463 F.Supp.3d 1150
D. Nev.2020Background
- Sandra J. de Forrest, a U.S. citizen, obtained powers of attorney over and opened Swiss bank accounts (UBS accounts ending in 8669 and 5479) in the 1990s–2001, with some account mail directed to retain at the bank in Zurich.
- Her husband, Henri de Forrest, owned foreign accounts; Sandra learned of them before marriage and later received authority over them; she travelled to Zurich in 2006 to transfer/manage funds and opened additional ZKB accounts.
- CPA Thomas Brooks prepared the de Forrests’ tax returns through 2011, became aware of the UBS accounts by 2006, and prepared FBAR forms (for 2003–2005) which Sandra did not sign or file; she denies receiving Brooks’s 2009 letter enclosing FBARs.
- Defendant did not file an FBAR for 2005 (or prior years); the IRS assessed willful FBAR penalties in 2016 equal to 50% of the account balances, totaling roughly $2.98 million.
- The Government moved for partial summary judgment requesting a legal finding that the 2005 FBAR omission was willful; Sandra argued she lacked the duty or requisite willfulness. The Court denied the motion, finding genuine disputes of material fact about willfulness and knowledge.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defendant had an interest in or authority over the UBS accounts for FBAR purposes | de Forrest had POA, opened an account in her name, and thus had financial/signature authority triggering FBAR duty | Accounts were husband’s; POAs/documents were not legally effective in 2005 or didn’t create a reporting duty | Court: genuine dispute not shown as to authority — documentary evidence indicates de Forrest had authority; no genuine dispute on this element for summary judgment denial rationale |
| Whether failure to file an FBAR for 2005 was willful (knowing or reckless) | Signing tax return without Schedule B and failing to file FBARs despite CPA advice and prepared FBARs shows willful blindness/recklessness | She lacked requisite knowledge/duty, may not have received Brooks’s FBARs/letter, and Brooks’s own conduct casts doubt on when he knew; no evidence she affirmatively concealed | Court: disputed material facts about receipt of information, Brooks’s knowledge/actions, and intent precluded summary judgment on willfulness |
| Whether constructive/actual knowledge from signing tax returns establishes willfulness as a matter of law | Taxpayers are charged with knowledge of documents they sign; Schedule B question and tax return signature make willfulness inferable | Subjective lack of reading and other evidence undermines an inference of conscious disregard; constructive knowledge alone insufficient on these facts | Court: refusal to find willfulness as a matter of law because factual disputes exist about what de Forrest knew and when |
| Appropriate standard for willfulness in civil FBAR penalties | Willfulness includes knowing or reckless violations; civil standard (preponderance) applies | Asked for criminal-level standard; argued higher mens rea required | Court: adopts civil standard (knowing or reckless), preponderance of evidence applies; but willfulness unresolved at summary judgment due to factual disputes |
Key Cases Cited
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (establishes summary judgment standard)
- Celotex Corp. v. Catrett, 477 U.S. 317 (movant’s burden at summary judgment and allocation of proof)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (summary judgment—reasonableness of inferences)
- T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626 (9th Cir. 1987) (factual dispute requirement to avoid summary judgment)
- Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (willfulness can include reckless conduct)
- Lefcourt v. United States, 125 F.3d 79 (2d Cir. 1997) (willfulness inquiry focused on purposeful vs. inadvertent failure)
- Herman & MacLean v. Huddleston, 459 U.S. 375 (civil cases and burden of proof context)
- McBride v. United States, 908 F. Supp. 2d 1186 (D. Utah 2012) (civil FBAR willfulness analysis)
- Bohanec v. United States, 263 F. Supp. 3d 881 (C.D. Cal. 2016) (FBAR penalty burden/standard discussion)