United States v. McBride
2012 U.S. Dist. LEXIS 161206
| D. Utah | 2012Background
- McBride, a U.S. citizen, co-owned The Clip Company, an active business from 1994–2008.
- McBride engaged Merrill Scott to implement a Master Financial Plan intended to move profits offshore and defer taxes.
- The Plan created foreign accounts (Drehpunkt, Lombard, TD Evergreen, Global Securities) and a leveraged line of credit routed through Merrill Scott entities.
- McBride controlled and benefited from funds in Drehpunkt and Lombard, with Merrill Scott facilitating transfers and maintaining nominee accounts.
- McBride did not file FBARs for 2000 and 2001 and did not obtain an outside legal opinion about the Plan’s legality; he signed 2000 and 2001 tax returns without disclosing foreign accounts.
- Penalties were assessed for willful failure to report foreign accounts under 31 U.S.C. § 5321(a)(5).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether McBride’s FBAR failure was willful | United States argues willfulness shown by reckless disregard and willful blindness | McBride relied on Merrill Scott and did not knowingly violate FBAR | Willful; preponderance standard satisfied |
| Whether McBride had a financial interest in the foreign accounts | Accounts were control/benefit of McBride via agency relationships | Accounts were Merrill Scott’s; McBride not the owner | McBride had a financial interest under Form TD 90-22.1 definitions |
| Whether penalties were proper under §5321(a)(5) | Penalties appropriate for willful non-disclosure when balances exceeded $10k | Penalty amount disputed as excessive | Penalties proper; total $200,000 justified under law |
| Whether signing the returns supports knowledge of FBAR obligations | Signature on returns constitutes constructive knowledge of contents | Reliance on advisors could negate knowledge | Signature and knowledge inferred; willfulness supported |
Key Cases Cited
- Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (Sup. Ct. 2007) (defining willfulness in civil penalties; knowledge not required for harm)
- Grogan v. United States, 498 U.S. 279 (Sup. Ct. 1991) (silence on standard of proof; civil penalties context)
- United States v. Regan, 232 U.S. 37 (Sup. Ct. 1914) (preponderance standard in civil monetary penalties)
- Sorenson v. United States, 521 F.2d 325 (9th Cir. 1975) (willfulness may be shown by reckless disregard)
- Lefcourt v. United States, 125 F.3d 79 (2d Cir. 1997) (civil willfulness; knowledge need not be proved if conduct purposeful)
- United States v. Sturman, 951 F.2d 1466 (6th Cir. 1991) (willfulness shown by concealment and control of funds)
- Drape v. United States, 668 F.2d 22 (1st Cir. 1982) (knowledge inferred from signing and surrounding facts)