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School Teacher Assessed FBAR Penalty of $803,530 for Failing to Report in 2007

01 / 23 / 2020

Norman v. United States, 942 F.3d 1111 (Fed. Cir. 2019)

The Court of Federal Claims did not err in finding that Mindy Norman willfully violated the FBAR filing requirements when she signed a 2007 tax return which falsely indicated that she owned no interest in a foreign bank account, knowing that she owned and controlled a foreign bank account.  Because a 2004 amendment to the law voided a 1987 regulation capping penalties for willful violations at $100,000, the lower court did not err in assessing a penalty of $803,530.  

Ms. Norman, a school teacher, opened a foreign bank account with the Swiss bank, UBS in 1999.  She opened up a "numbered account" which unlike a "named account" meant that income and asset statements for the account only list the account number and not Ms. Norman's name or address.  From 2001 to 2008, the account balance ranged from $1.5 million to $2.5 million.

Ms. Norman was active in the management and control of her account.  She gave UBS instructions detailing how to invest her funds.  She prohibited UBS from investing in US securities to further prevent disclosure of her account to the IRS.  She withdrew funds in 2002, in cash, her UBS rep, to help prevent disclosure of the foreign account to the IRS.

Ms. Norman learned in April 2008 that UBS was putting into place a new business model (i.e., no longer provide offshore banking and work with US Government to identify names of US clients who may have engaged in tax fraud).  Just before UBS announced this plan in July 2008, Ms. Norman closed her account, transferring her funds to another foreign bank.

In 2008, Ms. Norman received a questionnaire from her accountant, specifically inquiring abut whether she had an interest in any foreign bank accounts.  She failed to inform her accountant of the account.  She then was referred to an accountant who filed amended returns and late FBARs, and the IRS subsequently opened an audit.  During the audit, Ms. Norman made numerous false statements to the IRS, claiming for example that she first learned about the foreign account in 2009, or that none of the money in the account was hers, or that she didn't consider herself as having control.  The court rejected her argument that she was merely following her mother's advice, or that she did not read her 2007 tax return which the court viewed as reckless.  

The 1987 regulation setting forth a maximum willful FBAR penalty gave way to subsequent amendment.  Thus, the court affirmed the court's assessment of a $803,530 penalty for the 2007 tax year alone.