The US Court of Federal Claims has decided to apply the maximum fine possible to a taxpayer after a clerical error caused an offshore account to not be disclosed.
The court ruled against Alice Kimble that was seeking a refund from the Internal Revenue Service (IRS) and ordered her to pay $700,000 in civil penalties for willfully not disclosing a 2007 Swiss account in her financial accounts form.
Alice Kimble, held Swiss accounts at both HSBC and UBS in the early 2000s, and was not aware until 2008 that she was obliged to report them to the IRS on her tax return and on Foreign Bank Account Report (FBAR) forms.
In 2009, when the IRS introduced its Offshore Voluntary Disclosure Program (OVDP), she joined the programme and filed amended tax returns that reported income from the offshore accounts. By an oversight, she ticked the 'no' box on schedule B asking whether she had offshore accounts. According to offshore tax specialist Jack Townsend, this was not an uncommon mistake for OVDP applicants to make in the early stages of the programme.
However, the IRS considered this action to amount to wilful non-compliance, and assessed her for an FBAR non-filing penalty of $697,229, equal to 50% of the highest balance in the accounts. Kimble paid the penalty and sued for recovery in the Court of Federal Claims (CFC).
In weighing Kimble's penalty assessment, Judge Braden acknowledged two recent federal court cases where the judges ruled that the statute change in 2004 didn't cancel out a 1987 regulation that caps penalties at $100,000.
But in her opinion, Judge Braden found that the reasoning in those decisions — issued in Texas in May and Colorado in July — conflicts with a decision issued by the Federal Circuit in 1997.