Tuesday, July 22, 2014

The FBAR willfulness civil penalty - intent to violate a known legal duty Part II

"willfully" is a "word of many meanings whose construction is often dependent on the context in which it appears and where willfulness is a statutory condition of civil liability, we have generally taken it to cover not only knowing violations of a standard, but reckless ones or careless disregard as well".
https://www.courtlistener.com/flsd/dta6/creative-hospitality-ventures-v-us-liability/

Relevant cases and quoted from are :  
Bryan v. United States, 524 U.S. 184, ___ (1998), here
Cheek v. United States, 498 U.S. 192 (1991), here
Ratzlaf v. United States, 510 U.S. 135 (1994), here
Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007), here
Global Tech Appliances, Inc. v. SEB, ___ U.S. ___, 131 S. Ct. 2060 (2011), here
United States v. Williams, 489 Fed. Appx. 655, 2012 U.S. App. LEXIS 15017 (4th Cir. 2012), here
McBride v. United States, 908 F. Supp. 2d 1186 (D. UT 2012), here


(Section 5321(a)(5)(C), here:
C) Willful violations.— In the case of any person willfully violating, or willfully causing any violation of, any provision of section 5314—
    (i) the maximum penalty under subparagraph (B)(i) shall be increased to the greater of—
        (I) $100,000, or
        (II) 50 percent of the amount determined under subparagraph (D),
With regards to the FBAR criminal penalty -  the Supreme Court held that willfully as used in Section 5322(a), here, the criminal provision for willfully violating the provisions, should be interpreted the same as in Cheek . The FBAR civil willfullness penalty is part of the same regulatory scheme, incorporated in the immediately  preceding Code section, Section 5321. Significantly, Section 5321(d) says that the civil penalty can apply "notwithstanding the fact that a criminal penalty is imposed with respect to the same violation."
 http://sports.aliexirs.ir/Federal-Taxation-Developments-Blog-Federal-Taxation.html
The general rule that a common law term in a statute comes with a common law meaning, absent anything pointing another way leads us to the legally non binding IRMs.
The IRM  states that, for purposes of the FBAR civil penalty, "The test for willfulness is whether there was a voluntary, intentional violation of a known legal duty.  4.26.16.4.5.3  (07-01-2008) FBAR Willfulness Penalty - Willfulness, herehttp://www.irs.gov/irm/part4/irm_04-026-016.html We thus do not have to pick or choose among possible meanings of willfully, we know the meaning of willfully. In addition we have seen that the Court adopted a "standard civil usage" of the term willfully to include reckless conduct. ("willfully," as used in a civil penalty provision, includes "'conduct marked by careless disregard whether or not one has the right so to act'"  This construction reflects common law usage, which treated actions in "reckless disregard" of the law as "willful" violations). But lets focus on what the Courts did not do....they did not adopt the strict meaning of willfully to require intent to violate a known legal duty, but rather adopted a different one where recklessness would suffice.  Recklessness does not suffice to constitute willfulness as defined to mean intent to violate a know legal duty. http://itlaw.wikia.com/wiki/Willfulness
The doctrine of willful blindness is well established in criminal law. The traditional rationale for this doctrine is that defendants who behave in this manner are just as culpable as those who have actual knowledge. It is also said that persons who know enough to blind themselves to direct proof of critical facts in effect have actual knowledge of those facts.  All appear to agree on two basic requirements: (1) the defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact. I think these requirements give willful blindness an appropriately limited scope that surpasses recklessness and negligence. Under this formulation, a negligent defendant is one who should have known of a similar risk but, in fact, did not and a reckless defendant is one who merely knows of a substantial and unjustified risk of such wrongdoing, by contrast a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts. From the above, it is clear that the Supreme Court requires willful blindness to entail willful action -- deliberate action evidencing intent to avoid knowing.  It appears that recklessness is not sufficient. http://lawprofessors.typepad.com/whitecollarcrime_blog/2011/06/supreme-court-speaks-about-willful-blindness-.html
With regards to Williams......
"Willfulness may be proven through inference from conduct meant to conceal or mislead sources of income or other financial information," and it "can be inferred from a conscious effort to avoid learning about reporting requirements." Similarly, "willful blindness" may be inferred where "a defendant was subjectively aware of a high probability of the existence of a tax liability, and purposefully avoided learning the facts point to such liability."
In McBride the Court repeated the analysis in Williams.........“persons who know enough to blind themselves to direct proof of critical facts in effect have actual knowledge of those facts”.

Willful blindness, requires deliberate, conscious action to avoid knowledge, recklessness will not suffice...... recklessness is neither willfulness nor willful blindness.

https://casetext.com/case/global-tech-appliances-inc-v-seb-s-a#.VAyQQGO32Qw

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