FBAR penalties: what the courts have decided

Facts

Monica Toth, a U.S. citizen, had held a UBS account in Switzerland since 1999 and filed her first FBAR in 2010. After an audit, the IRS found her 2007 violation willful and assessed $2,173,703 — half the account’s value. Representing herself, she repeatedly missed discovery deadlines, and the court treated willfulness as established as a sanction.

Holdings

• A willful penalty under § 5321(a)(5)(C)–(D) is not a “fine,” so the Excessive Fines Clause does not apply. The court saw the penalty as remedial: it addresses lost revenue and the cost of investigating hidden accounts.
• The 1987 regulation’s $100,000 cap was superseded when Congress raised the maximum in 2004.
• The discovery sanction establishing willfulness was within the trial court’s discretion.
• Her due process challenge to the amount was waived.

Result

Affirmed, including $826,469.56 in late-payment penalties and $137,925.92 in interest.

Facts

Harold Kahn willfully failed to file his 2008 FBAR, due June 30, 2009, for two Credit Suisse accounts in Switzerland holding a combined $8,529,456. The IRS assessed $4,264,728, half the balance. Kahn died without paying, and the government sued his estate.

Holdings

• Congress’s 2004 amendment superseded the 1987 regulation’s $100,000 cap, which had simply tracked the older statute.
• The rule of lenity did not apply because the statute’s “greater of” formula is not ambiguous.
• A dissent would have held Treasury bound by its own regulation until it was changed.

Result

Affirmed: $4,264,728 plus statutory additions and interest.

Facts

Arthur Bedrosian had kept a Swiss account since the 1970s, later at UBS. His 2007 FBAR listed one UBS account worth about $240,000 but left off a second worth about $2 million. In 2015 the IRS assessed $975,789 — half the omitted account. He paid part, sued for a refund, and the trial court found he was not willful.

Holdings

• Civil FBAR willfulness covers both knowing and reckless violations.
• Recklessness is objective: conduct creating an unjustifiably high risk of harm that is known or so obvious it should be known (the Supreme Court’s Safeco test).
• A trial judge’s willfulness finding is reviewed for clear error, but legal errors in applying the standard are corrected.
• The Federal Circuit does not have exclusive jurisdiction over these appeals.

Result

Vacated and sent back, because the appeals court could not tell whether the trial court used the objective standard.

Later treatmentUnited States v. Collins (2022) limits Bedrosian’s jurisdiction discussion: it did not hold that FBAR penalties are “taxes” for debt-collection purposes.

Facts

Peter and Susan Horowitz, U.S. citizens who had worked in Saudi Arabia, filed no FBARs from 1988 through 2008 for their Swiss accounts. Their UBS account held about $1.6 million by 2001, and in 2008 Peter moved nearly $2 million to another Swiss bank. In 2014 the IRS assessed $247,030 against each spouse for each of 2007 and 2008.

Holdings

• For the civil penalty, a willful violation includes both knowing and reckless violations, even though a criminal conviction requires knowledge of the law.
• Their conduct was objectively reckless: they knew of a large interest-bearing foreign account, never mentioned it to their accountant, used numbered-account and hold-mail services, and signed returns saying they had no foreign accounts.
• The 1987 regulation’s $100,000 cap was abrogated by the 2004 amendment.
• Deleting the assessment date from an IRS database did not reverse the timely assessments, so the suit was timely.

Result

Affirmed: $654,568 against Peter and $327,284 against Susan (2007 only), with interest and penalties.

Facts

Alexandru Bittner, a dual U.S.-Romanian citizen, learned of the FBAR requirement after returning to the United States in 2011. He filed late reports for 2007 through 2011, later corrected to list 272 accounts. The government did not claim he was willful, but assessed $10,000 per account — $2.72 million.

Holdings

• The reporting duty is to file a complete, accurate report. Failing to do so is one violation, however many accounts the report should have listed.
• The non-willful penalty is tied to “violations,” not accounts. Congress used per-account language only for certain willful penalties and for the reasonable-cause exception — and not here.

Result

Reversed and sent back, 5–4.

Facts

James Kelly closed his U.S. accounts in 2008 and kept about $1.5 million in a numbered, interest-bearing Swiss account with mail held at the bank. When the bank blocked the account over U.S. tax compliance, he moved the money to Liechtenstein. He entered the IRS voluntary disclosure program but was removed for noncompliance; the IRS proposed $769,126 in penalties for 2013 through 2015.

Holdings

• Following the Supreme Court’s Safeco decision, a willful violation includes both knowing and reckless violations.
• Recklessness is shown when the person clearly ought to have known of a grave risk that an accurate FBAR was not being filed and could easily have found out.
• Kelly’s concealment — a numbered account, held mail, avoiding U.S. investments that would have required tax forms — and his continued failure to file made him at least reckless.
• Participating in the voluntary disclosure program did not negate willfulness.

Result

Summary judgment for the government affirmed.

Facts

Jane Boyd, a U.S. citizen, had fourteen accounts in the United Kingdom, which grew after she deposited an inheritance, and did not report them or their income for 2010. Through the IRS voluntary disclosure program she filed an accurate 2010 FBAR in 2012, then opted out. The IRS treated each unreported account as a separate non-willful violation and assessed $47,279.

Holdings

• Filing one accurate FBAR late is a single violation — the failure to file on time — regardless of the number of accounts.
• Even if the statute were ambiguous, tax penalty provisions are construed strictly against the government.
• A dissent would have counted one violation per account.

Result

Reversed and sent back; the maximum penalty is $10,000.

Later treatmentUnited States v. Paulson (2023) limits Boyd’s strict-construction reasoning to tax provisions that impose penalties.

Facts

Isac Schwarzbaum, a wealthy naturalized citizen, held accounts in Switzerland and Costa Rica and did not report them for 2007 through 2009, though he had read the FBAR instructions and used accountants. The trial court found him reckless, and so willful. The IRS’s recalculated penalty was $13,521,328; the judgment was $12,555,813.

Holdings

• The FBAR penalty is punitive at least in part — it is not tied to the government’s costs and is meant to deter — so it is a fine subject to the Eighth Amendment.
• Applied account by account, three $100,000 penalties on an account holding about $10,000 to $12,000 on the assessment dates were grossly disproportional. The penalties on the larger accounts stood.
• The government may seek less than the full assessed penalty.

Result

Sent back for entry of a $12,255,813 judgment ($300,000 less), plus late fees and interest. This opinion replaces the court’s 2024 opinion in the same appeal.

Facts

Mindy Norman, a schoolteacher, opened a numbered UBS account in Switzerland in 1999; it held roughly $1.5 to $2.5 million from 2001 to 2008. She filed no FBAR for 2007, and the IRS assessed a willful penalty of $803,530, which the Court of Federal Claims upheld.

Holdings

• Willfulness for the civil penalty includes recklessness.
• She signed, under penalty of perjury, a 2007 return denying any foreign account after her accountant’s questionnaire asked about one. She had a numbered account, barred U.S. investments, took a withdrawal in cash, and made false statements to the IRS in the audit.
• A taxpayer who signs a return is charged with knowing its contents; not reading it supports recklessness.
• The 1987 regulation’s $100,000 cap is void because it conflicts with the 2004 statute.

Result

Affirmed.