Arthur Bedrosian v. United States
912 F.3d 144
| 3rd Cir. | 2018Background
- Plaintiff Arthur Bedrosian maintained two Swiss UBS accounts (one ~ $240k, one ~ $2M) and failed to report the larger account on his 2007 FBAR; he had used an accountant (Handelman) for decades who had advised non-reporting, and a new accountant (Bransky) prepared a 2007 FBAR that disclosed only the smaller account.
- IRS assessed a willful FBAR penalty for 2007 equal to 50% of the undisclosed account (~$975,789); Bedrosian paid 1% ($9,757.89) and sued in district court to recover that payment as an unlawful exaction; the Government counterclaimed for the full penalty plus interest and additions.
- The district court held a bench trial and found the Government failed to prove Bedrosian acted willfully; it entered judgment for Bedrosian and dismissed the Government’s counterclaim.
- On appeal the Third Circuit considered (1) whether the district court had jurisdiction to adjudicate Bedrosian’s partial-payment suit and whether the Federal Circuit has exclusive appellate jurisdiction, and (2) whether the district court applied the correct legal standard for “willfulness” under the FBAR statute.
- The Third Circuit concluded it had appellate jurisdiction, held that the Federal Circuit does not have exclusive jurisdiction under 28 U.S.C. § 1295(a)(2) because the FBAR statute is part of the IRS’s tax-collection machinery, and clarified that civil FBAR "willfulness" requires proof of either knowing or reckless conduct.
- Because the district court’s opinion emphasized subjective motive and egregiousness and did not clearly apply the objective recklessness test, the Third Circuit remanded for further proceedings consistent with the civil willfulness standard.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| District court jurisdiction over suit challenging FBAR penalty after partial payment | Bedrosian: district court had jurisdiction under the Little Tucker Act to recover his <$10,000 partial payment | Government: suit implicates tax-refund statute and the usual "pay first" rule; jurisdiction unclear | Third Circuit declined to definitively decide but found district court had jurisdiction here via the Government’s counterclaim and affirmed appellate jurisdiction under §1291 |
| Whether Federal Circuit has exclusive appellate jurisdiction over FBAR appeals | Bedrosian: not exclusive (FBAR not strictly Title 26) | Government: may be exclusive if FBAR not "providing for internal revenue" | Held: Federal Circuit does not have exclusive jurisdiction; FBAR is part of the IRS tax-collection machinery under §1295(a)(2) |
| Proper standard for "willfulness" in civil FBAR penalties | Bedrosian: impliedly argued non-willful; district court focused on subjective intent/egregiousness | Government: must prove civil willfulness (knowing or reckless) | Held: willfulness is the civil standard—includes knowing or reckless conduct (objective recklessness test applies) |
| Whether district court applied correct willfulness standard to Bedrosian | Bedrosian: district court’s findings supported non-willfulness | Government: district court erred by focusing on subjective motivations and egregiousness and not applying objective recklessness test | Held: Remanded—court unclear whether district court considered the objective recklessness formulation; further proceedings required |
Key Cases Cited
- Papotto v. Hartford Life & Acc. Ins. Co., 731 F.3d 265 (3d Cir. 2013) (appellate courts must independently confirm jurisdiction)
- Kreider Dairy Farms, Inc. v. Glickman, 190 F.3d 113 (3d Cir. 1999) (jurisdictional principles)
- Flora v. United States, 362 U.S. 145 (1960) ("pay first and litigate later" rule for tax suits)
- United States v. Chabot, 793 F.3d 338 (3d Cir. 2015) (Bank Secrecy Act’s tax-collection purpose)
- United States v. Coson, 286 F.2d 453 (9th Cir. 1961) (broad construction of "providing for internal revenue")
- Aqua Bar & Lounge, Inc. v. United States, 539 F.2d 935 (3d Cir. 1976) (same)
- Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007) (civil willfulness includes reckless conduct; objective recklessness test)
- Fuges v. Sw. Fin. Servs., Ltd., 707 F.3d 241 (3d Cir. 2012) (civil willfulness covers knowing and reckless violations)
- Pignataro v. Port Auth. of N.Y. & N.J., 593 F.3d 265 (3d Cir. 2010) (willfulness determinations are primarily factual and reviewed for clear error)
- United States v. Carrigan, 31 F.3d 130 (3d Cir. 1994) (recklessness standard for IRS filing requirements)
- United States v. Vespe, 868 F.2d 1328 (3d Cir. 1989) (articulation of objective recklessness for filing failures)
- Sprint/United Mgmt. Co. v. Mendelsohn, 552 U.S. 379 (2008) (remand appropriate where legal error may have infected factual finding)
- U.S. Bank Nat'l Assoc. v. Vill. at Lakeridge, LLC, 138 S. Ct. 960 (2018) (appellate courts must correct legal errors in lower-court factual determinations)