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Translation Error Raises Question as to Taxpayer's Willfulness in Failing to File FBAR

(Parker Tax Publishing November 2023)

A district court denied the government's motion for summary judgment as to a taxpayer's willful failure to file a foreign bank account report (FBAR). The court found that the taxpayer, a Japanese speaker who does not speak English and did not reside in the United States in the years at issue, only read a Japanese version of the questionnaire that included an explanation of the FBAR filing requirement, and the Japanese version stated that the requirement applied only to "U.S. resident taxpayers" and therefore a question of fact as to the taxpayer's willfulness in failing to file the FBAR existed. Kurotaki v. U.S., 2023 PTC 263 (D. Haw. 2023).


Osamu Kurotaki was born in Japan in 1965. In 1997, Kurotaki obtained a United States Permanent Resident Card, which he continued to hold in 2011, 2012, and 2013. Kurotaki does not speak English at all and despite his permanent resident status, he has primarily resided in Japan (not the United States) since 2007.

Since 2007, Tomohiko Kokuso has prepared Kurotaki's United States tax returns. Kurotaki relied on Kokuso, believing he was a competent professional as a licensed CPA who could speak both Japanese and English. To that end, Kokuso provided Kurotaki an annual tax questionnaire form that included an explanation of the requirement under the Bank Secrecy Act for "United States persons" to file a foreign bank account report (FBAR) for each year that person has more than $10,000 in a foreign bank account.

Kokuso provided the FBAR notice to Kurotaki in both Japanese and English. The English portion of the notice stated, in part: "U.S. taxpayers are required to report their worldwide income; that is, income from both U.S. and foreign sources. In addition, taxpayers who have an interest in or signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account are required to file [an FBAR] if the aggregate value of all such financial accounts exceeds $10,000 at any time during the calendar year." However, Kurotaki only read the Japanese version of the FBAR notice, which when translated into English contained different language. The Japanese version stated that "U.S. resident taxpayers" - not "U.S. taxpayers" - with financial accounts in a foreign country must file an FBAR if the $10,000 threshold is met. Based on the Japanese version, Kurotaki did not believe that the FBAR requirement applied to him since he has a Japanese passport and lives and works in Japan with his family.

In 2014, the Japanese Tax Authority informed the IRS that Kurotaki received certain income from Japan that was not reported on his United States tax returns for the tax years 2008 through 2012. An IRS examination of Kurotaki's unpaid taxes then expanded to include the failure to file FBARs. In 2021, the United States assessed civil penalties against Kurotaki in excess of $10 million for his alleged willful failure to timely file FBARs pertaining to several foreign accounts for years 2011, 2012, and 2013. Kurotaki paid $3,000 for each of the years at issue (2011-2013) towards the FBAR penalties, totaling $9,000 paid in fines. Kurotaki then sued the government in a district court for a refund of the $9,000 in penalty payments he made. The government filed a motion for summary judgment as to Kurotaki's willful failure to file FBARs for years 2011, 2012, and 2013.

Under 31 U.S.C. Section 5321(a)(5)(B), if a United States person fails to file an FBAR, a civil penalty of up to $10,000 applies for each violation. However, if a United States person "willfully" fails to file an FBAR, the maximum penalty increases to the greater of either $100,000 or 50 percent of the value in the account at the time of the violation. The regulations do not define "willful." Although the Ninth Circuit (the court to which the case is appealable) has not yet addressed the willfulness standard for civil FBAR violations, many other courts have held that "willful" under Section 5321 includes both knowing and reckless violations of the statute. In Bedrosian v. U.S., 2018 PTC 427 (3d Cir. 2018), the Third Circuit held that when imposing a civil penalty for an FBAR violation, willfulness based on recklessness is established if the taxpayer (1) clearly ought to have known that (2) there was a grave risk that an accurate FBAR was not being filed and if (3) he or she was in a position to find out for certain very easily.


The district court denied the government's motion after determining that there was a genuine issue of material fact as to whether Kurotaki willfully failed to follow the FBAR filing requirement. In the court's view, Kurotaki's understanding of the word "resident" as used in the FBAR notice provided by Kokuso was reasonable. The court noted that the dictionary defines the term as "living in a place for some length of time" or as a person "who has a home in a particular place." The court found that, by these definitions, Kurotaki - who lived in Japan - was a Japanese resident, not a U.S. resident.

The court reasoned that at this stage, viewing the evidence in the light most favorable to Kurotaki, he had (based on an incorrect translation) an objectively reasonable, good faith belief that the FBAR requirement did not apply to him. In the court's view, there is "nothing intuitive" in understanding the FBAR reporting requirements. And, having been informed by his accountant that the requirement only applies to "U.S. resident taxpayers," the court stated that there was certainly a genuine issue of material fact as to whether Kurotaki acted with the requisite showing of willfulness, whether view as intentional, reckless, or with willful blindness. The court noted that there was no evidence that Kurotaki avoided obtaining professional advice or simply put his head in the sand. Instead, Kurotaki retained an accountant who could translate tax questionnaires and tax returns into Japanese.

In the court's view, this case was different from those cited by the government, such as U.S. v. Horowitz, 978 F.3d 80 (4th Cir. 2020), where the Fourth Circuit found that the taxpayers "could hardly conclude reasonably that the interest income from their Swiss accounts was not subject to taxes. At the very least, this tension should have triggered a question for their accountant." The court found that in this case, Kurotaki did obtain help from his accountant, but unfortunately received incorrect advice through an apparent mistranslation. Applying the summary judgment standard, the court concluded that Kurotaki could reasonably have concluded in good faith that he was not required to file any FBARs.

For a discussion of the reporting requirements for foreign bank accounts and the penalties for not correctly reporting such amounts, see Parker Tax ¶203,170.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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