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September 8, 2010

Court says government failed to establish that taxpayer "willfully" concealed offshore account

United States v. J. Bryan Williams; No. 1:09-cv-00437

The U.S. District Court for the Eastern District of Virginia, September 1, 2010, found that the government had failed to meet its burden to establish by a preponderance of the evidence that a taxpayer willfully failed to report his interest in a foreign bank accounts that were omitted from the individual's 2000 tax return as the record indicated that the accounts had been frozen in November of the previous year at the behest of the U.S. government.

Facts. In 1993, the defendant, J. Bryan Williams, opened up two Swiss bank accounts in the name of ALQI Holdings, Ltd., and over the course of seven years deposited in excess of $7 million in assets.
On Williams' 2000 tax return, the foreign accounts were not disclosed, nor was a Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts) (FBAR), filed by the June 30, 2001, deadline (for the 2000 tax year).
In January 2002, the defendant disclosed his financial interests in the offshore accounts to an IRS agent, based on advice received from his tax attorneys and accountants. Further disclosures were made:
·       Upon the filing of his 2001 tax return (October 2002);
·       In an application to participate in the Offshore Voluntary Compliance Initiative (February 2003);
·       In amended returns for 1999 and 2000 (filed February 2003);
·       While pleading guilty to tax fraud (May 2003) as well as to conspiracy charges and tax evasion for the offshore funds from 1993 to 2000 (June 2003); and
·       Upon filing his filing of form TD F 90-22.1 for tax years 1993 through 2000 (January 2007).
The facts also indicated that Williams met with Swiss authorities in 2000 and that his Swiss accounts were frozen on November 14, 2000, "at the behest of the U.S. government." Although the government had earlier stipulated to November 14, 2000, as the date the accounts were froze, it appears that government sought to disavow such stipulation and sought to argue that the accounts were not frozen until a later time.
Court's opinion. The government sought to enforce its assessment of two FBAR penalties against the defendant for willfully failing to report his interest in his offshore accounts for the tax year 2000.
The government argued that the defendant's signature on his Form 1040 was prima facieevidence that Williams knew the contents of his tax return.
The court found, however, that while Williams had in fact not disclosed his offshore account on his original 1040 for the 2000 tax year, such actions occurred after he found out that the U.S. and Swiss authorities found out about the ALQI accounts. Thus, in the court's view, Williams was aware that the authorities knew about his offshore accounts by the fall of 2000, long before the FBAR deadline of June 30, 2001.
The court said that such evidence demonstrated that Williams lacked any motivation to willfully conceal his offshore accounts on his 2000 tax return, and thereafter.
"Williams' subsequent disclosures throughout 2002 and 2003 corroborate his lack of intent," the court said. "Though made after the June 30, 2001 deadline, Williams' disclosure of the ALQI accounts to John Manton of the IRS in January 2002 indicates to the Court that Williams continued to believe the assets had already been disclosed. That is, it makes little sense for Williams to disclose the ALQI accounts merely six months after the deadline he supposedly willfully violated."

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