Court Affirms FBAR Willful Penalty Despite Apparently Accepting NonFiler's Claim of Innocent Ignorance in the Face of Damning Facts (4/24/24; 4/25/24)

In United States v. Vettel, ___ F. Supp. 3d ___ (D. Neb. 4/11/24), CL here and GS here [to come], the Court held, after bench trial, that David Vettel was liable for the willful FBAR penalty. The Court reasoned that, although the Court apparently accepted Vettel’s testimony that he did not know of any tax liability related to the offshore accounts or of the FBAR filing requirement, he had enough objective indications that he was reckless and, therefore, willful for purposes of the FBAR penalty.

I say that the Court “apparently accepted Vettel’s testimony,” Given that reckless conduct alone would suffice for liability, the Court did not have to accept his testimony of ignorance. Indeed, that is the way the Government couched its post-trial brief. See brief here.

The Government’s recitation (brief pp. 13-34) of the objective indications of at least recklessness are damning indeed and certainly permit an inference that Vettel knew of at least his tax reporting obligation and likely also FBAR reporting obligation and intended to evade them. Thus, the brief says (p. 18) “Vettel admits that it is ‘not logical’ to believe that foreign income he earned is not taxable anywhere.” Further, the brief says (p. 18) in preparing his 2012 return, Vettel’s accountant asked questions about foreign income, causing Vettel to disclose a Turkish account but not the Swiss BSI account, resulting in an incomplete FBAR being filed. Also, David Vettel hid the BSI account from his wife, Crystal. (Opinion pp. 8-9.) There are many more facts at least objectively showing Vettel was willful under the FBAR standard and certainly capable of casting doubt on Vettel's claims of innocent ignorance.

I note that David Vettel, with his wife Crystal Vettel, had a Tax Court case, Docket Number 16988-19 (Dawson here). That case was resolved by stipulated decision on 11/12/20, although Dawson does not have a link to any document (even the stipulated decision that I thought should have a link).

Crystal Vettel filed a related Tax Court case Docket Number 18229-22,here, claiming innocent spouse relief from the joint liabilities she agreed to in the stipulated decision in Docket Number 16988-19. According to the IRS opening brief (Document 54), the deficiencies so stipulated “for the taxable years 2006, 2007, 2008, 2009, 2010, and 2014 in the amounts of $200,967.00, $134,282.00, $25,724.00, $13,360.00, $282,513.00, and $9,571.00,  respectively.” (No indication of penalty amounts for which, I suppose, given David’s hiding of the BSI account from Crystal, she may not have been subjected to penalties in the stipulated decision.) The IRS brief covers a lot of the same core factual information in the Nebraska district court case discussed here. I have not studied the brief but some readers wanting more information might do so.

There was one other feature of the Vettel FBAR case reported here. The Government brief notes (p. 14) that BSI sent David “a letter stating that the “US Government is engaged in a widespread effort to identify US taxpayers with undeclared offshore accounts, including accounts at banks in Switzerland.” (Ex. 25.)” David’s post-trial brief states (here at p 11-12):

          David initially participated in the Offshore Voluntary Disclosure Program, a program with a different penalty percentage that was designed to bring taxpayers back into compliance. (Tr. at 106:4–106:19, 131:25–132:10). Trusting the advice of his first [*12] attorney, David withdrew from the Offshore Voluntary Disclosure Program. (Tr. at 106:20–107:7, 156:17–157:7).

* * * *

          Whenever David’s first attorney requested documents from him, David promptly provided the requested documents to the attorney. (Tr. at 157:8–157:12). David himself couldn’t obtain documents easily from BSI or from Belize. (Tr. at 157:13–157:24). David’s first attorney—the one who had encouraged David to opt out of the lucrative Offshore Voluntary Disclosure Program—stepped down from the case and admitted that he had done “a lousy job” for the Vettels. (Tr. at 156:14–157:7, 157:25–158:16).

I think that is David's testimony and is not the testimony of this attorney. If that attorney gave the advice to opt out with knowledge of all the facts as developed in the case, that attorney did do a lousy job. There is a big "if" in that statement.

Added 4/25/24 10:am: 

1. In researching the Vettel case reported on above, I found an earlier Magistrate Order dated 6/6/23 (#21), CL here, and GS here. The following is an interesting quote from the order:

[*1]

4) A settlement conference will be held before the undersigned magistrate judge with counsel and representatives of the parties on August 3, 2023, beginning at 9:00 a.m. by Zoom, with conferencing instructions provided by separate order. The following requirements apply to the settlement conference:

[*2]

a. The parties' representatives and/or counsel shall be prepared to participate and negotiate a settlement of this case during the conference.

b. Unless excused by order of the court, clients or client representatives with complete authority to negotiate and consummate a settlement shall be in attendance at the settlement conference.

c. If a party fails to comply with paragraph (4)(b) of this order, the settlement conference will be cancelled and costs, attorney fees, and sanctions may be imposed by the court against the non-complying party, counsel for that party, or both.

d. Prior to the settlement conference,

• Defendant shall fully disclose his financial assets available for settlement of this case; and

• The parties shall discuss settlement, exchange proposals for settlement so the parameters of settlement have been explored well in advance; and discuss any non-negotiable items, including both monetary and nonmonetary terms.

If as a result of such discussions, counsel for any party believes that the parties' respective settlement positions are so divergent, or for any other reason, that settlement is not reasonably possible in this matter, he or she shall seek a conference with the undersigned magistrate judge and opposing counsel, by telephone or otherwise, to determine whether the settlement conference should be canceled or postponed. To avoid unnecessarily incurring travel and other expenses if the settlement conference is canceled or postponed, any request for a conference to discuss cancellation or postponement must be made on or before July 24, 2023.

e. Counsel shall submit a confidential settlement statement to the undersigned by email to zwart@ned.uscourts.gov no later than July 28, 2023, setting forth:

• the relevant positions of the parties concerning factual issues, issues of law, damages;

[*3]

• the settlement negotiation history of the case, including a recitation of any specific demands and offers that have been conveyed; and

• any non-negotiable monetary or nonmonetary settlement terms, and the opposing party's position regarding such terms.

The court will review the terms set forth in the confidential settlement statements and determine whether a telephone conference will be necessary in advance of the conference, or if the parties' respective settlement positions are so divergent that a settlement is not reasonably possible in this matter. Since the undersigned magistrate judge will have no further substantive involvement in this case, this statement should describe candid and confidential interests or positions that in counsel's opinion may be preeminent in negotiating a settlement; copies should NOT be served on opposing counsel or parties.

f. Notwithstanding the provisions of Rule 408, Fed. R. Evid., all statements made by the parties relating to the substance or merits of the case, whether written or oral, made for the first time during the settlement conference shall be deemed to be confidential and shall not be admissible in evidence for any reason in the trial of the case, should the case not settle. This provision does not preclude admissibility in other contexts, such as pursuing a motion for sanctions regarding the settlement conference.

2. In my citation of the anticipated Federal Supplement for the case, I used the following format: F. Supp. 3d (with one space between the F. and the Supp. 3d). I googled to reassure myself that that was the correct Bluebook citation. I found this on Cornell's Legal Information Instittute here:

Most lawyers have long been aware that citations can count heavily against word limits imposed on briefs and similar legal writing by contemporary procedural rules. As most word processing algorithms count words, any character or clump of characters separated from another by a space is logged as a fresh word. When words are at a premium, this adds to the incentive to employ short-form citations. It can also change a writer's perspective on spaces inserted in abbreviations to provide visual separation. Acknowledging this reality The Bluebook now authorizes the elimination of such spaces in reporter names. "F. Supp. 3d" can be compressed to "F.Supp.3d" (one word instead of three). The option is offered to lawyers writing briefs but not to authors of law journal articles. Strangely, the approach is not extended to abbreviations that identify the deciding court. 

I am sure that I have been inconsistent in my citations over the years. I just searched the working draft of my Federal Tax Procedure Book and found several instances that needed to be corrected.