The Tax Times: Professor Owes FBAR Penalty Affirmed by 3rd Circ.

Tuesday, June 7, 2022

Professor Owes FBAR Penalty Affirmed by 3rd Circ.

According to Law360, professor lost his appeal of more than $308,000 in penalties for intentionally failing to report his foreign bank accounts after the Third Circuit held on June 6, 2022 that a district court did not commit clear error in upholding the penalties.

The lower court relied on abundant evidence that Richard Collins checked boxes on his tax returns indicating that he had no foreign accounts when he had several in France as well as Canada, where he was a dual citizen, a Third Circuit panel said in its ruling.

Collins Also Was An Experienced Foreign Investor Who Told His Foreign Banks To Withhold Correspondence, The Court Said.

Collins deposited his earnings in accounts located in France, Canada and Switzerland, according to the decision. He failed to report any account until 2010 when he voluntarily amended his 2002 through 2009 tax returns and joined the Offshore Voluntary Disclosure Program, or OVDP. After amending his returns, he left the program.

The Internal Revenue Service later discovered that he owed an additional total of more than $71,000 from investing in foreign mutual funds, according to the ruling, and Collins promptly paid the amounts.

The IRS also ruled that he willfully failed to report his accounts, which entailed penalties of $100,000 or 50% of his bank account size. Collins qualified for mitigation and eventually owed more than

$308,000 for the 2007 and 2008 tax years, according to the ruling.

Collins Failed To Pay And The Government
Sued Him In District Court.

The Court Upheld The Penalties And Added Failure To Pay Penalties Under The Federal Claims Collection Act.

Collins argued that the district court erred in concluding he willfully failed to report. His participation in the OVDP and his prompt payment of taxes showed he had no ill intent and had made an honest mistake, and his accountants did not know about the filing requirement, he added.

The Third Circuit disagreed, saying Collins repeatedly indicated on his tax forms that he did not have any foreign accounts when they totaled hundreds of thousands of dollars. The district court had discretion in weighing the willingness of Collins to participate in the disclosure program and quickly pay other taxes, according to the Third Circuit.

Collins also had argued that the IRS penalty calculations were an abuse of discretion. But the revenue agent who calculated his penalty worked from his banking records and assessed them according to the Internal Revenue manual, the court found. The IRS also could have imposed a much higher penalty and cut the amount it could have assessed by 75%, the ruling said.

Collins also argued that he should have been able to use discovery to obtain internal IRS discussions on the calculation of his penalty. The agent who performed the calculations recommended a lower penalty but was overruled by her supervisor, according to the ruling, and Collins felt he was unfairly treated.

The Third Circuit pointed out that the documents used to calculate the penalty were available to the district court and to Collins. Supervisors have the authority to overrule agents, and Collins also had the opportunity to cross-examine the agent, the court said.

Collins claimed the district court could not impose additional penalties under the Federal Claims Collection Act, which doesn't apply to debts under the Internal Revenue Code.

The Third Circuit Noted, However, That Penalties For Failing To Report Foreign Accounts Stem From The Bank Secrecy Act, Not The Internal Revenue Code, And The District Court Was Therefore Able To Apply Them.

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