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Jeremy H. Temkin Jeremy H. Temkin

On Feb. 18, 2009, the Department of Justice entered into a Deferred Prosecution Agreement with UBS AG. Since that time, the government has aggressively pursued taxpayers who maintained undisclosed offshore accounts. While tens of thousands of taxpayers have cured their historical non-compliance through Offshore Voluntary Disclosure Programs or Initiatives offered by the IRS, approximately 100 taxpayers who failed to make timely voluntary disclosures were subject to criminal investigation and prosecution, with the associated exposure to loss of liberty and financial penalties. A second, more fortunate, subset of the non-compliant taxpayers who did not participate in a voluntary disclosure program were subjected to IRS audits, which carried the potential for substantial civil penalties without the risk of incarceration.

By statute, the maximum civil penalty for taxpayers who willfully fail to file Reports of Foreign Bank and Financial Accounts (FBARs) is the greater of $100,000 or 50% of the balance in the undisclosed account(s) at the time of the violation. This column has previously addressed both the difficulty taxpayers face in arguing that their failure to disclose offshore accounts was non-willful, see Jeremy H. Temkin, The Next Frontier: Civil Penalties for Undisclosed Offshore Accounts, N.Y.L.J. (Jan. 18, 2018), and the potential for capping penalties substantially below the statutory maximum, see Jeremy H. Temkin, FBAR Penalties: Relief for Taxpayers?, N.Y.L.J. (Jan. 17, 2019). Recent decisions have reflected continued judicial antagonism to taxpayers’ attempts to avoid civil penalties and the rejection of attempts to cap such penalties.

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