United States v. Said Rum
995 F.3d 882
| 11th Cir. | 2021Background:
- Rum, a U.S. citizen, opened numbered UBS and later Arab Bank accounts in Switzerland to conceal assets and received bank statements and in-person advice that the accounts generated U.S.-taxable income.
- He signed a 2004 UBS form acknowledging U.S. tax liability, repeatedly answered “no” on Schedule B of his tax returns regarding foreign accounts, and signed returns under penalty of perjury.
- Rum filed no FBARs for the years at issue and filed a single belated FBAR for 2008 only after UBS disclosed his account to the IRS; he reported only a small portion of foreign income later repatriated.
- IRS examination found large understatements and proposed a willful FBAR penalty of 50% of the 2007 account balance; appeals and a Tax Court stipulation resolved related civil fraud claims (no civil fraud penalty imposed).
- The Government sued to collect the FBAR penalty; the district court granted summary judgment for the Government; Rum appealed raising challenges to the willfulness standard, factual sufficiency, penalty amount and procedures, and additional charges.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Meaning of "willfulness" for FBAR penalties | Willfulness should require actual knowledge/violation of known legal duty (criminal standard). | Willfulness in civil FBAR context includes reckless disregard of a known or obvious risk. | Willfulness includes reckless disregard (adopts Safeco-style civil recklessness standard). |
| Genuine issue of material fact on willfulness | Signature and some disputed facts create triable issues; summary judgment improper. | Multiple concealment acts and admissions demonstrate at least recklessness; no genuine dispute. | No genuine issue; summary judgment for Government—evidence overwhelmingly shows recklessness. |
| Source of maximum willful penalty | 31 C.F.R. §1010.820(g)(2) limits willful penalty to $100,000 (regulatory cap). | 2004 amendment to 31 U.S.C. §5321 controls; willful max is greater of $100,000 or 50% of account. | Statute controls; the 2004 amendment sets the maximum (regulation does not override statute). |
| Standard of review for penalty amount / IRS factfinding | IRS factfinding was inadequate (I.R.M. issues, withheld mitigation guidance, improper merging/bargain) → de novo review warranted. | IRS followed procedures; appeals had full notice and opportunity; arbitrary-and-capricious review applies. | APA arbitrary-and-capricious standard applies; IRS procedures were adequate and not arbitrary or capricious. |
| Additions to base amount (interest, late fees) | Interest/late fees should be voided due to insufficient explanation of maximum penalty. | Additions flow from valid assessment and proper procedures. | Rejected; additions stand—IRS provided adequate factual and legal basis. |
Key Cases Cited
- Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (civil "willfully" can include reckless conduct)
- Bedrosian v. United States, 912 F.3d 144 (3d Cir. 2018) (FBAR willfulness includes recklessness standard applied)
- Horowitz v. United States, 978 F.3d 80 (4th Cir. 2020) (same: willfulness includes recklessness for FBAR)
- Norman v. United States, 942 F.3d 1111 (Fed. Cir. 2019) (adopting Safeco approach for §5321)
- Malloy v. United States, 17 F.3d 329 (11th Cir. 1994) (analogous recklessness standard under §6672)
- Mazo v. United States, 591 F.2d 1151 (5th Cir. 1979) (willfulness as reckless disregard)
- Citizens to Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402 (standard for when de novo review of agency action may be required)