Dean Danielson was a U.S. citizen who formed a corporation called Sugar Creek in the 90’s. The company was in the business of selling Swiss annuities, and he opened two foreign bank accounts (one in Canada and one in Lichtenstein) in the company’s name. In the years 2006 through 2009, the amounts in those bank accounts aggregately exceeded $10,000. In previous years Danielson had filed FBARs for different accounts, but never disclosed the accounts in Sugar Creek’s name, which he was deemed to have owned as Sugar Creek’s sole owner.
In the United States, citizens must report their interest in foreign accounts in two ways. The first is to complete Schedule B Part III on their Form 1040, and then to file an FBAR if the aggregate balance in any accounts exceeds $10,000 at any point during the year. If a taxpayer willfully omits this information, the IRS can penalize them and assess up to $100,000 or 50% of the accounts in violation, whichever is greater. A violation can be considered willful if the taxpayer is reckless or careless in disregarding their duty to report their accounts (actual knowledge of the violation is not necessary).
For the years in question, Danielson answered “NO” to the question on Schedule B asking if he had a financial interest or signature authority over a financial account located in a foreign country. The IRS deemed that this was a reckless disregard of his duty to report foreign accounts, and assessed him penalties for 2006 to 2009, which Danielson failed to pay. After Danielson passed, his estate also failed to pay the assessed FBAR penalties.
The magistrate ruled that, based on the reasons listed above, Danielson failure to file the FBARs was determined to be willful and granted the IRS judgment on the penalties. The IRS was awarded a $6.4 million judgment against Danielson’s estate.
Foreign disclosures and taxes can be confusing, and the penalties can be severe. For all your questions and concerns contact your Henry+Horne tax professional.
Haley M. Braun, CPA