263 F. Supp. 3d 881
C.D. Cal.2016Background
- August and Maria Bohanec are U.S. citizens who maintained a UBS account in Switzerland (opened by a Leitz Canada contact) that received commissions from international camera sales; the UBS account had a June 30, 2008 balance of $643,662.
- The Bohancecs did not file FBARs for the years up to 2008 and did not file U.S. income-tax returns after 1998 until they filed amended returns and FBARs in May 2011 for 2003–2008; those late filings omitted certain foreign accounts (Austrian and Mexican accounts) and some online sale income.
- They made multiple transfers and withdrawals from the UBS account (including transfers to Austria, Mexico, and a U.S. Bank of America account) and directed some customers to deposit into the UBS account.
- They applied for the IRS Voluntary Disclosure Program but were rejected; the application contained misrepresentations (e.g., stating all UBS funds were after‑tax business proceeds and failing to disclose the Austrian account).
- The government assessed civil penalties under 31 U.S.C. § 5321 for failure to timely file an FBAR for 2007; the sole disputed issue at trial was whether the failure was "willful."
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Bohanecs' failure to file a 2007 FBAR was willful | The Bohanecs acted willfully (at least recklessly) in failing to report foreign accounts given their sophistication, account activity, secrecy, and misrepresentations | Willfulness requires proof of knowledge/specific intent to violate the law (not mere recklessness) | Court held failure was willful; recklessness or deliberate ignorance satisfies willfulness under § 5321 |
| Proper legal standard for willfulness under § 5321 | Willfulness includes reckless disregard of statutory duty; objective standard applies | Willfulness should mirror criminal standard requiring specific intent/knowledge | Court adopted civil standard: willfulness includes reckless conduct (citing Safeco and related authority) |
| Burden of proof required to establish willfulness | Government need only prove willfulness by a preponderance of the evidence | Defendants argued for a higher or criminal‑level showing | Court applied preponderance of the evidence (monetary penalty context) and found government met it |
| Penalty consequence of a willful FBAR violation | If willful, maximum penalty increases to greater of $100,000 or 50% of account balance | N/A (only if non‑willful, lower statutory cap applies) | Court concluded willful finding triggers the increased maximum penalty under § 5321(a)(5) |
Key Cases Cited
- Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007) (civil "willfulness" can encompass reckless as well as knowing violations; discusses meanings of "willfully")
- Herman & MacLean v. Huddleston, 459 U.S. 375 (1983) (heightened burden of proof applies only where particularly important individual interests are at stake; otherwise preponderance standard governs civil sanctions)
- Grogan v. Garner, 498 U.S. 279 (1991) (preponderance of the evidence standard applies in most civil matters)
- Ratzlaf v. United States, 510 U.S. 135 (1994) (criminal‑law discussion of intent; Court cited by defendants but distinguished as criminal precedent)
- Eisenstein v. United States, 731 F.2d 1540 (11th Cir. 1984) (criminal case addressing intent in failure‑to‑report statutes cited by defendants)
- McBride v. United States, 908 F. Supp. 2d 1186 (D. Utah 2012) (applied reckless‑disregard conception of willfulness under § 5321 and discussed willful blindness)
- Fargo v. Commissioner of Internal Revenue, 447 F.3d 706 (9th Cir. 2006) (Administrative guidance without force of law cannot override statutory interpretation)