Couples Bid To Void FBAR Settlement Rejected
A D.C. federal judge has ruled, thwarting a couple's attempt to renege on a $511k agreement made with the IRS as settlement for failing to report their Swiss bank account interests, saying they voluntarily entered the agreement.
The Court dismissed the case Thursday saying Julianne Sprinkle and her husband Robert Harrison could not prove beyond reasonable doubt that they were under duress when they signed their agreement. According to the court, if the couple felt their case called for a judicial review, they had the option of paying the penalty and then pursuing the administrative process involved in seeking a refund.
The judge said that Robert and Julianne in 2018 took advantage of the Offshore Voluntary Disclosure Program offered by the Internal Revenue Service in a bid to settle their failure to file FBAR for a $1.2 million unreported Swiss bank account.
This IRS's program involves exchanging possible amnesty from criminal prosecution and lower civil penalties for a fixed 27.5 percent penalty on the highest balance in any foreign account that's undeclared.
Robert and Julianne attempted to switch to another of IRC's amnesty programs with a lower 5% penalty, the Streamlined Domestic Procedures however, their petition was rejected by the IRC.
The couple was left with the choice of going to court and getting hit with a higher penalty or paying OVDP's 27.5%. They went with the 27.5% and paid $511k in penalties and interest. As part of their 2018 OVDP settlement, they signed away their rights to seek an administrative remedy with the Internal Revenue Service, according to the opinion.
The couple tried to nullify the settlement two years later claiming that they were under duress when they opted for the OVDP given their fear of receiving a higher penalty if they went to court. They also accuse the IRS of failing to properly guide and provide adequate information on the procedures to switch to the streamlines program, thus violating due process and the Administrative Procedure Act.
The couple's argument has been rejected by the court. According to the court, suing under the APA is only proper when there exists no other way to get a solution. Robert and Julianne had the chance to chase their damages by going to court and paying whatever penalty levied and subsequently pursuing a tax refund suit against the IRS.
The court pointed out that they did not do so. They instead choose to settle their dispute via the OVDP which incorporated an agreement not to take the judicial due process route later on.
The court also threw out the couples' claims of being under duress. According to the court, the steep penalty they fear to face should they lose in court would have been brought about by an act of Congress and not the IRS, the IRS did not at any point threaten them with any particular action.
Robert and Julianne's Legal representatives refused to respond to requests for comment.
The U.S Government Legal representatives declined to comment.
Robert and Julianne are represented by Anthony V. Diosdi and David Ludwig.
Richard Jeremy Hagerman of the U.S. Department of Justice, Tax Division represents the IRS.
The case is Robert Harrison and Julianne Sprinkle v. Internal Revenue Service et al., case number1:20-cv-00828, in the U.S. District Court for the District of Columbia.