361 F. Supp. 3d 511
D. Md.2019Background
- Peter and Susan Horowitz held a UBS joint account (opened earlier) and Peter later opened a Finter Bank account (Oct 2008), transferring the UBS funds into Finter; Susan became a joint Finter owner in 2009.
- The Horowitzes did not timely file FBARs for 2007 (UBS) or 2008 (Finter); they timely filed an FBAR for 2009 and entered the IRS Offshore Voluntary Disclosure Program in Jan 2010, later opting out in Dec 2012.
- On June 13, 2014, the IRS assessed willful FBAR penalties of $247,030 each against Peter and Susan for 2007 and 2008; Notices demanding payment issued the same day.
- The Horowitzes protested to IRS Appeals; in Oct 2014 Appeals personnel requested that IRS penalty-input dates be removed; an IRS data-entry employee (Beasley) cleared the penalty-input dates but later gave inconsistent statements about whether she reversed the assessments.
- The Government sued to collect assessed penalties; cross-motions for summary judgment followed. The court had to decide (1) whether the June 2014 assessments were effectively reversed (affecting the statute of limitations), and (2) whether the failures to file were willful.
Issues
| Issue | Plaintiff's Argument (Government) | Defendant's Argument (Horowitzes) | Held |
|---|---|---|---|
| Whether the June 13, 2014 FBAR assessments were reversed such that statute of limitations barred collection | The June 2014 assessments were valid; clearing the penalty-input date did not reverse the assessment and Appeals lacked authority to vacate assessed penalties without DOJ | Beasley/Appeals removed/reversed the input date in Oct 2014, so penalties were effectively unassessed and any reassessment in 2016 was untimely | Court: Defendants failed to prove a valid reversal; inconsistent evidence and lack of authority to reverse assessed >$100,000 penalties; statute of limitations defense denied |
| Whether Susan had a reportable financial interest or authority over the Finter account in 2008 | Susan had sufficient connection (intended joint ownership and a POA) to be required to report | Susan was not a record owner or signatory in 2008 and could not exercise authority without providing a signature specimen, so she had no reportable interest/authority in 2008 | Court: Susan did not have a financial interest or signature/other authority for the Finter account in 2008; partial summary judgment for Susan granted on that point |
| Whether the Horowitzes willfully failed to file FBARs for 2007 (both) and 2008 (Peter) | The taxpayers signed tax returns containing Schedule B questions and cross-references to FBAR filing, and their conduct (answers, reliance on friends, moving funds) supports inference of willfulness or willful blindness | The Horowitzes attempted to rely on mistaken advice and claimed lack of knowledge | Court: Willfulness (at least reckless disregard/willful blindness) is established for both on 2007 UBS and for Peter on 2008 Finter; Government entitled to summary judgment on those penalties |
| Proper penalty ceiling for willful FBAR violations | Statutory ceiling after the 2004 Jobs Creation Act is the greater of $100,000 or 50% of the account balance; regulations inconsistent with statute are invalid | Defendants relied on pre-2004 regulation limiting willful penalty to $100,000 | Court: Adopted cases/IRM reasoning that the 2004 statute controls; the higher statutory ceiling applies (regulation superseded) |
Key Cases Cited
- United States v. Williams, [citation="489 Fed. App'x 655"] (4th Cir.) (discussing FBAR reporting, willfulness, and taxpayer's constructive knowledge via signed returns)
- Kimble v. United States, 141 Fed. Cl. 373 (Fed. Cl. 2018) (regulation inconsistent with post-2004 FBAR statute is invalid; 50%/$100,000 statutory ceiling applies)
- Barseback Kraft AB v. United States, 121 F.3d 1475 (Fed. Cir. 1997) (unconflicting statute can render a regulation invalid even if not withdrawn)
- Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007) (when "willfulness" is statutory condition of civil liability, it may include reckless conduct)
- United States v. Poole, 640 F.3d 114 (4th Cir. 2011) (willful blindness doctrine supports inference of knowledge for tax-related scienter)