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Court Rules Against Appellant Who Failed to File an FBAR and Report Foreign Income

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    In 2013, the Internal Revenue Service (IRS) assessed a $1.2 million fine against Beverly Hills dermatologist Letantia Bussell, who failed to report financial interests in a Swiss account on her 2006 federal income tax return. When Bussell failed to pay the fine, she was sued by the government. Bussell proceeded to appeal, and, despite confirming her own willful failure to report foreign income, presented several arguments as to why the fine was nonetheless inappropriate. Perhaps unsurprisingly, Bussell was ultimately unsuccessful. Her case should serve to remind taxpayers that disclosing offshore accounts and foreign assets is of the utmost financial and legal importance, as the alternative is being heavily fined and potentially incarcerated.


    Court Upholds Fine for Appellant Who Failed to Report Swiss Bank Account

    In February 2002, the Los Angeles Times published an article recounting the trial of Letantia Bussell, then 53, who was at that time convicted of “a handful of conspiracy, fraud and attempted tax evasion counts.” The charges which led to Bussell’s conviction arose from a bankruptcy filing in 1995. Because debtors are required to disclose their assets in bankruptcy using Form B 106, Bussell engaged in bankruptcy fraud by deliberately failing to disclose her assets. Not only can this lead to the dismissal of a debtor’s bankruptcy case, but more significantly, criminal prosecution of the debtor.

    In June 2013, Bussell once more found herself in legal peril: on this occasion, a $1.2 million penalty stemming from Bussell’s failure in 2007 to disclose foreign financial interests on her tax return the previous year.

    Though Bussell presented numerous arguments on appeal, none succeeded in persuading the U.S. Court of Appeals for the Ninth Circuit to reverse the ruling issued by the lower court, the U.S. District Court for the Central District of California. According to the unpublished opinion, Bussell attempted to obtain a reversal of the original ruling by using the following arguments:

    1. Bussell contended that the $1.2 million IRS penalty constituted a violation of the Eighth Amendment’s Excessive Fines Clause, which provides, “Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” She argued the fine was “grossly disproportional to the gravity of [her] offense,” citing United States v. Bajakajian, 524 U.S. 321, 334 (1998). “However,” the opinion countered, “the assessment against her is not grossly disproportional to the harm she caused because Bussell defrauded the government and reduced public revenues.”


    1. Bussell asserted the government violated the applicable six-year “statute of limitations,” or, in plain language, the deadline for bringing a claim. However, a review of the timeline reveals that Bussell’s failure to report income occurred in 2007, while the $1.2 million penalty was assessed in 2013, meaning the statute of limitations was not in fact violated as Bussell claimed.


    1. Bussell argued that the government’s delays in bringing the claim against her constituted a violation of her rights to due process. However, as the opinion explained, “Because the government’s claim is connected to Bussell’s failure to report assets in 2007, the government could not have brought its claim before 2007, and, as explained above, the government brought its claim within the statute of limitations. Therefore, Bussell is not entitled to relief under this theory.”


    1. Bussell also argued that she should have been protected against receiving new penalties for prior conduct under the Ex Post Facto Clause set forth in Article I of the U.S. Constitution. However, the Ex Post Facto Clause generally pertains to criminal cases, with just a few narrow exceptions – none of which the Court found applicable – for civil cases.


    1. Similarly, Bussell pointed out that she had unfairly “received ‘multiple punishments’ for the same underlying offense.” However, the Court countered that her failure to report foreign income was unconnected to any criminal prosecution of Bussell, negating her “multiple punishments” argument.


    1. Sixth, Bussell accused the IRS of “abus[ing] its discretion in calculating the penalty amount,” further accusing the lower court of failing to analyze the “reasonableness of the penalty.” The Court countered that not only did the lower court review the penalty, but moreover, the penalty itself fell within limits established by Congress.


    1. Additionally, Bussell contended that “laches,” or unreasonable delays, should have barred the claim against her. The Court countered by citing Chevron, U.S.A., Inc. v. United States, 705 F.2d 1487, 1491 (9th Cir. 1983), in which the Court held that typically, the federal government “is not bound by… laches in enforcing its rights.”


    1. Finally, Bussell sought to undermine the evidence used against her, asserting that such evidence “violated an international treaty between the United States and Switzerland.” However, the Court dismissed this argument, noting that “Bussell has not shown that the treaty… creates an enforceable right.”


    International Tax Attorneys Can Help You File an FBAR and Avoid IRS Penalties

    Bussell presented no fewer than eight distinct legal arguments against the original ruling issued by the U.S. District Court for the Central District of California. All eight failed to impress the Ninth Circuit, leaving Bussell with a fine over $1 million.

    This fine, while devastating, could have been avoided had Bussell properly disclosed her foreign income in compliance with the Foreign Account Tax Compliance Act (FATCA). Under FATCA, which was enacted in an effort to curb tax evasion and discourage taxpayers from concealing accounts held with foreign financial institutions (FFIs), taxpayers must use Form 8938 (Statement of Specified Foreign Financial Assets) to disclose foreign assets which exceed certain thresholds. In a similar but distinct requirement, certain taxpayers with foreign income must also file an FBAR (Report of Foreign Bank and Financial Accounts), otherwise known as FinCEN Report 114. Failure to meet either requirement may result in serious FBAR penalties and other consequences, as Bussell discovered firsthand.

    If you control a foreign bank account, earn foreign income, or own foreign assets, you may be required to file an FBAR, file Form 8938, and meet other international tax requirements. Even if you have failed to disclose global income or assets in the past, it may be possible to minimize or avoid penalization by participating in the Offshore Voluntary Disclosure Program (OVDP). However, it is imperative that you act swiftly. The longer you delay, the fewer options will remain viable. To book a reduced rate tax consultation with the experienced tax crime defense attorneys at the Tax Law Office of David W. Klasing, contact us online or call (800) 681-1295 today.

    Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San BernardinoSanta BarbaraPanorama City, and Oxnard! You can find information on all of our offices here.



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