92 F.4th 598
6th Cir.2024Background
- James Kelly, a U.S. citizen, opened a Swiss bank account in 2008, deliberately obscuring his identity and preventing account information from being sent or reported to the U.S. government.
- Kelly never sought professional guidance about his foreign account's U.S. tax or reporting obligations, nor did he confirm the bank’s reporting practices.
- He failed to file required FBARs for 2013, 2014, and 2015, despite maintaining a balance of roughly $1.5 million in his foreign accounts.
- After warnings from his bank and becoming aware of his reporting duties, he sought entry into the IRS Offshore Voluntary Disclosure Program (OVDP) but ultimately failed to comply and was removed from the program.
- The IRS assessed nearly $770,000 in civil penalties for willful FBAR violations; the district court granted summary judgment in the government's favor, which Kelly appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Definition of "willful" in civil FBAR penalty | Willfulness requires actual knowledge | Willful includes reckless disregard of duty | Willfulness for civil penalties includes knowing or reckless conduct |
| Application to Kelly’s conduct | Actions were not willful | Kelly's conduct was at least reckless | Kelly acted willfully/recklessly in failing to file FBARs |
| Relevance of OVDP participation | Participation negates willfulness | Noncompliance during OVDP shows willfulness | OVDP effort did not negate willfulness, especially after noncompliance |
| Reliance on Swiss advisors/account manager | Delegation removes liability | Failure to ensure FBARs were filed is reckless | Failure to confirm compliance or file FBARs was reckless |
Key Cases Cited
- Bryan v. United States, 524 U.S. 184 (Criminal willfulness requires knowing violation of legal duty)
- Cheek v. United States, 498 U.S. 192 (Defines willfulness as voluntary, intentional violation of a known legal duty)
- Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (Reckless disregard can satisfy civil willfulness requirement)
- United States v. Sturman, 951 F.2d 1466 (Criminal willfulness may be inferred from conduct meant to conceal)
- United States v. Bedrosian, 912 F.3d 144 (Civil FBAR willfulness includes reckless violations)
- United States v. Rum, 995 F.3d 882 (Civil FBAR willfulness encompasses knowing and reckless conduct)
- United States v. Horowitz, 978 F.3d 80 (Civil recklessness standard for FBAR violations)