In United States v. Williams, (2012), the Fourth Circuit Court of Appeals reversed the District Court’s holding that Williams’ failure to file an FBAR that was due June 30, 2001 was a non-willful failure to file because the government already knew of the account prior to the filing deadline; and, therefore Williams had no deceitful motive for not filing despite answering “No” to the foreign bank account question on Schedule B of Form 1040 for that year.
The Fourth Circuit in reversing stated in part, “It (willfulness) can be inferred from a conscious effort to avoid learning about reporting requirements.” This effort to avoid learning is referred to as, “Willful Blindness.”
The IRS in the Internal Revenue Manual (IRM 22.214.171.124.6.3-6, discusses “Willful Blindness,” and states, in part:
6. Under the concept of “willful blindness”, willfulness may be attributed to a person who has made a conscious effort to avoid learning about the FBAR reporting and recordkeeping requirements. An example that might involve willful blindness would be a person who admits knowledge of and fails to answer a question concerning signature authority at foreign banks on Schedule B of his income tax return. This section of the return refers taxpayers to the instructions for Schedule B that provide further guidance on their responsibilities for reporting foreign bank accounts and discusses the duty to file Form 90-22.1. These resources indicate that the person could have learned of the filing and recordkeeping requirements quite easily. It is reasonable to assume that a person who has foreign bank accounts should read the information specified by the government in tax forms. (Emphasis added) The failure to follow-up on this knowledge and learn of the further reporting requirement as suggested on Schedule B may provide some evidence of willful blindness on the part of the person. For example, the failure to learn of the filing requirements coupled with other factors, such as the efforts taken to conceal the existence of the accounts and the amounts involved may lead to a conclusion that the violation was due to willful blindness. The mere fact that a person checked the wrong box, or no box, on a Schedule B is not sufficient, by itself, to establish that the FBAR violation was attributable to willful blindness.
But, is it reasonable to assume that a person will read and/or understand his or her tax return. Most with foreign accounts will have their returns prepared by tax professionals. Even prominently intelligent citizens admit to not understanding the tax return. Donald Rumsfeld, a former Secretary of Defense, posted a picture on Twitter of a letter he’d sent to IRS stating that he and his wife had filed their 2013 tax return on time but further stating “I have absolutely no idea whether our tax return and our tax payments are accurate.”
The letter goes on to declare:
The tax code is so complex and the forms are so complicated that I know that I cannot have any confidence that I know what is being requested and therefore I cannot and do not know and I suspect a great many Americans cannot know, whether or not their tax returns are accurate. I have spent more money than I wanted to spend to hire an accounting firm to prepare our tax returns and I believe they are well qualified.
Both he and his wife signed their return under penalties of perjury, but his letter states again in the very next paragraph, despite confidence in his return preparer, “This note is to alert you folks that I do not know whether or not my tax returns are accurate, which is a sad commentary on governance in our nation’s capital.”
He adds a note of optimism though adding:
I do hope that at some point in my lifetime, and I am now in my 80s, so there are not many years left, the U.S. government will simplify the U.S. tax code so that those citizens who sincerely want to pay what they should, are able to do it right, and know that they have done it right.”
All I can say is Amen to that!
© 2014 by Robert S. Steinberg, Esquire
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