By: Caroline Rule
Journal of Tax Practice & Procedure
Fall 2020 Edition
This article will discuss cases after June 2019 that have followed, rejected, or partially relied on the precedents of Williams and McBride, which cases include language to the effect that, if a taxpayer signs a Form 1040 income tax return, the taxpayer has constructive knowledge of the question on Schedule B that asks whether the taxpayer owns a foreign bank account, and the taxpayer therefore also has constructive knowledge of that question’s additional reference to whether a taxpayer is required to file a Report of Foreign Bank Accounts and Financial Institutions, or FBAR. Under this reductive constructive notice theory, a taxpayer is almost inevitably willful in failing to file an FBAR; the taxpayer demonstrates willfulness simply by signing a tax return that includes a Schedule B stating incorrectly that the taxpayer does not have a foreign bank account. The reasoning of these decisions means that there will rarely, if ever, be a circumstance where the non-willful civil FBAR penalty applies, even though this non-willful civil FBAR penalty is the default or baseline penalty under the statutory scheme imposing civil penalties for failure to file FBARs.
Only one recent decision, however, has adhered strictly to the reasoning of Williams and McBride, imposing what amounts to strict liability for the willful civil FBAR penalty; two courts have outright reject these cases’ constructive notice theory; and most courts either explicitly or implicitly eschew a reductive reading of these decisions, instead taking a middle ground that, although the question on Form 1040 Schedule B may be evidence of the taxpayer’s knowledge of the FBAR filing requirement, this is insufficient, without additional facts evidencing willfulness, to justify imposition of a willful civil FBAR penalty.