generally falls into one of two categories, willful or non-willful failure, the former of which bringing with it a stiff set of penalties—the greater of $100,000 or 50 percent of the value in the account.

The District in Bedrosian decided in favor of the taxpayer, finding that the government failed to prove the taxpayer had willfully failed to report one of the two Swiss Bank accounts he held on his 2007 FBAR. Accordingly, the increased penalties for willful failure to file did not apply.

However, following the precedent of other FBAR willful cases, the court held that in order to establish willfulness for the increased FBAR penalties, the government only need show a reckless violation of the statute, as opposed to the higher tax crimes willful standard—that of a voluntary, intentional violation of a known legal duty. In addition, the court held—again following the precedent of other FBAR willful cases—that the government’s burden of proof is the lower preponderance of evidence standard, not the clear and convincing evidence standard usually applicable in willful tax crimes.

So while this case may indeed be a victory for the taxpayer, it also quite clearly reinforced the court’s willingness to adopt the lower, government favorable, willfulness standard in FBAR failure to file cases. This lower willful standard, combine with the severe penalties that come with a failure to file penalty, has the potential to be very costly to taxpayers.  Accordingly, U.S. persons with foreign accounts should be sure to consult with their tax advisors to ensure timely, and compete, compliance with the FBAR rules.

Kyle Brown


Kyle provides tax consulting and compliance services to middle market firms. Contact Kyle at kyle.brown@rsmus.com

Areas of focus: Federal Tax ConsultingTax Planning