Court Rejects FBAR Summary Judgment For Holocaust Survivor, Schik

Court Rejects FBAR Summary Judgment For Holocaust Survivor, Schik

Court Rejects FBAR Summary Judgment For Holocaust Survivor

In recent years, the Internal Revenue Service and US Government have aggressively pursued foreign account penalties against US Taxpayers who may have missed their annual reporting on the FBAR Form (Foreign Bank and Financial Account Reporting aka FinCEN Form 114). Sometimes, penalties and court enforcement is warranted — but sometimes it is not. In the case of Schik, the Taxpayer is literally a 100-year-old man and a Holocaust Survivor — who at 13-years old was separated from his family and forced to live in a concentration camp. These facts alone should have required the IRS and US government to take their foot off the gas pedal for a moment and reconsider their strategy. Instead, they decided to pursue this man for Summary Judgment on nearly $10,000,000 of willful FBAR Penalties. Since the government refused to slam the brakes, the Court decided to do it for them. And, not only did the Court reject the government’s motion for Summary Judgment, but they also (clearly) laid-out exactly why there were genuine issues of material fact regarding willfulness. 

US v. Schik Case Summary

The case is pretty absurd. The Defendant is a Holocaust survivor who spent their childhood in a concentration camp. When the war ended, Schik relocated to the United States. At the time, he deposited money repatriated from overseas and deposited them into Swiss Bank Accounts – noting that this was several years ago and deposited into a Swiss Account because Switzerland was neutral. The Taxpayer hired a Swiss Money Manager to oversee the account and served as the POA on the Account.

Schik had a tax accountant. The accountant never asked whether he had any foreign accounts and did not provide Schik with a Questionnaire. Since he was never asked, Taxpayer never thought he had to report these accounts (which served as “safety blankets” in case of another Holocaust) to the US government. The Money Manager was later indicted for tax fraud and working with US persons to avoid US tax and reporting. Schik tried to submit to OVDP in 2010 (2010 OVDP pre-dates the stand-alone streamlined procedures, so willfulness should not be presumed). Despite being rejected for OVDP (due to timeliness), he submitted a late FBAR – and the IRS responded by issuing willful penalties. Then, the IRS moved for Summary Judgment.

Summary Judgment Rejected as Genuine Issues of Material Fact Exist

As provided by the Court:

      • On summary judgment, the Court is obligated to construe all facts and draw all possible inferences in favor of Mr. Schik as the non-moving party. See Scott, 550 U.S. at 380. On the record before it, and drawing all reasonable inferences in favor of Mr. Schik, the Court concludes that there are genuine issues of material fact regarding whether Mr. Schik’s failure to file the 2007 FBAR was willful rather than merely negligent. Those issues should be resolved by a jury and not by the Court on summary judgment.

Sidenote: IRS Concedes The Penalty is Incorrect

      • A penalty amount calculated by the IRS may be reviewed to ensure that it is not arbitrary and capricious. See 5 U.S.C. § 706(2)(A). The Government concedes that errors in the penalty assessment render the amount incorrect, and that its process was deficient. Mem. at 14 (arguing that the matter “should be remanded to the IRS for calculation of the correct penalty amount.”). In particular, the Government “has been unable to identify the records supporting the revenue agent’s conclusion as to the . . . balance [in the accounts needed for penalty calculation] as of December 31, 2007.” Mem. at 15.

      • “If the record before the agency does not support the agency action . . . the proper course, except in rare circumstances, is to remand to the agency for additional investigation or explanation.” Fla. Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985); see also Citizens Against the Pellissippi Parkway Extension, Inc. v. Mineta, 375 F.3d 412, 416 (6th Cir. 2004) (it may be “an abuse of discretion to prevent an agency from acting to cure the very legal defects asserted by plaintiffs challenging federal action.”).

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