An 87-year-old Florida man has been fined more than $2 million for wilfully failing to file his Report of Foreign Bank and Financial Accounts (FBAR) over three years – with the penalty amounting to 150 per cent of the value of his Swiss bank account.

A Miami jury last week found Carl Zwerner guilty of failing to file his FBAR in 2004, 2005 and 2006 and as a result the civil courts have ordered him to pay a 50 percent penalty on the annual value of the account for each year – a total of $2.24 million.

The lawyers of Zwerner have claimed that this is the largest penalty of its kind by percentage on record.

Voluntary Disclosure Program

Civil FBAR penalties are often pursued through the civil courts and are vital in the Internal Revenue Service’s crackdown on offshore tax evasion, with civil fines often exceeding criminal ones.

More than 70 taxpayers have been charged since 2009, with many pleading guilty and paying the FBAR penalty of 50% of the total of the highest balances for that year.

The risk of such fines has encouraged tens of thousands of US taxpayers into the IRS voluntary disclosure program, which allows people with undeclared offshore accounts to come clean
without fear of prosecution.

The amnesty program enables them to declare their offshore accounts, pay back taxes, fines and penalties, as well as telling the IRS which banks and bankers helped them to hide their money. To date more than 43,000 US persons have joined the program.

Zwerner, who testified, told jurors that he tried to enter the IRS voluntary disclosure program and claimed that he didn’t know he had to file FBARs until 2008, amending his previous returns that same year.

Tax Evasion Deterrent

Kathryn Keneally, Head of the US Department of Justice Tax Division, said in their statement on the case:

“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.”

Although a strong deterrent against offshore tax evasion, the case also raises the question whether a significant penalty is appropriate for simply failing to complete a disclosure form which carries no tax.

The case continues and on June 6th when US District Judge, Cecilia Altonaga, will hear arguments over whether the penalties levied against Zwerner violate the constitutional prohibition against excessive fines, before deciding on the size of his judgement.

Do you want to learn more about filing FBARs? Read our previous post Residing in the US with a foreign bank account? You must still report it.

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