24 F.4th 1355
11th Cir.2022Background
- Isac Schwarzbaum, a U.S. citizen, failed to report multiple foreign bank accounts on FBARs for tax years 2006–2009; he filed limited FBARs in some years and read the FBAR instructions in 2007.
- In 2011 Schwarzbaum voluntarily disclosed the omitted accounts and balances to the IRS.
- The IRS assessed willful FBAR civil penalties (using account "highest annual balances" and IRM mitigation), totaling over $13 million; IRS Appeals sustained the penalties.
- The government sued to collect; at bench trial the district court found Schwarzbaum’s 2007–2009 violations willful (reckless standard) but held the IRS miscalculated penalties by using wrong base balances (should use June 30 balances) and set the penalties aside under the APA.
- The district court then calculated and imposed new penalties itself, later reducing them to match the IRS’s earlier year-by-year totals at the government’s request.
- The Eleventh Circuit affirmed the willfulness standard applied by the district court but held the district court lacked authority to recalculate penalties and remanded the case to the IRS to recalculate penalties using the correct legal base (June 30 balances).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper legal standard for "willful" FBAR violations | Schwarzbaum: district court applied de facto strict liability; standard too lax | Government: recklessness suffices as willfulness | District court applied correct standard—willful includes knowing or reckless conduct; recklessness defined per Safeco/Rum |
| Lawfulness of IRS penalty calculation under APA | Schwarzbaum: IRS miscalculated by using highest annual balances rather than June 30 balances; penalties unlawful | Government: IRS calculation errors were harmless because ultimate penalties matched | IRS misapplied the law; error not shown harmless—remand required for the IRS to recalculate using June 30 balances |
| Proper remedial role of district court after agency error | Schwarzbaum: court could set aside and enter judgment reducing penalties | Government: district court effectively reinstated IRS assessment; calculation appropriate | Court may set aside unlawful agency action but cannot substitute its own penalty calculation; must remand to agency |
Key Cases Cited
- United States v. Rum, 995 F.3d 882 (11th Cir. 2021) (willful FBAR violations include knowing or reckless conduct)
- Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007) (defines recklessness as an objectively high risk of harm that is known or so obvious it should be known)
- SEC v. Chenery Corp., 318 U.S. 80 (1943) (courts cannot supply a new agency rationale on review)
- SEC v. Chenery Corp., 332 U.S. 194 (1947) (remand to agency is appropriate when agency misapplies law)
- Fla. Dep’t of Lab. & Emp. Sec. v. U.S. Dep’t of Lab., 893 F.2d 1319 (11th Cir. 1990) (remand required when agency misapplies law)
- U.S. Steel Corp. v. EPA, 595 F.2d 207 (5th Cir. 1979) (harmless error standard in administrative review)
- Cnty. of L.A. v. Shalala, 192 F.3d 1005 (D.C. Cir. 1999) (on APA review the district court sits as an appellate tribunal)