What Constitutes 'Willfulness' for Purposes of the FBAR Failure-to-File Penalty

By Michael Sardar
Journal of Taxation
September 2010 Edition

Form TD F 90-22.1, Report of Foreign Bank and Financial Ac­counts (FBAR), must be filed by U.S. persons to disclose ownership, signatory, or other authority over a for­eign bank, security or financial account. Harsh civil and criminal penalties can be imposed for a willful failure to file the FBAR.1 The willfulness element of both of the FBAR penalty provisions will be examined below.

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Work Product Post-Textron

By Bryan C. Skarlatos
Practical Law The Journal
July/August 2010

In Textron, Inc. v. United States, the Supreme Court refused to grant certiorari to review the First Circuit’s decision denying Textron’s claim that its tax accrual workpapers were protected from disclosure to the IRS by the work product doctrine. PLC asked Bryan Skarlatos of Kostelanetz & Fink, LLP to explain the work product doctrine and the impact of the Textron decision.

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Analysis of the Penalties for Willful Failure to File Reports of Foreign Bank Accounts

By Bryan C. Skarlatos & Michael Sardar
New York University 68th Institute On Federal Taxation
May 2010 

For nearly four decades, the law has required United States taxpayers to file Reports of Foreign Bank and Financial Accounts ("FBARs") disclosing the existence of foreign bank accounts holding more than a certain amount of money. 1 However, until recently, most taxpayers and many tax professionals had no idea these reporting obligation and they were rarely enforced. That has all changed with the recent investigation of UBS and the subsequent focus on offshore financial assets. The IRS has signaled that it intends to police the FBAR reporting requirements with much more vigilance.2 The evolution of the FBAR reporting requirements from a relatively obscure form that most taxpayers and tax return preparers did not know about into one of the IRS's most significant enforcement priorities in years raises questions about when it is appropriate for the IRS to penalize taxpayers who failed to file past years' FBARs. 

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Minimizing Penalties for Unreported Foreign Accounts

By Bryan C. Skarlatos & Michael Sardar
Law Journal Newsletters, Business Crimes Bulletin
April 2010 Edition, Vol. 17 No.8

Taxpayers with unreported foreign bank accounts are sweating bullets these days. The IRS is in the midst of an unprecedented crackdown on foreign bank accounts. The primary example is the criminal prosecution of UBS (f/k/a Union Bank of Switzerland). In February 2009, the criminal case was resolved by a deferred-prosecution agreement pursuant to which UBS agreed to pay a huge fine, cooperate with the IRS, and turn over the names of approximately 285 U.S. taxpayers with accounts at the bank. Shortly thereafter, UBS settled a civil summons proceeding with the IRS and agreed to provide the identities of another 4,450 U.S. taxpayers with accounts at the bank. These developments caused a surge of 15,000 taxpayers with foreign bank accounts to disclose voluntarily their previously unreported accounts to the IRS. 

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Do Your Clients Still Have Hidden Foreign Accounts?

By Amy Walsh
Trusts & Estates
November 2009 Edition

They missed the government's big forgiveness program, but can still come clean to win some leniency. And that may be a good idea-given the criminal and financial liabilities these accounts create for them. their heirs and their estates' executors.

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Fraud & Negligence, The FBAR and the Fifth Amendment

By Michael Sardar
Journal of Taxation
September 2009 Edition, Vol. 111 No. 3

Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), must be filed by U.S. persons and certain non-U.S. persons to report an interest in, or authority over, a foreign financial account. The FBAR must be received by Treasury by June 30 1 to report foreign accounts held at any time (and for any length of time) during the previous year. A willful failure to file the FBAR is a felony. 2 Michael Sardar, an associate with the law firm of Kostelanetz & Fink, LLP, in New York City, analyzes one aspect of the FBAR filing requirement that tax practitioners may have overlooked—self-incrimination.

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Stuck With the Bill? Executor Liability for Unreported Foreign Accounts

By Megan L. Brackney and Arnold Y. Kapiloff
Journal of Taxation
September 2009 Edition

Federal law imposes personal liability on fiduciaries who make distributions to benefi­ciaries and certain creditors, knowing that tax liabilities are owing to the gov­ernment. What does this mean for an executor who discovers that the dece­dent had a previously unreported for­eign bank account?

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Tax Crimes and Defenses: Points to Remember

By Megan L. Brackney and Caroline D. Ciraolo
ABA Section of Taxation Newsquarterly
Spring 2010 Edition

This article outlines the elements of the most commonly-charged tax crimes, as well as many potential defenses and statutes of limitations issues.

Willfulness: ignorance of the law is an excuse. Tax crimes are unique in that ignorance of the law can be a complete defense. This is because “willfulness” is defined as an intentional violation of known legal duty. United States v. Abboud, 438 F.3d 554, 581 (6th Cir. 2006) (“[b]ecause of the complexity of the tax system, tax law is one of the few areas where the Supreme Court has held that ignorance of the law is a defense.”) (citing Cheek v. United States, 498 U.S. 192, 199-200 (1991)). Attorneys representing a client accused of a Title 26 crime should consider whether the conduct at issue was the result of negligence, mistake of fact, or ignorance of the contents of the tax return.

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The New Improved Section 6694 Tax Return Preparer Penalty

By Bryan C. Skarlatos and Megan L. Brackney
Tax and Accounting Center, Tax Management Memorandum 2009
March 2009 Edition

On May 25, 2007, Congress amended §6694 to raise the penalty standards for tax return preparers (the "2007 Amendment"). 2 The 2007 Amendment was met by criticism in the practitioner community, primarily because the amendment - which required preparers to have a reasonable belief that a position is more likely than not correct - created a higher standard for preparers than for taxpayers under §6662, which generally requires taxpayers to have substantial authority to avoid a penalty with respect to non-tax shelter transactions. 3 After the 2007 Amendment, Treasury issued a series of notices and proposed regulations interpreting and clarifying the operation of §6694, 4 but this guidance could not correct the inconsistency between the tax practitioner and the taxpayer penalty standards. Congress stepped in, and on October 3, 2008, a new amendment to §6694 (the "2008 Amendment") was enacted. s The 2008 Amendment reduced the general return preparer penalty standard to substantial authority, although it retained a reasonable belief/more likely than not standard for tax shelter transactions, and re-established the parity between the penalty standards for return preparers under §6694 and for taxpayers under §6662. This article discusses the facets of the new preparer penalty, including who it affects, the standards governing conduct, and the preparer's ability to rely on information and advice from others in preparing returns.

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"Foreign Bank-Secrecy Laws: Making Amends with the IRS" (New York Law Journal, 2008)

"Foreign Bank-Secrecy Laws: Making Amends with the IRS" (New York Law Journal, 2008) by Robert Fink