Just because the IRS thinks that an FBAR penalty is warranted does not make it “official.” Indeed, a taxpayer can challenge the assertion. In doing so, he’d be putting the IRS’s feet to the fire, by holding them up to their burden of proving willfulness in court.

To the extent that the IRS has asserted a willful FBAR penalty, the IRS must prove willfulness to the satisfaction of a jury. While willfulness need only be proven by “clear and convincing evidence” in the civil context, the fact remains that proving the existence of a mental state is easier said than done. Stated otherwise, it is often easier for the taxpayer to prove the absence of a mental state (such as willfulness) than it is for the IRS to affirmatively show that it existed. But the taxpayer does not carry the burden of proving the absence of willfulness at trial.

Even if the IRS can make out a colorable claim of willfulness, the taxpayer can mount a defense. Such defenses are usually grounded in reasonable cause. In the context of an FBAR violation, if the taxpayer reasonably relied on the written advice of a tax practitioner after having disclosed the account to the practitioner, then the entire penalty can be negated. To that end, reasonable cause is an absolute defense.

Another potential defense to the assertion of a civil penalty is that it is time-barred because the statute of limitations has expired. The statute of limitations for asserting an FBAR penalty is six years from the date of the violation. What is the date of a filing violation? It is June 30 of the year following the calendar year for which the account is being reported (Note: For due dates after December 31, 2015, it has been changed from June 30 of the year following the calendar year for which the account is being reported to April 15 of the year following the calendar year for which the account is being reported). This is the last possible day for filing the FBAR so that the close of the day with no filed FBAR represents the first time that a violation has occurred.