CPA Gets Get with Willful FBAR Violation Penalties

CPA Gets Get with Willful FBAR Violation Penalties

CPA Gets Get with Willful FBAR Violation Penalties

CPA Gets Get with Willful FBAR Violation Penalties: In the case of US v Kronowitz, the Court ruled against Defendant CPA in awarding the US Government summary judgment in the issue of willfulness FBAR penalties stemming from Reckless Disregard. Several circuits across the country have affirmed District Court rulings that reckless disregard is sufficient to prove willfulness when it comes to FBAR violations. In Kronowitz, the CPA prepared his own tax returns and failed to properly report his foreign accounts. While Defendant claimed he was non-willful, the Court agreed that Defendant was actually willful, and that his actions amounted to reckless disregard (a “lower” form of recklessness.)

US v. Kronowitz Case No. 19-cv-62648-BLOOM/Valle

Let’s see why the Court ruled the way it did in US v. Kronowitz:

Defendant had Several Foreign Accounts

Defendant had several foreign accounts. It probably did not help that the accounts were in notorious “tax haven” countries such as Switzerland and the Cayman Islands.

As provided by the Court in the Order re: Motion for Summary Judgment

      • In the Complaint, the Government asserts six counts seeking to reduce to judgment the previously assessed Report of Foreign Bank and Financial Accounts (“FBAR”) penalties for each applicable year, pursuant to 31 U.S.C. § 5321(a)(5).

Defendant was a CPA (Certified Public Accountant)

While the level of education a Defendant has does not determine if someone was reckless, the Defendant here was an actual CPA, with his own accounts.

As provided by the Court in the Order re: Motion for Summary Judgment

      • He graduated from the University of Miami with a degree in accounting in 1961.
      • From 1961 to present, Kronowitz has been a licensed certified public accountant (“CPA”). Id. ¶ Since becoming an accountant in 1961, Kronowitz has always been a sole practitioner. Def. SOMF
      • Since 1962, Kronowitz has typically prepared approximately thirty (30) to forty (40) federal income tax returns annually for both individuals and businesses.
      • In order to maintain his CPA license, Kronowitz was required to take at least forty (40) hours of Continuing Professional Education (“CPE”) classes annually. Id.
      • However, Kronowitz does not recall the FBAR being mentioned in any of the CPE courses he has taken.
      • He considers himself to be semi-retired, as he still prepares approximately ten or twelve returns per year for others for money.
      • Kronowitz had never heard of a FBAR before 2011. Id. at 15, p. 57.

Defendant was Worried About a Lawsuit Opened a Foreign Account

It is important to note, that Defendant is being investigated because of his OWN non-reporting of foreign accounts. In other words, he was the person who not only opened the accounts and the only person able to access them — but prepared his own returns. Defendant had admittedly prepared several hundreds — if not thousands of tax returns — 

As provided by the Court in the Order re: Motion for Summary Judgment:

      • Kronowitz was told sometime in 2000 that all the professionals were taking their money offshore in order to protect assets. Id. at 16, pp. 58-59. In his practice, however, he did not have clients in a position to move assets offshore. Id.
      • Around 2001, Kronowitz and his wife stopped in the Cayman Islands during a cruise.
      • While there, Kronowitz opened an account. Id. Kronowitz opened bank accounts in the Cayman Islands in order to protect his assets because he heard rumors that one of his clients, Irwin Mogerman, was going to sue him. Kronowitz .
      • Kronowitz was “the only one in charge of the Cayman Accounts and for anyone else to get them, they have to produce a death certificate or a record to prove incapacity.”
      • The lawsuit initiated by Mogerman arose from Kronowitz’s filing income tax returns on behalf of Mogerman’s corporations for tax year 1998, and in 2005, resulted in the entry of judgment against Kronowitz for breach of contract and fraudulent misrepresentation.

No Schedule B or Foreign Account Reporting

Taxpayer Defendant did not include a Schedule B in his own tax return. When coupled with the fact that he was a CPA familiar with the Schedule B, this was a major fact against him —

As provided by the Court in the Order re: Motion for Summary Judgment:

      • Kronowitz prepared his own tax returns for tax years 2005, 2006, 2007, 2008, 2009, and 2010.
      • On the Schedule B forms filed with the 2007 and 2008 tax returns, in response to question 7a, Kronowitz marked “no.” Kronowitz Dep. at 24, pp. 91, 93. There were no Schedule B forms attached to the 2006, 2009, or 2010 individual tax returns.
      • Kronowitz also prepared the tax returns for the Trust for tax years 2008, 2009, and 2010.

Willful FBAR Standard 

As provided by the Court in the Order re: Motion for Summary Judgment:

      • In order to be subject to a willful FBAR penalty, the following elements are required: (1) the person must be a U.S. citizen, (2) the person must have or had an interest in, or authority over a foreign financial account, (3) the account had a balance exceeding $10,000.00 at some point during the reporting period, and (4) the person must have willfully failed to disclose the account and file a FBAR. 31 U.S.C. § 5314; 31 C.F.R. § 1010.350(a).
      •  The statutes and regulations at issue in this case do not define the term willful; however, the BSA identifies the applicable penalty as a “civil money penalty.” 31 U.S.C. § 5321(a)(5)(A). “[W]here willfulness is a statutory condition of civil liability, we have generally taken it to cover not only knowing violations of a standard, but reckless ones as well.” Safeco InsCoof AmvBurr, 551 U.S. 47, 57 (2007).
      • Indeed, in the context of a FBAR violation, actual knowledge of the duty to report interest in a foreign account is not required—reckless or careless disregard of that statutory duty is sufficient. United States vBrandt, No. 17-80671-CIV, 2018 WL 1121466, at *4 (S.D. Fla. Jan. 24, 2018); United States v.  Williams, 489 F. App’x 655, 658 (4th Cir. 2012) (same); Norman vUnited States942 F.3d 1111, 1115 (Fed Cir. 2019) (willfulness in the FBAR context includes recklessness).

Facts Used to Show Defendant was Reckless

The court had many facts to base their decision that Taxpayer was reckless —

As provided in the Findings of fact Conclusion of Law:

      • Evidence of recklessness In this case, the evidence presented at trial demonstrates that Kronowitz’s FBAR violations were willful, in that he recklessly failed to report his interest in his foreign accounts. Kronowitz has been a professional tax return preparer for nearly sixty years, who until recently, thirty (30) to forty (40) tax returns per year on behalf of individuals and corporations.
      • He admitted to seeing hundreds of Schedule Bs, and being familiar with the purpose of Schedule B and its requirements, but testified that he probably did not read the instructions because he was more concerned with providing for his family and taking care of his clients.
      • Indeed, he testified that “my purpose in life at the time was to get clients, bill them, and collect the money, not spending the whole year reading[.]”
      • Furthermore, Kronowitz affirmatively answered “no” to questions regarding interests in foreign accounts on both his individual tax returns and on the Trust tax returns he prepared. He simply and incorrectly assumed that reporting the gains from his Levy investments would be sufficient to satisfy tax reporting obligations…

Courts Ruling

      • Based upon Kronowitz’s background and experiences as a CPA and tax preparer, and the totality of his actions in this case, the Court finds that he clearly ought to have known that there 3 The parties stipulated that “[a] medical professional had not determined whether Kronowitz had, or whether he did not have, a medical or physical impairment, during the period of June 30, 2006 through June 30, 2010.”
      • Furthermore, he was in a position to find out for certain very easily, had he taken the time to either conduct independent research, or consult with another person more knowledgeable on tax law as to whether any additional reporting requirements might apply to him.
      • Accordingly, the Court finds that Kronowitz’s FBAR violations for tax years 2006, 2007, 2008, 2009, and 2010 were willful, and that the Government is entitled to recover willful FBAR penalties for those years.
      • As such, the Government is directed to submit to the Court an updated calculation of damages including all fees and interest applicable, on or before June 15, 2021. The Court will enter judgment in favor of the Government by separate order.

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