Florida FBAR Penalty – Court Denies $15MM Motion on Willfulness
- 1 U.S v. Schwarzbaum (Case 9:18-cv-81147-BB)
- 2 Background
- 3 Foreign Accounts
- 4 Defendant Allegedly Commits the Ultimate FBAR sin…
- 5 Allegations of Willfulness & IRS FBAR Penalty
- 6 Defendant Entered OVDI & was Found Non-Willful…and Willful
- 7 U.S. Pursues a Judgment, Defendant tries to Fight it
- 8 Golding & Golding, A PLC
Florida FBAR Penalty – Court Denies Taxpayer $15MM Willful Motion
While the IRS has been somewhat successful in pushing for summary judgment (or at least partial summary judgment) in various FBAR cases worldwide — Taxpayers have not been so lucky with summary judgment motions against the IRS.
Recently, a judge in Florida ruled against Defendant Taxpayer’s request to have the FBAR issue of willfulness decided on summary judgment.
Instead, the judge found there were genuine issues of material fact.
When a judge finds there are genuine issues of material fact, summary judgment must be denied.
Excerpts below are from the Complaint and recent Court Order.
U.S v. Schwarzbaum (Case 9:18-cv-81147-BB)
Was the Defendant willful?
Schwarzbaum was born in Stuttgart, Germany. He moved to the United States in 1993, became a permanent resident of the United States in 1995, and became a United States citizen in 2000.
Beginning in 2001 and continuing through 2009, Schwarzbaum received substantial monetary gifts from his father (who lived in Switzerland). Schwarzbaum opened an account in May of 2001 in Switzerland to hold the funds received from his father.
In the years that followed, Schwarzbaum opened and closed numerous bank and investment accounts in Switzerland, which accounts were funded with gifts from his father.
In 2004, Schwarzbaum established a company called Belaggio in Costa Rica. He conducted his real estate activities in Costa Rica through Belaggio.
In 2004 and 2005, he opened several bank accounts in Costa Rica in Belaggio’s name, but he was the beneficial owner of the accounts. He also opened a Costa Rican bank account in his own name in 2006. Schwarzbaum primarily used Belaggio as an investment vehicle to diversify his assets.
Defendant had many foreign accounts at multiple various institutions outside of the United States — he was worth millions of dollars.
Defendant Allegedly Commits the Ultimate FBAR sin…
The IRS argues that Defendant had willfully failed to fully (and timely) report & disclose some his foreign accounts.
The reason why intentional partial reporting is so bad, is because on the one hand, it acknowledges defendant knew there was a requirement, but on the other hand, defendant intentionally did not report certain accounts.
Schwarzbaum had an interest in at least three foreign financial accounts located in Switzerland: the Raiffeisen 4961 Account, the Raiffeisen 1683 Account, and the Aargauische Account. The aggregate balance of the three accounts exceeded $2.6 million.
Schwarzbaum was required to file an FBAR by June 30, 2004, reporting his interest in the three Swiss accounts, but he failed to do so.
On December 12, 2011, Schwarzbaum late-filed his 2003 FBAR, in which he admitted to having an interest in the following Swiss accounts (partial reporting)
Schwarzbaum was required to disclose that he had an interest in the Swiss accounts in a Schedule B to his 2003 federal income tax return (Form 1040); however, he did not attach a Schedule B to his return.
Over the next few years, it appears that Defendant either filed incomplete FBARs and/or filed the FBARs late.
Allegations of Willfulness & IRS FBAR Penalty
Despite such knowledge, Schwarzbaum filed a 2006 FBAR that disclosed the existence of the CR 1472 Account only.
He did not disclose the existence of the Aargauische Account, the UBS 6308 Account, the UBS 9250 Account, the UMB Account, or the CR 0588 Account in an FBAR for the 2006 calendar year by June 30, 2007. Schwarzbaum’s failure to report these accounts in a timely-filed FBAR was willful within the meaning of 31 U.S.C. 5321(a)(5).
On June 13, 2013, Schwarzbaum consented to extend the statute of limitations for the assessment of FBAR penalties for 2006 to June 30, 2014.
On January 18, 2014, Schwarzbaum consented to extend the statute of limitations for the assessment of FBAR penalties for 2006 to December 31, 2015. On September 24, 2015, Schwarzbaum consented to extend the statute of limitations for the assessment of FBAR penalties for 2006 to December 31, 2016.
On September 6, 2016, a delegate of the Secretary of the Treasury, in accordance with 31 U.S.C. § 5321, timely assessed against Schwarzbaum a total penalty of $1,173,778 because he willfully failed to timely file a 2006 FBAR that identified his interest in all of his foreign bank accounts.
There were multiple penalties issued for alleged willful, incomplete FBAR filings over the next 3-7 years.
Defendant Entered OVDI & was Found Non-Willful…and Willful
It is important to note that in 2011, there were no “Streamlined Procedures.” If a person was non-willful, they entered OVDI (or OVDP) and then sought to opt-out.
Ultimately, in 2011, Schwarzbaum entered into the IRS’s voluntary disclosure program, the Offshore Voluntary Disclosure Initiative (“OVDI”). Def. SOMF ¶ 49.
He and the IRS agreed to additional income tax, interest, and accuracy-related penalties due as a result of the failure to report interest earned on foreign accounts, which amounts Schwarzbaum promptly paid. Id. ¶¶ 50- 51.
Schwarzbaum then opted out of OVDI and underwent full examinations under Title 26 and Title 31.
IRS Agent Bjork made the initial determination that the IRS should assert a non-willful FBAR penalty against Schwarzbaum. Id. ¶ 56; Pl. SOMF ¶
Ultimately, however, willful FBAR penalties were assessed on September 6, 2016, and the Title 26 examination concluded with the assessment of accuracy-related penalties for the underpayment of income tax. Def. SOMF ¶¶ 60-61.
The U.S. government alleged Defendant owed $15,559,072.00, and interest continues to accrue.
U.S. Pursues a Judgment, Defendant tries to Fight it
When a court denies summary judgment, it generally means there are genuine issues of material fact in dispute.
As provided in the court order:
Defendant moves for summary judgment arguing that the undisputed facts in this case demonstrate that he did not willfully violate his FBAR filing requirements.
In addition, he argues that the underlying FBAR determination should be set aside because it is arbitrary and capricious, it violates the Eighth Amendment, and was assessed after the expiration of the limitations period.
While the statute contains a reasonable cause exception, see 31 U.S.C. § 5321(a)(5)(B)(ii), the parties here dispute whether Schwarzbaum ever told his CPAs about his foreign accounts. See, e.g. Def. SOMF ¶ 48 and Pl.
In any event, a party’s state of mind is a question of fact to be determined by the trier of fact at trial. Chanel, Inc. v. Italian Activewear of Fla., Inc., 931 F.2d 1472, 1476 (11th Cir. 1991). As such, summary judgment is inappropriate. See Williams, 489 F. App’x at 658 (“Whether a person has willfully failed to comply with a tax reporting requirement is a question of fact.”)
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