Can Translation Errors Excuse Willful Failure to File FBAR?

The U.S. tax code, including the reporting requirements for foreign bank accounts, can be confusing at best. Non-English speaking taxpayers face additional hurdles due to risks of translation errors and problems understanding the English language, in addition to American law. But could translation errors excuse willful failure to file FBAR or be a basis for revoking willful FBAR penalties? One federal district court recently said it was possible.

Non-English Speaker Failed to File FBAR Reports

Osamu Kurotaki was born in Japan in 1965, and came to the United States as a permanent resident in 1997. Mr. Kurotaki never learned English. He returned to Japan in 2007, but retained his permanent resident status through 2013. At the time he returned to Japan, he retained Tomohiko Kokuso, to prepare his tax returns, believing he was a competent CPA who could speak Japanese and English. Mr. Kokuso provided Mr. Kurotaki with the necessary FBAR forms in both Japanese and English, and explained the requirement for U.S. taxpayers to file them any year they have more than $10,000 in foreign bank accounts.

However, it appears the Japanese translation contained errors, specifically translating “U.S. taxpayers” as “U.S. resident taxpayers.” Because of that difference, Mr. Kurotaki did not file FBAR requirements because he had a Japanese passport and lived and worked in Japan. Thus he believed he was not a U.S. resident taxpayer.

In 2014, the Japanese tax authority informed the IRS that Mr. Kurotaki had unreported Japanese income from the years 2008 through 2012. The IRS performed an examination into Mr. Kurotaki’s tax returns and issued $9,000 in fines for undisclosed income and $10 million in willful FBAR penalties for failing to disclose his foreign accounts for years 2011, 2012, and 2013. Kurotaki paid $9,000 in penalties and sued the government to have that refunded.

Foreign Residence Does Not Remove FBAR Filing Requirements

The U.S. tax code says that if a person fails to file an FBAR, the IRS can issue a civil penalty of up to $10,000 for each violation. If that was a willful action, that penalty increases to $100,000 or 50% of the value of the account at the time. Willfulness includes intentional action, as well as a reckless disregard of the filing requirement. The question at issue in Mr. Kurotaki’s case was who that filing requirement applies to.

The Treasury regulations required the reports be filed by a “United States person.” That includes:

• A citizen of the United States
• A resident of the United States including resident aliens

Because Mr. Kurotaki maintained his permanent resident status through at least 2012, he was required to continue to file FBARs with the United States IRS, even while he was actually residing in Japan.

Can Translation Errors Excuse Willful Failure to File FBAR?

The Hawai’i federal District Court considered whether the translation error in the Japanese version of the FBAR form could mean Mr. Kurotaki’s decision was non-willful. Given that the translation stated United State resident taxpayer made it reasonable that Mr. Kurotaki believed he was not a resident and therefore not required to file FBAR reports.

The Court said that the dictionary definition of “resident” means “living in a place for some length of time” or a person “who has a home in a particular place.” As a Japanese resident, Mr. Kurotaki could reasonably believe that did not include him. He reasonably relied on his CPA’s representations and the Japanese forms, and could not be said to have acted intentionally, recklessly, or with willful blindness. The Court said

“There is nothing intuitive in understanding the FBAR reporting requirements.”

There was no evidence that Kurotaki had avoided obtaining professional advice or “simply putting his head in the sand.” The Court distinguished the case from an earlier decision where a taxpayer failed to question the accountant. Instead, he retained a CPA who could translate the tax questionnaires and tax returns into Japanese. The fact that those documents included translation errors was not Kurotaki’s fault. Since the case came to the court on a motion for summary disposition, the court said there was at least a question of material fact to allow the case to go to trial.

The Court’s decision demonstrates that, at least in some cases, translation errors can excuse a failure to file FBARs, especially for non-English speakers. However, the case also stands for the position that the facts of each case can affect the decision on whether the violation was willful. It is important to hire an experienced tax attorney, along with a CPA fluent in the taxpayer’s language, to make sure all the necessary facts are put before the Court.

Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 35 years experience. If you have questions about a foreign resident’s need to file FBARs, or pay willful FBAR penalties, contact Joe Viola to schedule a free consultation.