Friday, May 30, 2014

Florida Man, 87, Owes 150% Record Penalty on Swiss Account

This was posted in today's Accounting Today
By David Voreacos and Susannah Nesmith
(Bloomberg) A federal jury found an 87-year-old Florida man owes the U.S. government civil penalties amounting to 150 percent of the value of his Swiss bank account, the biggest such penalty by percentage on record, his lawyers said.

Carl Zwerner must pay a 50 percent penalty on the annual value of the account in 2004, 2005 and 2006, a total of more than $2 million, for willfully failing to file a U.S. Treasury form called a Report of Foreign Bank and Financial Accounts, or FBAR, jurors in Miami ruled yesterday.
Prosecutors and the Internal Revenue Service have often used civil FBAR penalties, which sometimes exceed criminal fines, as a weapon in their criminal crackdown on offshore tax evasion.

Many of the more than 70 taxpayers charged since 2009 have pleaded guilty, paying an FBAR penalty of 50 percent of the high account balance for only one year.
The threat of such penalties has helped to drive U.S. taxpayers into an IRS amnesty program that lets holders of undeclared offshore accounts avoid prosecution. They must pay back taxes, fines and penalties and tell the IRS which banks and bankers helped them hide their money. Since 2009, more than 43,000 Americans have joined, paying $6 billion to the U.S. Credit Suisse AG pleaded guilty last week to helping Americans evade taxes and agreed to pay $2.6 billion in penalties.
The FBAR penalty in the Zwerner case is unusual because the IRS sought 50 percent for each of four years-a total of 200 percent-in a civil case, not a criminal one. Zwerner didn't owe a penalty for 2007, the jurors found.

Excessive Fines
U.S. District Judge Cecilia Altonaga will hear arguments on June 6 over whether the penalties against Zwerner violate the constitutional prohibition against excessive fines, said Martin Press, his lawyer. She'll ultimately decide on the size of the judgment, the Justice Department said in a statement.

"As this jury verdict shows, the cost of not coming forward and fully disclosing a secret offshore bank account to the IRS can be quite high," Kathryn Keneally, the head of the tax division, said in the statement.

"They can get 50 percent for the non-filing of one piece of paper, and 200 percent for the non-filing of four pieces of paper," Press said in a phone interview. "The question is whether such a massive penalty is appropriate for simply a disclosure form which carries no tax."

Zwerner had a Swiss account at ABN Amro Group NV, the Netherlands' third-biggest bank. His account was valued at $1.48 million in 2004, and his FBAR penalty was $723,762; the value in 2005 was $1.49 million, and the penalty was $745,209; and the value in 2006 was $1.55 million, with a $772,838 penalty, according to Press. The total penalties were $2.24 million.