The Fourth Circuit Goes Too Far by Imposing a Willful FBAR Penalty on Reckless Conduct in the Williams Case

By Bryan C. Skarlatos and Michael Sardar
Journal of Tax Practice & Procedure
August - September 2012 Edition

 In Williams, the Fourth Circuit Court of Appeals, in an unpublished two to one decision, reversed a district court decision and held that a taxpayer’s reckless conduct satisfied the proof requirement for a willful civil FBAR penalty. The Fourth Circuit reached this conclusion after reviewing the traditional definition of willfulness, which requires an intentional violation of a known legal duty, and after discussing issues of willful blindness. The Fourth Circuit went on to stretch the concept of willful blindness so far that it equated reckless blindness with willful blindness. The Fourth Circuit’s decision is contrary to long-standing judicial precedent as well as the IRS’s own statements regarding willfulness.

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