Pre-2010 FBAR Filing Extension to 11/1/11 for Signatories Only (6/16/11)

The IRS has previously granted an FBAR filing extension until 6/30/11 for signatories only with respect to foreign accounts. Today, the IRS granted a further extension until 11/1/11. See IRS Notice 2011-54.  The guts of the notice is:

Persons having signature authority over, but no financial interest in, a foreign financial account in 2009 or earlier calendar years for which the reporting deadline was extended by Notice 2009-62 or Notice 2010-23 will now have until November 1, 2011, to file FBARs with respect to those accounts. The deadline for reporting signature authority over, or a financial interest in, foreign financial accounts for the 2010 calendar year remains June 30, 2011.

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More on the Simon Conviction

I previously report on United States v. Simon involving convictions for four tax perjury counts (§ 7206(1)), three FBAR counts (31 U.S.C. §§ 5314, 5322), eight mail fraud counts (§ 1341), and four financial aid fraud counts (20 U.S.C. § 1097). (For my blogs on Simon, see here.)  Because of the facts and the other counts of conviction, Simon is outside the mainstream of the criminal cases being brought in the Government's current civil and criminal juggernaut against offshore account holders.

I had not previously reported the actual sentence in Simon. The sentence is 6 years. I picked up the sentence from a recent decision denying bail pending appeal. United States v. Simon, ___ F. Supp. 2d ___, 2011 U.S. Dist. LEXIS 37001 (N.D. IN 2011). This decision did not report the various sentencing factors, hence my spreadsheet (downloadable to the right) is incomplete.

I review here the decision on bail.
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Can Signatories Filing FBARs During the Administratively Extended FBAR Filing Period Be Prosecuted for Failure to File?

Readers will recall that the IRS administratively granted U.S. persons with signatory only authority (i.e., no financial interest) relief provided they filed the FBARs first by June 30, 2010 and then by June 30, 2011. See Administrative Notice 2010-23, March 13, 2010; and Notice 2009-62, (August 31, 2009). The relief was specifically made retroactive. I think most practitioners viewed this as assurance that no untoward result would be forthcoming if the U.S. persons qualifying as signatories only filed by the extended date (now June 30, 2011).

In United States v. Simon, 2010 U.S. Dist. LEXIS 108079 (ND IN 2010), the defendant was indicted for various tax crimes, including failure to file FBAR reports for several years. As to the FBAR counts, the defendant urged that he was a signatory with no financial interest and thus, having filed delinquent FBARs within the extended filing period but before indictment, qualified for the relief, so that the indictments for the FBAR violations must be dismissed. The Government argued that he had a financial interest and thus did not qualify for the relief. In any event, the Government argued, even if he qualified for the signatory relief, the contemporaneous failure each year to file by the statute's due date (June 30 of the year following) was a crime, that crime could not be forgiven by administrative pronouncement, and thus the indictment must stand.

The court agreed. The following is its reasoning:

As the government sees it, Mr. Simon doesn't qualify for relief under the IRS notices because he had a financial interest, not just signature authority, in the foreign accounts. Even if he did qualify, the government argues, administrative relief can't change any criminal liability incurred before amendment of the regulation. The government further contends that the notices haven't become final regulations under the Administrative Procedures Act, and that Congress didn't expressly grant retroactive rule-making authority to the Treasury Department under Title 31. Mr. Simon's January 2010 filing of FBARs for 2005-2007, the government says, doesn't absolve him of criminal liability because under the regulations existing at the time the FBARs had to be filed by June 30 of the following year (June 30 of 2006, 2007, and 2008). The government also notes that Mr. Simon never filed an FBAR for 2003 or 2004.

In reply, Mr. Simon argues that he doesn't have a financial interest in Ichua, JS Elekta or Elekta, that 31 C.F.R. § 103.55 gives the Treasury Secretary authority to make exceptions to the reporting requirements, that the exceptions made by the administrative notices were expressly retroactive, and that he wasn't required to file a FBAR for 2004 because the account balance was less than $10,000. No documentation supports his factual assertions.

Whether Mr. Simon had a financial interest in a foreign account is a matter for resolution at trial, not on pretrial motions. The court agrees with the government, though, that if Mr. Simon committed a crime by failing to file an FBAR when the regulations required him to do so, a later regulatory amendment can't absolve him of criminal liability without retroactive modification of the underlying statute. See United States v. Hark, 320 U.S. 531, 64 S. Ct. 359, 88 L. Ed. 290 (1944); United States v. Uni Oil, Inc., 710 F.2d 1078, 1086 (5th Cir. 1983); City & County of Denver v. Bergland, 695 F.2d 465, 480 (10th Cir. 1982); United States v. Resnick, 455 F.2d 1127, 1134 (5th Cir. 1972); United States v. Masciandaro, 648 F. Supp. 2d 779, 784 (E.D. Va. 2009). The statute hasn't been changed.

Mr. Simon argues that the government is mistaken because none of these cases (or the several others the government cites) involved expressly retroactive regulations. Mr. Simon's description of the cited cases is accurate, but the court disagrees with Mr. Simon as to where that distinction leads. To agree with Mr. Simon that a regulation's self-declaration of retroactivity requires a different outcome would be to hold that an agency acquires the power to forgive crimes already committed by simply declaring its intent to exercise that power. The cited cases teach that even if an agency's regulations becomes intertwined in a crime's definition, it is Congress and not the agency that creates the crime, and only Congress can forgive the crime. See also United States v. U.S. Coin and Currency, 401 U.S. 715, 737-38, 91 S. Ct. 1041, 28 L. Ed. 2d 434 (1971); Allen v. Grand Central Aircraft Co., 347 U.S. 535, 553-555, 74 S. Ct. 745, 98 L. Ed. 933 (1954); United States v. Curtiss-Wright Export Corp., 299 U.S. 304, 332, 57 S. Ct. 216, 81 L. Ed. 255 (1936).

The court denies Mr. Simon's motion to dismiss counts 5 through 8 of the indictment.

I am concerned about this analysis. I think most practitioners working in the voluntary disclosure area have felt comforted by the Notices that the filings by the extended date of June 30, 2011 would solve any criminal problem for signatories. The Court says no; the Government can choose to prosecute despite the Notices.

Of course, there are potential defenses that one might invoke to perhaps prevent the Government from relying upon the FBARs thus elicited from U.S. persons with apparent assurance that all is and will be well.

Of course, the whole issue is really moot in the case if the defendant really had a financial interest rather than just a signatory interest (which appears likely reading between the lines). But, quite frankly, I am still concerned about the Court's holding that a signatory who files by the extended filing date can still be prosecuted.

Any thoughts from readers?

Further Relief by Deferral for Signatories and Certain Owners of Commingled Funds

On February 26, 2010, by IRS Notice 2010-23, the IRS announced further relief by deferral for U.S. persons who are signatories only of foreign accounts or have interests in certain commingled accounts. The full Notice is here, but the the key provisions are fairly short, so I just cut and paste them here:

1. Signature Authority.

Persons with signature authority over, but no financial interest in, a foreign financial account for which an FBAR would otherwise have been due on June 30, 2010, will now have until June 30, 2011, to report those foreign financial accounts. The deadline of June 30, 2011, applies to FBARs reporting foreign financial accounts over which the person has signature authority, but no financial interest, for the 2010 and prior calendar years. When completing an FBAR that is subject to the extension provided in this paragraph, persons must adhere to FBAR guidance in effect at the time the FBAR is filed.

2. Certain Foreign Commingled Funds.

Persons with a financial interest in, or signature authority over, a foreign commingled fund that is a mutual fund are required to file an FBAR unless another filing exception, as provided in the FBAR instructions or other relevant guidance, applies. The IRS will not interpret the term "commingled fund" as applying to funds other than mutual funds with respect to FBARs for calendar year 2009 and prior years. Thus, the IRS has determined that it will not apply its enforcement authority adversely in the case of persons with a financial interest in, or signature authority over, any other foreign commingled fund with respect to that account for calendar year 2009 and earlier calendar years. A financial interest in, or signature authority over, a foreign hedge fund or private equity fund is included in the administrative relief provided in the preceding sentence.

3. FBAR-Related Questions on Federal Tax Forms.

Provided the taxpayer has no other reportable foreign financial accounts for the year in question, a taxpayer who qualifies for the filing relief provided in this Notice should check the "no" box in response to FBAR-related questions found on federal tax forms for 2009 and earlier years that ask about the existence of a financial interest in, or signature authority over, a foreign financial account.

Items 1 and 3 are particularly helpful to the many family members who frequently appeared as signatories but with no ownership / financial interest in the particular account or in any other offshore financial account.   I think the message here is that the FBAR form will likely change by the extended due date, so that those persons who elect to defer filing will have to use the then current form.  These signatories can file now, since the extension is just for the final date to file.  If so, they use the current form