U.S. Citizens who have a financial interest in or signature authority over foreign bank accounts…
A Lesson to be Learned from US v. Schwarzbaum: Bring Back the Foreign Funds to Pay FBAR Penalties
The recent case of U.S. v. Schwarzbaum shows U.S. taxpayers the length the United States will go to require a U.S. person to pay FBAR penalties, to the point of requiring the taxpayer repatriate money located outside the United States to pay FBAR penalties.
U.S. v. Schwarzbaum coming from the Southern District of Florida is a lesson to all taxpayers that even moving money outside of the country does not deter the United States from collecting the money to pay off FBAR penalties.
Born in Germany, Schwarzbaum became a U.S. citizen in 2000 and from 2001-2009 he received substantial monetary gifts from his Swiss father (unlike many of our clients with Swiss accounts, he was actually from Switzerland. These gifts were deposited into Swiss bank accounts which were controlled by Schwarzbaum. Thereafter, Schwarzbaum did not timely file his FBARs for said foreign accounts and a willful FBAR penalty case was filed against him. After a trial, the district court found Schwarzbaum liable for willful FBAR penalties and issued a judgment for about $12 million in penalties plus late payment penalties and interest, which totalled over $18 million in penalties.
Following this order, Schwarzbaum appealed to the 11th Circuit where it remained pending when the federal district court issued its decision. Following the decision, Schwarzbaum failed to pay on the final judgment and also failed to request a stay of the judgment while his appeal was pending. After a post-judgment discovery by the U.S. which showed Schwarbaum had enough assets in Swiss bank accounts to satisfy the judgment against him, the U.S. sought an order to require Schwarbaum to repatriate the $18 million funds from such accounts to the U.S. to pay the judgment.
The court held that when there is jurisdiction over the debtor a court can order the debtor to repatriate foreign assets back to the U.S. so such assets would be within the jurisdiction of the U.S. The key is that as long as a court has jurisdiction over the debtor a court can issue an order for a debtor to bring foreign assets within U.S. jurisdiction.
Lesson to be learned: Having money in foreign accounts does not protect the U.S. from getting the money from those accounts by ordering the taxpayer to repatriate the funds to pay FBAR penalties.
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