Caroline D. Ciraolo and Paul Butler were quoted in a recent Law360 article entitled “Pa. Judge’s Ruling in FBAR Case Could Add to Gov’t Arsenal,” published on January 25, 2021. Ciraolo and Butler discuss the implications of a recent court ruling on the imposition of willful FBAR penalties.
The article notes:
As part of his decision, Judge Baylson looked to cases involving trust fund recovery penalties, or TFRP. To impose such a penalty, the IRS must first prove that the individual is a “responsible person” under the Internal Revenue Code before looking to willfulness, according to Caroline Ciraolo and Paul Butler, a partner and counsel, respectively, at Kostelanetz & Fink LLP. In such cases, the individual is accused of withholding employee funds in a trust and failing to pay those funds to the IRS, they said in an email to Law360, noting that “even then, the TFRP is equal to no more than the tax withheld.”
But in the FBAR context, the government is seeking to impose “draconian civil penalties” — often in excess of $1 million — for the failure to file a form “that has zero connection to the tax liabilities of the individual at issue,” they said. Comparing TFRP and the FBAR penalty, they said, is like comparing apples and oranges.
For Ciraolo and Butler, the decision in Bedrosian’s case raises red flags. “Without commenting on the facts of Bedrosian, we are concerned with the import of the court’s reasoning,” they said. “The government is quickly and improperly moving toward strict liability for willful FBAR penalties with respect to large groups of individuals.” These groups can include anyone who signed a Form 1040 — an individual income tax return — in addition to anyone who might have seen a headline on the internet regarding Swiss accounts, Ciraolo and Butler said. “Barring review by the Supreme Court, Congress may need to step in to clarify the proper stratification of civil nonwillful and willful FBAR penalties,” they said.
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