By David Voreacos and Susannah Nesmith
A federal jury found an 87-year-old Florida man owes the U.S. government civil penalties amounting to 150 percent of the value of his Swiss bank account, the biggest such penalty by percentage on record, his lawyers said.
Carl Zwerner must pay a 50 percent penalty on the annual value of the account in 2004, 2005 and 2006, a total of more than $2 million, for willfully failing to file a U.S. Treasury form called a Report of Foreign Bank and Financial Accounts, or FBAR, jurors in Miami ruled yesterday.
Prosecutors and the Internal Revenue Service have often used civil FBAR penalties, which sometimes exceed criminal fines, as a weapon in their criminal crackdown on offshore tax evasion. Many of the more than 70 taxpayers charged since 2009 have pleaded guilty, paying an FBAR penalty of 50 percent of the high account balance for only one year.
The threat of such penalties has helped to drive U.S. taxpayers into an IRS amnesty program that lets holders of undeclared offshore accounts avoid prosecution. They must pay back taxes, fines and penalties and tell the IRS which banks and bankers helped them hide their money. Since 2009, more than 43,000 Americans have joined, paying $6 billion to the U.S. Credit Suisse AG pleaded guilty last week to helping Americans evade taxes and agreed to pay $2.6 billion in penalties.
The FBAR penalty in the Zwerner case is unusual because the IRS sought 50 percent for each of four years — a total of 200 percent — in a civil case, not a criminal one. Zwerner didn’t owe a penalty for 2007, the jurors found.
U.S. District Judge Cecilia Altonaga will hear arguments on June 6 over whether the penalties against Zwerner violate the constitutional prohibition against excessive fines, said Martin Press, his lawyer. She’ll ultimately decide on the size of the judgment, the Justice Department said in a statement.
“As this jury verdict shows, the cost of not coming forward and fully disclosing a secret offshore bank account to the IRS can be quite high,” Kathryn Keneally, the head of the tax division, said in the statement.
“They can get 50 percent for the non-filing of one piece of paper, and 200 percent for the non-filing of four pieces of paper,” Press said in a phone interview. “The question is whether such a massive penalty is appropriate for simply a disclosure form which carries no tax.”
Zwerner had a Swiss account at ABN Amro Group NV, the Netherlands’ third-biggest bank. His account was valued at $1.48 million in 2004, and his FBAR penalty was $723,762; the value in 2005 was $1.49 million, and the penalty was $745,209; and the value in 2006 was $1.55 million, with a $772,838 penalty, according to Press. The total penalties were $2.24 million.
Other defendants have paid higher FBAR penalties in dollars, not as a percentage of the account. H. Ty Warner, the billionaire creator of Beanie Babies plush toys, pleaded guilty last year to evading taxes on secret Swiss accounts that held as much as $107 million. He paid an FBAR penalty of $53.6 million.
Jurors deliberated three days before ruling against Zwerner, a retired specialty-glass importer. He lives in Coral Gables, Florida, and is a director on the First State Bank of the Florida Keys, Press said.
Zwerner, who testified, told jurors that he tried to enter the IRS voluntary disclosure program, and he didn’t know until 2008 that he had to file FBARs, Press said. Zwerner amended his previous returns that year.
“Zwerner’s original tax returns for 2004 to 2007 didn’t report any income from the Swiss bank account,” according to the U.S. complaint filed in June 2013. “The first time he reported such income was when he amended those returns.”
His original tax returns also failed to say he had an interest in a foreign account, according to the complaint. The account, opened in the 1960s, was held in the name of two foundations, according to the Justice Department statement.
“Zwerner was able to use the proceeds of the account whenever he wanted and used it for personal expenses, including European vacations,” the department said.
The case is U.S. v. Zwerner, 13-cv-22082, U.S. District Court, Southern District of Florida (Miami).
(An earlier version of this story corrected reference to account in the first paragraph.)
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