Appeals Court Upholds Penalty For Taxpayer That Hid Offshore Account

Arizona’s Leading Tax Lawyers Discuss The Case Of a Taxpayer That Violated The FBAR Reporting Requirements

A recent appeals court ruling affirms that there are severe penalties for failing to report foreign income or accounts and for failing to pay the taxes on that money. The IRS has increased its enforcement of taxes on such accounts, so evading detection is less and less likely. The tax agency has also increased education and information, so taxpayers have fewer and fewer excuses for failing to pay the required taxes, as this case shows.

Phoenix Tax Lawyer Discussing The Case Of a Taxpayer That Violated The FBAR Reporting Requirements



The taxpayer involved in the case, Alice Kimble, had a Swiss bank account that her parents set up and then named her as a joint owner. She explained that her father’s family had fled to the United States after other family members were killed in the holocaust. Her parents set up the Swiss account and kept it secret in case they ever had to flee again. The account passed to Kimble after her parents’ death.

Over the years, Kimble continued to keep the account as a numbered account, maintaining its anonymity. Her husband, a financial analyst, knew about the account and did not include it on tax documents, which he prepared each year. After their divorce, Kimble used an accountant to file her taxes, but she did not report the account. Kimble signed forms stating that her returns were accurate, but she said later that she never reviewed the forms.

Penalties From The IRS

Kimble said she first learned of her obligation to pay taxes on her account when she read a New York Times article about an investigation into the foreign bank where she had her account and how people were using the bank to avoid tax responsibilities. She hired counsel and entered into the Offshore Voluntary Disclosure Program (OVDP) to report her foreign account and to become compliant.

The IRS accepted Kimble into the OVDP and negotiated a settlement requiring her to pay a penalty of $377,309. A year later, Kimble withdrew from the program and refused to pay the penalty. The IRS then completed a thorough review of her tax filings and accounts and levied a penalty of $697,299, which was half the amount in the account. Kimble paid the penalty but then sued the IRS for a refund. The Court of Federal Claims upheld the penalty, and Kimble appealed.

Findings On Appeal

The appeals court upheld the earlier judgement against Kimble. It found that Kimble did “willfully” fail to disclose her foreign bank account because she knew about the account and took several steps to keep it a secret. She attested under penalty of perjury that she had reviewed her tax returns, which indicated that she did not have any foreign accounts.

The court also upheld the penalty, rejecting Kimble’s argument that it was excessive or unconstitutional. The IRS applied the penalty according to the guidelines set forth by law, and it did not have any reason to deviate from them.

Getting Professional Tax Counsel

Kimble’s case is like so many others, in many ways. There are so many people who either truly do not understand their tax obligations on foreign holdings, or they pretend they do not understand. But whether there is intent or not, they always end up having to pay. The IRS has increased its enforcement efforts on foreign holdings. Even if it takes a while, it will discover these accounts, and it will assess steep penalties when it does.

Contact Experienced Former IRS Tax Attorneys In Phoenix

Silver Law PLC represents clients who have been assessed penalties for violations involving foreign accounts. If you are currently facing an audit or penalties from the IRS, our tax attorneys may be able to help. We can represent you in negotiations with the IRS or in litigation. We will explore every legal option for reducing your tax obligations and your penalties. Contact us in Phoenix today to schedule a consultation with one of our experienced tax lawyer and learn more about your options.


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