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Couple Seeks Reversal of FBAR Penalty Decision

APR. 30, 2019

United States v. Peter Horowitz et ux.

DATED APR. 30, 2019
DOCUMENT ATTRIBUTES
  • Case Name
    United States v. Peter Horowitz et ux.
  • Court
    United States Court of Appeals for the Fourth Circuit
  • Docket
    No. 19-1280
  • Institutional Authors
    Eversheds Sutherland (US) LLP
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2019-17007
  • Tax Analysts Electronic Citation
    2019 TNT 85-37
    2019 WTD 85-20

United States v. Peter Horowitz et ux.

UNITED STATES OF AMERICA
Plaintiff-Appellee,
v.
PETER HOROWITZ and SUSAN HOROWITZ,
Defendants-Appellants.

United States Court of Appeals
for the Fourth Circuit

Appeal from the United States District Court
for the District of Maryland

BRIEF OF DEFENDANTS-APPELLANTS
PETER AND SUSAN HOROWITZ

James N. Mastracchio
Daniel G. Strickland
EVERSHEDS SUTHERLAND (US) LLP
700 Sixth Street, NW, Suite 700
Washington, DC 20001-3980
202.383.0100

Stacey M. Mohr
EVERSHEDS SUTHERLAND (US) LLP
999 Peachtree Street, NE, Suite 2300
Atlanta, Georgia 30309-3996
404.853.8000

Attorneys for Defendants-Appellants
Peter and Susan Horowitz

Disclosure of Corporate Affiliations and Other Interests

Page Two

Page ThreePage Four


TABLE OF CONTENTS

CORPORATE DISCLOSURE STATEMENTS

TABLE OF CONTENTS

TABLE OF AUTHORITIES

JURISDICTIONAL STATEMENT

STATEMENT OF THE ISSUES

STATEMENT OF THE CASE

A. Nature of the Case

B. Statement of Facts

1. The Horowitzes' Time in Saudi Arabia

2. The Horowitzes' Bank Accounts

3. Failure to Report the UBS and Finter Accounts

4. Assessment, Unassessment, and Reassessment of Penalties

C. Procedural History

D. Ruling Presented for Review

SUMMARY OF ARGUMENT

ARGUMENT

A. Standard of Review

B. The District Court Erred in Concluding That There Are No Disputed Issues of Material Fact Regarding Whether the Horowitzes Willfully Violated the FBAR Requirements.

1. The Factfinder Must Decide Whether an FBAR Violation Is Willful.

2. The District Court Inappropriately Drew Inferences in Favor of the Government and Ignored Evidence That the Horowitzes' FBAR Violations Were Neither Knowing nor Reckless

3. Williams Was Decided After Criminal Proceedings and a Trial That Established Facts Supporting Willfulness Not Present Here.

4. The District Court's Willfulness Standard Eviscerates the Section of the Statute Allowing for Non-Willful Penalties.

C. The District Court Erred in Refusing to Limit Penalties as Required by Treasury Regulation.

1. Statutory and Regulatory Framework

2. There Is No Conflict Between 31 C.F.R. § 1010.820(g)(2) and 31 U.S.C. § 5321(a)(5).

3. The IRS Has No Authority to Subvert Treasury Regulation, Through Its Internal Manual or Otherwise.

D. The District Court Erred in Concluding that the Government Was Entitled to Summary Judgment in the Face of Disputed Issues of Fact Material to Whether the Government's Claims Are Time Barred.

1. The Questions of Fact Identified by the District Court Preclude Summary Judgment for the Government.

2. There Is No Legal or Factual Support for the Conclusion That the IRS Was Powerless to Reverse the Assessments.

CONCLUSION

STATEMENT REGARDING ORAL ARGUMENT

CERTIFICATE OF COMPLIANCE

CERTIFICATE OF SERVICE

TABLE OF AUTHORITIES

Cases

Auer v. Robbins, 519 U.S. 452 (1997)

Austin v. Comm'r, 141 T.C. 551 (2013)

Barsebäck Kraft AB v. United States, 121 F.3d 1475 (Fed. Cir. 1997)

Bauer v. Lynch, 812 F.3d 340 (4th Cir. 2016)

Bedrosian v. United States, No. 15-5853, 2017 WL 1361535 (E.D. Pa. Apr. 13, 2017)

Big Sky Network Canada, Ltd. v. Sichuan Provincial Gov't, 533 F.3d 1183 (10th Cir. 2008)

Black & Decker Corp. v. Comm'r, 986 F.2d 60 (4th Cir. 1993)

Christensen v. Harris Cty., 529 U.S. 576 (2000

Conn. Nat'l Bank v. Germain, 503 U.S. 249 (1992)

Conservancy of Sw. Fla. v. U.S. Fish & Wildlife Serv., 677 F.3d 1073 (11th Cir. 2012)

Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562 (4th Cir. 2015)

Kimble v. United States, 141 Fed. Cl. 373 (2018), appeal docketed, No. 19-1590 (Fed. Cir. Feb. 26, 2019)

La. Pub. Serv. Comm'n v. FCC, 476 U.S. 355 (1986)

Lee v. Town of Seaboard, 863 F.3d 323 (4th Cir. 2017)

Marx v. Gen. Revenue Corp., 568 U.S. 371 (2013)

Nat'l Coal. for Students with Disabilities Educ. & Legal Def. Fund v. Allen, 152 F.3d 283 (4th Cir.1998)

Neuwirth v. La. State Bd. of Dentistry, 845 F.2d 553 (5th Cir. 1988)

Norman v. United States, 138 Fed. Cl. 189 (2018)

Reyazuddin v. Montgomery Cty., 789 F.3d 407 (4th Cir. 2015)

Scott v. Harris, 550 U.S. 372 (2007)

Thomas Jefferson Univ. v. Shalala, 512 U.S. 504 (1994)

Tolan v. Cotton, 572 U.S. 650 (2014)

Trans World Airlines, Inc. v. Thurston, 469 U.S. 111 (1985)

United States v. Bohanec, 263 F. Supp. 3d 881 (C.D. Cal. 2016)

United States v. Colliot, No. AU-16-CA-01281-SS, 2018 WL 2271381 (W.D. Tex. May 16, 2018)

United States v. Flume, No. 5:16-cv-73, 2018 WL 4378161 (S.D. Tex. Aug.22, 2018)

United States v. Garrity, No. 3:15-CV-243(MPS), 2019 WL 1004584 (D. Conn. Feb. 28, 2019), appeal docketed, No. 19-1145 (2d Cir. Apr. 25, 2019)

United States v. Gormley, 201 F.3d 290 (4th Cir. 2000)

United States v. James, 478 U.S. 597 (1986), abrogated on other grounds by Cent. Green Co. v. United States, 531 U.S. 425 (2001)

United States v. Larionoff, 431 U.S. 864 (1977)

United States v. McBride, 908 F. Supp. 2d 1186 (D. Utah 2012)

United States v. Pomerantz, No. C16-689 MJP, 2017 WL 4418572 (W.D. Wash. Oct. 5, 2017)

United States v. Sturman, 951 F.2d 1466 (6th Cir. 1991)

United States v. Wahdan, 325 F. Supp. 3d 1136 (D. Colo. 2018)

United State v. Williams, No. 1:09-cv-437, 2010 WL 2842931 (E.D. Va. Mar. 19, 2010)

United States v. Williams, 489 F. App'x 655 (4th Cir. 2012)

Variety Stores, Inc. v. Wal-Mart Stores, Inc., 888 F.3d 651 (4th Cir. 2018)

Statutes

18 U.S.C. § 371

26 U.S.C. § 7201

28 U.S.C. § 1291

28 U.S.C. § 1331

31 U.S.C. § 3711(a)(2)

31 U.S.C. § 5314

31 U.S.C. § 5321

31 U.S.C. § 5321(a)(5)(B) (1986)

Regulations

31 C.F.R. § 103.47

31 C.F.R. § 902.1(b)

31 C.F.R. § 1010.350

31 C.F.R. § 1010.360

31 C.F.R. § 1010.420

31 C.F.R. § 1010.820(g)

31 C.F.R. § 1010.821

52 Fed. Reg. 11436 (Apr. 8, 1987)

67 Fed. Reg. 64697 (Oct. 21, 2002)

68 Fed. Reg. 26489 (May 16, 2003)

81 Fed. Reg. 42503 (June 30, 2016)

Rules

Fed. R. App. P. 4(a)(1)(B)(i)

Fed. R. Civ. P. 56(a)

Other Authorities

Internal Revenue Manual 8.11.6.3

Internal Revenue Manual 8.11.6.5

Internal Revenue Manual 4.26.16.6.5

Kyle Niewoehner, Cmt., Feigning Willfulness: How Williams and McBride Extend the Foreign Bank Accounts Disclosure Willfulness Requirement and Why They Should Not Be Followed, 68 Tax Law. 251 (2014)

Black's Law Dictionary


JURISDICTIONAL STATEMENT

The district court had subject — matter jurisdiction under 28 U.S.C. § 1331, because this is a civil action arising under the laws of the United States. This Court has appellate jurisdiction under 28 U.S.C. § 1291. The district court entered a final judgment on February 6, 2019. (JA1245.) Defendants filed a notice of appeal on March 14, 2019, which was timely under Federal Rule of Appellate Procedure 4(a)(1)(B)(i). (JA1247.)

STATEMENT OF THE ISSUES

1. Did the district court err in granting summary judgment for the Government on the issue of whether the Horowitzes' violations of 31 U.S.C. § 5314 by failing to file a report of their interest in a foreign bank account for 2007 and 2008 were willful based on the sole fact that the Horowitzes signed their tax returns, when the evidence established that the Horowitzes had no knowledge of this requirement, were never asked about any foreign accounts by their tax professionals, and immediately corrected the error when they learned of the filing requirement?

2. Did the district court err in granting summary judgment for the Government and denying the Horowitzes' summary-judgment motion on the issue of the amount of penalties allowed for a willful violation when it refused to limit the penalty to the maximum of $100,000 per willful violation as required by 31 C.F.R. § 1010.820(g)(2)?

3. Did the district court err in granting summary judgment for the Government on the issue of whether the IRS's assessment of penalties against the Horowitzes was timely when there was evidence that the penalties were unassessed and not reassessed until after the statute of limitations had run?

STATEMENT OF THE CASE

A. Nature of the Case

This action involves the Government's pursuit of civil penalties against two individuals, Peter and Susan Horowitz, for failing to report their interest in a foreign bank account (known as an "FBAR"), as required by 31 U.S.C. § 5314, for the years of 2007 and 2008. The Internal Revenue Service (IRS) assessed penalties against each of the Horowitzes for willful failure to file an FBAR for both 2007 and 2008, for total penalties of $988,120.

Upon cross-motions for summary judgment, the district court entered an order granting summary judgment to the Government, and denying the Horowitzes' motion for summary judgment, on all claims against Peter and on the claim against Susan as to 2007. The district court granted summary judgment to Susan as to 2008, concluding that she did not have any interest in the relevant account for that year. The Horowitzes now appeal the grant of summary judgment to the Government and the denial of their summary-judgment motion in part.

B. Statement of Facts

1. The Horowitzes' Time in Saudi Arabia

Peter and Susan Horowitz, a married couple, are United States citizens who lived and worked in Saudi Arabia for a number of years between 1984 and 2001. (JA0355 ¶¶ 1, 4.) Peter is a medical doctor, and Susan was educated as a clinical social worker. (Id. ¶¶ 2, 3.) After he was honorably discharged from the Army Medical Corps in 1974, Peter worked as an anesthesiologist. (JA1026 ¶¶ 5-7.)

In 1984, Peter's work took the Horowitzes to Saudi Arabia, where they lived periodically for a total of over 14 years until returning to the United States permanently in 2001. (JA0355 ¶4.) In Saudi Arabia at that time, the Horowitzes and other Westerners lived in compounds separate from Saudi Arabian citizens, and the Saudi government took Peter and Susan's passports upon their arrival. (Id. ¶5; JA1254 at 20:1-4, 172:2-5, 197:18.) The Saudi government could — and did — deport expatriates without notice. (JA0355 ¶6.)

Mail service in Saudi Arabia was inconsistent, and neither internet nor email existed at that time. (Id. ¶8.) In this isolated environment, Peter and Susan relied on neighbors and coworkers for advice on everything from how to adapt to local customs to which country to send their children for school after the ninth grade. (Id. ¶7; JA1254 at 172:7-173:4.)

2. The Horowitzes' Bank Accounts

Neither Peter nor Susan has an educational background or work experience in finance or taxation. (JA1026 ¶4; JA1029 ¶4.) Peter was a conservative investor; he did not own stocks or bonds and preferred to keep his savings in interest bearing accounts and certificates of deposit. (JA1254 at 139:22-140:3.) Susan left Peter in charge of the finances for the household; she has a bank account in her name, which she doesn't use. (JA1507 at 13:1-9.)

While in Saudi Arabia, Susan's wages were paid in cash and used for living expenses, and Peter deposited most of his salary with a local Saudi Arabian bank. (JA0355 ¶¶ 12-14.) Peter was concerned that the bank account did not pay interest, that there was no local corollary to FDIC insurance, and that as foreign citizens, he and the rest of his family could be deported with little-to-no notice, leaving them with no access to their savings. (JA1254 at 22:11-17, 197:13-198:11; JA1507 at 28:4-9.)

With no family in the United States, and without internet or email, Peter turned to his close friends, colleagues and neighbors for advice. (JA0355 ¶7; JA1507 at 28:22-29:2; JA1254 at 28:17-19, 172:7-173:4.) Peter learned that the Swiss banking system was available to Westerners living in Saudi Arabia. (JA1026 ¶16.) In 1988, after receiving a call from a banker from a Swiss bank, Foreign Commerce Bank ("FOCO"), Peter established a bank account at FOCO. (JA0355 ¶¶ 15-16.) In addition to the fact that this account would earn interest, Peter felt the Swiss banking system was safe and secure, and would allow access to the funds even if he and Susan were deported by the Saudi government. (JA1254 at 31:7-10, 197:2-198:11.)

FOCO subsequently was taken over by an Italian bank, and Peter, being unfamiliar with the Italian banking system, decided to move his funds to a different bank. (JA0355. ¶20; JA1254 at 48:17-21.) Peter met with a representative from United Bank of Switzerland ("UBS") who periodically visited Saudi Arabia to provide banking services. (JA1254 at 52:11-17.) Peter opened the UBS account in 1994, using funds transferred from his FOCO account, and Peter continued to deposit savings from his salary into the UBS account. (JA0355 ¶¶ 22, 25.) Peter and Susan jointly owned the account. (Id. ¶23.)

When Peter and Susan moved back to the United States in 2001, they kept their funds in the UBS account. (Id. ¶26.) They felt the system was safe and secure, so there was no reason to move the funds. (JA1254 at 31:7-10.) Peter would call UBS every year or two to check on the account. (JA0355 ¶28; JA1254 at 35:1-22; JA1507 at 41:6-11.)

In late 2007 and early 2008 (the start of the Great Recession), Peter read newspaper articles describing UBS's financial trouble and bail-out by the Swiss government. He became concerned about the safety and security of the account. (JA0355 ¶30; JA1254 at 44:17-45:5, 199:6-12.) None of the articles Peter read mentioned FBAR or other filing requirements. (JA1254 at 208:1-8.) When Peter called UBS to ask about the account, the bank representative told him that UBS was closing accounts of its American customers. (JA0355 ¶32; JA1254 at 44:2-7, 199:13-15.) Peter asked about the reason, and the bank responded that it was a bank policy with no further explanation. (Id. at 44:2-9.)

Peter traveled alone to Switzerland in October 2008. (JA0355 ¶34.) After first determining that the issues facing UBS were not shared across all the Swiss banking industry, Peter decided to keep the funds in the Swiss banking system for its safety and security. (JA12 54 at 82:9-83:2.) He withdrew the balance of the UBS account and opened a new account at Finter Bank ("Finter"). (JA0355 ¶36.) Susan had no input into the selection of Finter. (JA1507 at 81:6-8.) Neither Susan nor Peter deposited any funds into the account after it was opened. (JA0355 ¶40.)1

3. Failure to Report the UBS and Finter Accounts

In the late 1970's, an accountant named Jack Weiss began preparing tax returns for the medical practice where Peter was employed as well as Peter's personal returns. (Id. ¶¶ 42, 43; JA1254 at 161:2-9.) Peter trusted Jack to know what was needed and to place the correct information in the returns. (JA1254 at 163:18-164:8.) For over 30 years, the tax returns prepared by Jack Weiss were never audited by the IRS, giving Peter and Susan comfort that Jack was competent and trustworthy. (JA1026 ¶¶ 12-13; JA1029 ¶¶ 17-18.)

When the Horowitzes moved to Saudi Arabia in 1984, Peter developed the mistaken belief, through discussions with expatriate colleagues, that if he deposited the after-tax funds from his salary in a foreign bank account, he was not liable to pay tax on the interest generated on that account. (JA1254 at 172:14-173:4.) Susan adopted this mistaken belief. (JA1507 at 186:16-187:6.)

Jack Weiss continued to serve as Peter and Susan's tax return preparer while they were in Saudi Arabia. (JA0355 ¶45.) Each year, Peter prepared a list of income items and related expense items and sent them to Jack. (JA1026 ¶9.) Jack prepared the income tax returns and mailed the completed returns back to Peter in Saudi Arabia. (JA0355 ¶46.) Peter and Susan would then sign the return and submit the forms to the IRS. (Id. ¶47.) Jack never asked Peter about whether they used a foreign bank account during these extended periods of living and working abroad. (JA1254 at 166:16-167:2.)

After moving back to the United States in 2001, Peter continued to use Jack's services, even after Jack associated his practice with another accounting firm, the Mironov Group. (JA1026 ¶14; JA0355 ¶50.) Mr. Ivan Sokolov eventually began entering the data for the tax return preparation. (JA0355 ¶51.) Mr. Sokolov knew Peter had lived in Saudi Arabia. (Id. ¶52.) While Mr. Sokolov communicated with Peter, he never met Peter in person and never spoke to Susan. (JA2307 at 7:11, 74:6-10.) After Jack passed away, Donald Hilker — another partner at the firm — stepped in. (JA2400 at 10:4-12, 35:15-16, 52:24-53:1.) Mr. Hilker never spoke to or met with Peter or Susan. (JA2400 at 76:25-77:3.) Mr. Hilker reviewed the Horowitzes' 2007 and 2008 returns and signed them as the preparer. (JA0355 ¶53; JA2400 at 23:1-2, 31:18-25, 36:3-6).

Neither Mr. Hilker nor Mr. Sokolov ever mentioned the FBAR filing requirement to Peter or Susan with respect to the 2007 and 2008 years. (JA2307 at 71:4-18.) They never asked Peter or Susan whether they had a foreign account and never explained to them what an FBAR was. (JA2400 at 82:23-83:9.) Neither Mr. Hilker nor Mr. Sokolov reviewed with Peter or Susan the Schedule B, attached to Form 1040, containing the questions regarding signatory authority over a foreign account for the 2007 or 2008 years. (JA2307 at 72:3-12; JA2400 at 77:20-78:1, 76:11-18.) When asked about the selection on Schedule B, where the box is checked "No" for whether the Horowitzes had a foreign account, Mr. Hilker thought the accounting software automatically imputed a check mark indicating "No" for the 2007 and 2008 Schedule B, Part 3 boxes. (JA2400 at 83:16-84:2.) Mr. Sokolov did not think the software filled in the box "No," but he was not sure what tax preparation system they were using at the time. (JA2307 at 66:3-24.)

Peter did not know that he needed to file an FBAR for 2007 or 2008. (JA1254 at 208:10-16.) Susan did not know what an FBAR was in 2007 and 2008. (JA1507 at 237:13-20.) Peter believed that the return he signed in 2007 and 2008 was true accurate and correct to the best of his knowledge and belief. (JA1254 at 183:2-19.)

4. Assessment, Unassessment, and Reassessment of Penalties

After they learned of the requirement to file an FBAR, Peter and Susan timely filed their respective 2009 FBARs with the U.S. Treasury department, reporting ownership in the Finter account. (JA0011 ¶23; JA0355 ¶56.) They also entered the IRS Offshore Voluntary Disclosure Program (OVDP) and made an initial disclosure of their interest in the accounts in January 2010. (JA0355 ¶60; JA0758.)

After examination, the IRS determined that Peter and Susan were liable for penalties for willful violation of the FBAR filing requirements for 2007 and 2008, in the amount of $247,030 each per year, totaling $988,120. (JA0355 ¶¶ 63-64.) Although the relevant limitations periods for assessing FBAR penalties for 2007 and 2008 would have expired on June 30, 2014, and June 30, 2015, respectively, Peter and Susan voluntarily extended both periods to December 31, 2015, allowing for their protest of the penalties with the IRS Office of Appeals. (Id. ¶65-66.)

On June 13, 2014, however, Nancy Beasley — the IRS's FBAR Penalty Coordinator — assessed the penalties for the 2007 and 2008 years against Peter and Susan. (Id. ¶69; JA1787 at 6:14-7:5.) Ms. Beasley was the only person within the Treasury Department with that authority at that time. (JA1787 at 9:17-18.) Meanwhile, the Horowitzes' appeal was assigned to IRS Appeals Officer Grayse Rodrigo. (JA0355 ¶67, 71.)

Upon receipt of the cases, Ms. Rodrigo noticed that the periods of limitations for assessing the penalties had been extended to December 31, 2015. (JA0893.) As a policy matter, IRS Appeals could review an FBAR penalty case in only one of two postures: (i) the penalty having already been assessed or (ii) in an unassessed status where sufficient time exists on the limitations periods to allow IRS Appeals to conduct its review before assessment. (See Internal Revenue Manual ("IRM") 8.11.6.3 et seq.) (11-13-2014).) Because the Horowitzes had agreed to extend the limitations period, ample time existed to review the appeal, so Ms. Rodrigo determined that the case should have been in an unassessed posture for purposes of IRS Appeals review. (JA0893.)

On October 16, 2014, Ms. Rodrigo emailed her manager as well IRS Appeals FBAR Coordinator, Daisy Batman, informing them that the matter should be reviewed in Appeals as an unassessed case because both Peter and Susan had provided valid statute extensions. (JA0355 ¶70; JA0893.) She requested to have the FBAR penalty assessment for the 2007 and 2008 years reversed, writing,

The FBAR consent to extend the statute was timely extended to 12/31/2015 on 06/04/2014.

Please have ECC remove the following FBAR assessments:

Peter

Tax Year 2007 $247,030

Tax Year 2008 $247,030

 

Susan

Tax Year 2007 $247,030

Tax Year 2008 $247,030

 

(JA0893 (emphasis added).)

Ms. Batman responded the next day by emailing Ms. Beasley and requesting that she "remove/reverse" the penalties because they were assessed prematurely:

Hi Nancy. We have received 2 FBAR cases in Appeals with valid statute consents for 2007 and 2008 extending the statute to 12/31/2015. These same taxpayers were also assessed a FBAR penalty for each year. Since the 2007 and 2008 statutes will not expire until 12/31/2015, I believe the penalty was assessed prematurely and needs to be removed/reversed for each year. The executed statute consents are attached.

Please remove/reverse the assessed penalties for 2007 and 2008 for each taxpayer. See email below for specific information on the taxpayers.

When the adjustment has been made, please let me know. (Id. (emphasis added).)

A week later, Ms. Beasley replied by email confirming that she unassessed the penalties when she "removed the penalty input date on the penalties." (JA0893.) Ms. Beasley later testified that her removing the content of the "input penalty date" fields on the FBAR penalty database reversed the assessment of penalties. (JA1787 at 28:7-9.) She also testified that the input penalty date fields were "blank" after she unassessed the penalties in October 2014. (Id. at 34:1-7.) Ms. Batman likewise testified that she understood Ms. Beasley's email to her to mean that the case was now in an unassessed status. (JA1845 at 13:7-18.)

The IRS Appeals process for unassessed FBAR penalties continued through the middle of May 2016, more than 18 months after the Appeals process began. (JA1845 at 13:7-18; JA1929 at 19:1-4.) If the penalties had been assessed during the Appeals process, the case would have to have been "worked and closed within 120 days." (IRM 8.11.6.5(6) (11-13-2014).)

During those 18 months, IRS Examination continued to assert that the willful FBAR penalties against Peter and Susan for the 2007 and 2008 years were valid. (JA1929 at 13:1-11, 15:7-17, 17:4-9.) The Appeals Officer, Ms. Rodrigo testified that, after Ms. Beasley unassessed the FBAR penalties, there had been no "compromise" of the FBAR penalties, because IRS Examination continued to assert that FBAR penalties were due and that the IRS was still seeking 100% of the willful FBAR penalties, which were now in an unassessed status. (Id.)

When IRS Appeals went to close the case without a settlement in May 2016, the penalties were still in unassessed status, but the period of limitations had expired on December 31, 2015. (JA1845 at 13:7-18; JA0964; JA0965; JA0966; JA0967.) Faced with this realization, Ms. Batman contacted Ms. Beasley requesting that she recant the statements in her October 2014 email that had confirmed removal of the penalty assessment:

The email below [the 2014 exchange] is what led us to believe the penalty had been reversed. Please send me another email confirming that the assessed FBAR penalty was never reversed for both Peter and Susan for the files.

(JA0893.) Ms. Beasley replied as follows:

You are correct. I did remove the date Penalty was input but did not clear the information. I was awaiting determination, now you have given it and it remains the same. I will input the original penalty input date and proceed with the referral to DOJ.

(Id.) In other words, on May 20, 2016, Ms. Beasley effectuated the penalty assessments — i.e., reassessed the penalties — by re-entering a date in the "penalty input date" field on the FBAR penalty database. In doing so, she physically backdated the assessment date to June 13, 2014, the date of the original, reversed assessment. (See JA0964; JA0965; JA0966; JA0967.)

In a declaration submitted by the Government, Ms. Beasley stated that she was waiting for additional information and that her actions of removing the data in the "Date Penalty Input" field, "did not effect a reversal or removal of the June 13, 2014 assessment." (JA0041; JA0942 ¶11.) In her subsequent deposition, however,

Ms. Beasley testified that she indeed unassessed the FBAR penalties when she removed the penalty input date from the FBAR penalty database on October 24, 2014:

Q. Ms. Beasley, I'm going to ask it again, okay, because you didn't respond. Was it your — you said you removed the penalty input date. Does that mean, when you said you followed her instruction, her instruction was remove and reverse the assessed penalties for '07 and '08. Did you remove and reverse the assessed penalties for '07 and '08?

A: Yes.

(JA1787 at 28:1-9.)

C. Procedural History

The Government filed its complaint in this action in June 2016, seeking to enforce the penalties assessed against the Horowitzes for failure to file FBARs for the years 2007 and 2008. (JA0011.) The Government took the position that the Horowitzes were liable for penalties for willful violations of the FBAR requirements and that those penalties were properly assessed at $247,030 per year per person. In response, the Horowitzes did not contest that they failed to file FBARs as required and therefore were liable for violation of the FBAR statute. The Horowitzes, however, argued that their violations were not willful — so that the penalties could not be more than $10,000 each per year. Even if the violations could be considered willful, Treasury regulation limits the maximum penalty for a willful FBAR violation to $100,000.

During discovery, the Government produced internal IRS emails and documents revealing that the FBAR penalties assessed in 2014 had been unassessed and not reassessed until 2016, outside of the limitations period, therefore barring the Government from collecting any penalties. The Horowitzes promptly sought further discovery regarding the date that the FBAR penalties were assessed, including deposing relevant individuals who generated and maintained Treasury records. The Government, however, refused further discovery and submitted a declaration from Ms. Beasley along with a letter arguing that the Horowitzes were not entitled to any further discovery, because any theory that the date of assessment was anything but June 13, 2014, was incorrect and that Ms. Beasley's declaration "expressly lay[s] this theory to rest." (JA0025.) The district court allowed only targeted discovery, including limited questioning of Treasury employees on the statute of limitations issue. (JA0060.)

After discovery, the Government filed a motion for summary judgment, arguing that the district court should find that Peter and Susan Horowitz willfully failed to report their interest in a foreign bank account for tax years 2007 and 2008 in violation of 31 U.S.C. § 5314, relying heavily on this Court's unpublished decision in United States v. Williams, 489 F. App'x 655 (4th Cir. 2012). (JA0408.) The Horowitzes responded and filed a cross-motion for summary judgment, arguing that willfulness requires actual knowledge of the FBAR filing requirements, which neither Peter nor Susan possessed at the relevant time. The Horowitzes also argued that the penalties could not be enforced at all because the IRS failed to assess the penalties within the limitations period. (JA0515.) Susan Horowitz separately filed a motion for partial summary judgment as to the penalty assessed against her for the 2008 year, on the basis that she did not have an ownership interest in the Finter account at that time. (JA0373.)

In its reply, the Government argued that Williams does not require actual knowledge because there the finder of fact was permitted to infer willfulness based on evidence and testimony in the record. (JA0446.) The Government also argued that the IRS did not have the authority to "compromise" the penalties once they were assessed and, therefore, any action to abate or reverse the penalties was ineffective.

In their reply to the cross-motion, the Horowitzes pointed out that the Government failed to dispute their material facts, that the statutory requirement to obtain permission before compromising a liability was inapplicable because there was no compromise, and that no approval was needed because 31 C.F.R. § 1010.820(g)(2) limits willful FBAR penalties to $100,000. (JA0492.)

While these motions were pending, the Horowitzes filed two letters of supplemental authority notifying the court of new decisions regarding the $100,000 regulatory cap and requesting the opportunity to file a motion for summary judgment on the issue. (JA0364; JA0400.) The Horowitzes also filed a notice regarding the decision in United States v. Flume, No. 5:16-cv-73, 2018 WL 4378161 (S.D. Tex. Aug. 22, 2018), distinguishing Williams. (JA1194.) The district court did not respond to these letters.

D. Ruling Presented for Review

On January 18, 2019, the district court issued its opinion granting the Government's summary-judgment motion, denying the Horowitzes' motion, and granting Susan's motion for partial summary-judgment as to the 2008 FBAR. (JA1214.) At the outset, the district court declined to apply the $100,000 maximum penalty set out in 31 C.F.R. § 1010.820(g)(2), as urged by the Horowitzes in their notices of supplemental authority and request for further briefing, concluding that the regulation conflicted with the relevant statute and therefore was invalid.

As to the Horowitzes' statute-of-limitations defense, the court identified material facts in dispute as to whether the assessments were actually reversed and unassessed and whether the IRS had the authority to do so. The court concluded that these issues of fact for trial precluded summary judgment for the Horowitzes, but the court did not address how summary judgment could be granted for the Government in light of these factual disputes.

Finally, the court addressed whether the FBAR violations were willful, as argued in the Government's summary-judgment motion. In so doing, the court drew multiple inferences in favor of the Government, concluding that (1) by signing their return, the Horowitzes were on inquiry notice regarding the FBAR filing obligation; (2) because they spoke to their friends in Saudi Arabia at some point between 1984 and 2001 about the taxability of interest earned on a foreign bank account while living in Saudi Arabia, they should have discussed the issue with their tax return preparer; (3) and the absence of inquiry regarding the taxability of interest income "easily shows" a conscious effort to avoid learning about the reporting requirements, despite the fact that the tax liability derives from Title 26 of the United States Code and is due on April 15 and the fact that the reporting requirement regarding the existence of their foreign bank account derives from Title 31 and was (at that time) due on June 30. Based on these inferences, the court concluded that there was no disputed fact that the Horowitzes' violations were willful and granted summary judgment to the Government.

On February 6, 2019, the district court issued a final judgment in favor of the Government in the amount of $654,568 as against Peter Horowitz and in the amount of $327,284 as against Susan Horowitz. (JA1245.) This judgment is the subject of this appeal.

SUMMARY OF ARGUMENT

The district court's opinion granting the Government's motion for summary judgment ignores the ample summary-judgment evidence supporting the Horowitzes on multiple issues and misinterprets the relevant legal authorities.

First, the district court erred concluding that the Horowitzes' failure to file FBARs for 2007 and 2008 was willful as a matter of law. A party's willfulness is quintessentially a question of fact for trial, and the district court's opinion granting summary judgment to the Government on this issue ignored the ample record evidence from which the factfinder could infer that the Howowitzes had no knowledge of the FBAR filing requirement and did not consciously avoid learning of this requirement. The standard imposed by the district court — finding willfulness based solely on a taxpayer's signing of a tax return — would eviscerate the two-tiered liability scheme established by Congress. The Horowitzes are entitled to a trial on the issue of whether either or both of them willfully failed to meet their obligation to file an FBAR in 2007 and 2008.

Second, even if a willful violation could be established, the district court erred as a matter of law in disregarding the unambiguous Treasury regulation setting a cap of $100,000 on penalties for such violations. This regulation is entirely consistent with the statute, which sets a ceiling for FBAR penalties and gives Treasury broad authority to regulate within that ceiling. The IRS has no authority to amend or disregard this regulation, and it cannot do so simply by publishing internal guidance that is contrary to the regulation.

Finally, the district court erred in granting summary judgment to the Government on the Horowitzes' limitations defense while at the same time identifying disputed issues of fact as to whether the penalties were assessed within the period of limitations. Again viewing the facts and taking all inferences in the light most favorable to the Horowitzes, a reasonable factfinder could conclude that the IRS temporarily unassessed the FBAR penalties and did not re-assess the penalties until after the limitations period had expired.

The district court's judgment must be reversed and the case remanded as to each of these points.

ARGUMENT

A. Standard of Review

The Court will "review a district court's grant of summary judgment de novo." Variety Stores, Inc. v. Wal-Mart Stores, Inc., 888 F.3d 651, 659 (4th Cir. 2018) (quoting Lee v. Town of Seaboard, 863 F.3d 323, 327 (4th Cir. 2017)). Further, "although the denial of a summary judgment request 'is not independently reviewable,'" the Court may "review such an order when it is appealed with an order granting a cross-motion for summary judgment." Bauer v. Lynch, 812 F.3d 340, 351 (4th Cir. 2016) (quoting Nat'l Coal. for Students with Disabilities Educ. & Legal Def. Fund v. Allen, 152 F.3d 283, 293 (4th Cir.1998)). And, "if the facts are undisputed," the Court is "free to direct the entry of an order awarding summary judgment to the party whose motion was denied." Id.

Under Rule 56(a), "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "A dispute is genuine if a reasonable jury could return a verdict for the nonmoving party," and "[a] fact is material if it might affect the outcome of the suit under the governing law." Variety Stores, 888 F.3d at 659 (citation omitted). In other words, "at the summary judgment phase, '[t]he pertinent inquiry is whether there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.'" Id. (alterations in original) (quoting Reyazuddin v. Montgomery Cty., 789 F.3d 407, 413 (4th Cir. 2015)).

"Summary judgment cannot be granted merely because the court believes that the movant will prevail if the action is tried on the merits." Id. (quoting Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 568 (4th Cir. 2015)). Instead, "courts must 'view the evidence in the light most favorable to the nonmoving party and refrain from weigh[ing] the evidence or mak[ing] credibility determinations.'" Id. (alterations in original) (quoting Lee, 863 F.3d at 327). "A court improperly weighs the evidence" by, for example, "failing to credit evidence that contradict[s] some of its key factual conclusions," id. (alterations in original) (quoting Tolan v. Cotton, 572 U.S. 650, 659 (2014)), or "failing to 'draw reasonable inferences in the light most favorable to the [nonmoving party],'" id. at 660 (alterations in original) (quoting Scott v. Harris, 550 U.S. 372, 378 (2007)).

B. The District Court Erred in Concluding That There Are No Disputed Issues of Material Fact Regarding Whether the Horowitzes Willfully Violated the FBAR Requirements.

In granting summary judgment to the Government on the issue of the Horowitzes' willfulness (or lack thereof) in failing to file their FBARs, the district court applied a standard that eviscerates the non-willful penalty explicitly established by the statute. The court concluded that the mere signing of a tax return is sufficient to establish, as a matter of law, that an individual willfully violated the requirement to file an FBAR. This conclusion contravenes the well-established principle that willfulness is a question of fact for trial and cannot be established by inferences made on summary judgment. Considering the facts in the light most favorable to the Horowitzes, the Government's motion should have been denied. The district court's reliance on this Court's unpublished, 2-1 decision in Williams is misplaced and would subvert the multi-tiered penalty scheme established by statute.

1. The Factfinder Must Decide Whether an FBAR Violation Is Willful.

Section 5321(a)(5) of Title 31 allows the Treasury Secretary to imposes a civil penalty "on any person who violates . . . any provision of section 5314" of Title 31, the statute establishing the FBAR filing requirement. 31 U.S.C. § 5321(a)(5)(A). The statute explicitly envisions two types of violations — non-willful and willfu — each carrying a different maximum penalty:

(B) Amount of penalty. —

(i) In general. — Except as provided in subparagraph (C), the amount of any civil penalty imposed under subparagraph (A) shall not exceed $10,000.

* * *

(C) Willful violations. — In the case of any person willfully violating, or willfully causing any violation of, any provision of section 5314 —

(i) the maximum penalty under subparagraph (B)(i) shall be increased to the greater of —

(I) $100,000, or

(II) 50 percent of the [balance in the account at the time of the violation].

§ 5321(a)(5)(B)-(C).

Although courts are not consistent as to what constitutes "willful" failure to file an FBAR, most courts addressing the issue, including this Court in an unpublished decision, have held that willfulness includes both "knowingly" violating the FBAR requirements and "recklessly" doing so. See Williams, 489 F. App'x at 658; see also, e.g., Norman v. United States, 138 Fed. Cl. 189, 192 (2018); but see United States v. Pomerantz, No. C16-689 MJP, 2017 WL 4418572, at *3 (W.D. Wash. Oct. 5, 2017) (holding that willful failure to file an FBAR requires proof that the defendant acted "with knowledge" that his conduct was unlawful such that he "intentionally violated 'a known legal duty'"). As the Court stated in Williams, "'Willfulness may be proven through inference from conduct meant to conceal or mislead sources of income or other financial information,' and it 'can be inferred from a conscious effort to avoid learning about reporting requirements.'" 489 F. App'x at 658 (quoting United States v. Sturman, 951 F.2d 1466, 1476 (6th Cir. 1991)).

As Williams also noted, "Whether a person has willfully failed to comply with a tax reporting requirement is a question of fact." Id. A finding of willfulness inherently turns on a credibility determination, which is inherently the province of the factfinder. When an individual's willfulness is disputed by the parties, the question of willfulness is not properly addressed through summary judgment and is a question for trial. See United States v. Gormley, 201 F.3d 290, 294 (4th Cir. 2000) ("[T]he question of willfulness is essentially a finding of fact."). Decisions finding a willful FBAR violation, including those cited by the district court below, consistently come only after a trial on the merits. See, e.g., Williams, 489 F. App'x at 656; United States v. Bohanec, 263 F. Supp. 3d 881, 883 (C.D. Cal. 2016); United States v. McBride, 908 F. Supp. 2d 1186, 1188 (D. Utah 2012). As one district court explained in denying cross-motions for summary judgment, whether an individual "willfully failed to submit an accurate FBAR . . . is an inherently factual question and one that cannot be resolved at this stage." Bedrosian v. United States, No. 15-5853, 2017 WL 1361535, at *5 (E.D. Pa. Apr. 13, 2017).

2. The District Court Inappropriately Drew Inferences in Favor of the Government and Ignored Evidence That the Horowitzes' FBAR Violations Were Neither Knowing nor Reckless.

Although Williams and other cases discuss that willfulness "can be inferred from a conscious effort to avoid learning about reporting requirements," 489 F. App'x at 658 (citation omitted), this does not obviate the summary-judgment standard, which requires that, when considering the Government's motion for summary judgment, all evidence must be viewed, and all reasonable inferences drawn, in the light most favorable to the Horowitzes as the non-moving parties. See Variety Stores, 888 F.3d at 659 (noting that "courts must 'view the evidence in the light most favorable to the nonmoving party and refrain from weigh[ing] the evidence or mak[ing] credibility determinations'" (alterations in original) (citation omitted)). In other words, although a factfinder is permitted to infer willfulness based on evidence of a "conscious effort" at trial, a court is not permitted to infer such conscious effort on summary judgment, particularly in the face of countervailing evidence.

But that is just what the district court did here. The court drew a series of improper inferences in favor of the Government, disregarding the Horowitzes' testimony and other exhibits showing that the Horowitzes had no knowledge — actual or constructive — of the FBAR filing requirement. Looking at the facts in the proper light, a reasonable factfinder could find that the Horowitzes were non-willful, genuinely unaware of, merely negligent of, or inadvertently ignorant of, the FBAR reporting requirements when they failed timely to report the existence of their foreign bank accounts.

The primary fact relied upon by the district court for its willfulness inference was that the Horowitzes signed the electronic consent for their IRS Form 1040s for 2007 and 2008, when neither of the forms included a checked box answering "Yes" to the question of whether the taxpayer had interest in a foreign bank account.2 And the Horowitzes never asked their accountant whether they had an obligation to file FBARs. From that, the court concludes, it can be inferred that the Horowitzes knew of or consciously disregarded an additional reporting requirement that is set out in a separate section of federal law, not in the Internal Revenue Code.

This inference was improper in light of the overwhelming evidence that the Horowitzes were not conscious of, and made no effort to avoid learning of, the FBAR requirements. Both Peter and Susan testified that they were unaware of the FBAR filing requirement. This undisputed testimony is supported by the testimony of their tax preparers, both of whom stated that they did not discuss FBAR filing requirements despite knowing that the Horowitzes were both employed in Saudi Arabia. Finally, upon learning of this filing requirement in 2009, the Horowitzes timely filed their respective 2009 FBARs and worked diligently to file the late reports at issue in this case, among others. The Government failed to dispute the Horowitzes' testimony through evidence or affidavit. In light of the sworn testimony, a factfinder could easily credit the Horowitzes' testimony — that they did not read every word of their tax returns and did not know about the FBAR requirements — and conclude that the Horowitzes neither knew of nor consciously disregarded the FBAR filing requirement.

And there is no evidence in the record that either Peter or Susan made a conscious effort to avoid learning of their FBAR obligations. As they testified, they simply did not think to ask about any requirement, because they were told, and believed, that they did not owe any tax on the accounts. A factfinder could certainly credit this testimony and find the Horowitzes not willful, particularly in light of their isolation in Saudi Arabia, with no email or internet and relying on a small community of Western expatriates for information.

The district court, rather than viewing this evidence in the light most favorable to the Horowitzes, used the fact that Peter and Susan had been misinformed by colleagues in Saudi Arabia about the taxability of foreign-earned interest income as evidence of "a conscious effort to avoid learning about reporting requirements." (JA1242 at (quoting Williams, 489 F. App'x at 658).) But the trier of fact could reasonably infer just the opposite: the Horowitzes trusted these colleagues, and this advice confirmed their belief that there was no reason to look into the issue any further. Where an inference can be drawn either way, the court is not permitted to draw it in favor of the moving party, as the district court did here.

In making this inference, the district court again ignored substantial evidence supporting the Horowitzes. For example, Peter never lied to his accountant. The accountant knew the Horowitzes lived and worked in Saudi Arabia and never asked them about a foreign bank account. When the tax professional did not ask about it, why would Peter have had any concerns? Finally, Susan relied on her husband to handle the family finances, which included tax reporting. She did not speak to the accountants and had no reason to question her husband. The proper inference based on the undisputed evidence is that Peter and Susan were innocently, and at most negligently, unaware of the FBAR reporting requirement and that any failure to file the required reports was not willful.

A reasonable trier of fact could infer that any blindness was not willful, any disregard was merely negligent, and any avoidance was inadvertent. The Horowitzes are entitled to have the factfinder hear their testimony and decide which inferences to draw.

3. Williams Was Decided After Criminal Proceedings and a Trial That Established Facts Supporting Willfulness Not Present Here.

Although an unpublished, 2-1 decision, Williams is one of the few appellate decisions discussing the FBAR willfulness standard and the only such decision issued by this Court. Not surprisingly then, the district court relied heavily on Williams in considering whether the Horowitzes' FBAR violations were willful. The district court's analysis, however, failed to consider the important differences between that case and this one, both in its procedural posture and in the facts supporting the "inference" of willfulness.

As to the procedural posture, Williams involved an appeal following a bench trial. But before the trial, the district court denied the government's motion for summary judgment because there was a dispute of fact regarding the defendant's willfulness. United State v. Williams, No. 1:09-cv-437, 2010 WL 2842931 (E.D. Va. Mar. 19, 2010). After discussing the evidence of willfulness and non-willfulness, the court noted that "[t]hese disputes are surely material in this case." Id. at *3. The court concluded "that genuine issues of material fact remain in dispute in this case," precluding summary judgment for the government because the court was required to "[d]raw[ ] all reasonable inferences in favor of Williams as the non-moving party." Id.

Moreover, the evidence adduced at trial in Williams contrasts starkly with the summary-judgment evidence here. In Williams, the defendant had "actual" knowledge of his obligation to file an FBAR yet intentionally failed to do so and took several steps meant to intentionally hide his interest in multiple foreign accounts over several years. As part of a plea deal in a prior criminal prosecution, he even admitted to willfully violating the FBAR requirement.

Williams had opened two Swiss bank accounts in the name of a British corporation called ALQI Holdings, Ltd. 489 F. App'x at 656. Over an 8-year period, Williams deposited more than $7 million into these accounts, earning more than $800,000 in interest income. Id. Williams did not report to the IRS the income from these accounts or file FBAR forms for any of these years. Id. Williams also had completed a "tax organizer" (or questionnaire) provided to him by his accountant in connection with the preparation of his federal tax return. Id. In response to a question regarding whether he had "an interest in or a signature or other authority over a bank account, or other financial account in a foreign country," Williams intentionally answered "No." Id. at 656-57.

Williams subsequently pleaded guilty to a two-count superseding criminal information charging him with conspiracy to defraud the IRS, in violation of 18 U.S.C. § 371, and criminal tax evasion, in violation of 26 U.S.C. § 7201, in connection with the funds held in the accounts. Id. at 657. As part of the plea, Williams allocated to the tax crimes and willfully failing to file an FBAR:

I knew that most of the funds deposited into the Alqi accounts and all the interest income were taxable income to me. However, the calendar year tax returns for '93 through 2000, I chose not to report the income to my — to the Internal Revenue Service in order to evade the substantial taxes owed thereon, until I filed my 2001 tax return.

I also knew that I had the obligation to report to the IRS and/or the Department of the Treasury the existence of the Swiss accounts, but for the calendar year tax returns 1993 through 2000, I chose not to in order to assist in hiding my true income from the IRS and evade taxes thereon, until I filed my 2001 tax return.

Id.

In reversing the trial court's judgment in favor of Williams on the government's civil enforcement action, this Court concluded that Williams had actual knowledge of the FBAR filing obligation and that such knowledge was sufficient to meet the standard for willfulness. Although the Court noted that this decision was buttressed by Williams having had constructive knowledge of the content of his tax return, that fact was not the only one supporting Williams's knowledge of the FBAR requirements and violation of a known legal duty. Id. at 659-60.

Here, on the other hand, the only fact that could possibly indicate that the Horowitzes could have even inquiry notice of a reporting requirement was their signed tax returns. Far from any allocution of having known about a reporting obligation and intentionally not filing such report in order to hide tax liability, the Horowitzes testified of their good-faith belief that after-tax earnings deposited into their foreign account were not taxable to them. If the income was not taxable, as they believed, there would be no reason suspect there was anything to report.

Unlike Williams, the Horowitzes never received a questionnaire from their tax preparers, putting them on notice of an FBAR filing requirement, and they never lied to their accountant about the existence of the account. Their trusted accountant of 30 years, Jack Weiss, never asked them about foreign accounts or ever informed them that they might have had an FBAR filing obligation despite the fact that the Horowitzes lived in Saudi Arabia for 14 of those years. And their subsequent tax professionals, Sokolov and Hilker, did not discuss the FBAR filing obligations with them in 2007 and 2008.

There is no evidence whatsoever that the Horowitzes took part in an intentional scheme to underpay their taxes, as Williams admitted to under oath. The Horowitzes believed that the interest in the account was not taxable, and, when they realized their mistake, they came forward voluntarily and paid their taxes. The Horowitzes each timely filed a 2009 FBAR reporting the Finter account.

4. The District Court's Willfulness Standard Eviscerates the Section of the Statute Allowing for Non-Willful Penalties.

Ignoring the overwhelming evidence of willfulness in Williams, the district court took one fact from that case — the box on the defendant's signed tax return — and concluded that this fact alone evidenced knowledge of the FBAR obligation sufficient to prove willfulness. But Williams does not-and cannot-stand for the proposition that any taxpayer who signs his return is per se willful. This interpretation renders half of the FBAR penalty superfluous. See Marx v. Gen. Revenue Corp., 568 U.S. 371, 386 (2013) ("[T]he canon against surplusage is strongest when an interpretation would render superfluous another part of the same statutory scheme.").

Section 5321(a)(5) clearly envisions a two-tiered structure for assessing liability and fines. "In general," "the amount of any civil penalty imposed under subparagraph (A) shall not exceed $10,000," § 5321(a)(5)(B)(i), but, "[n]o penalty shall be imposed" if the violation meets a "[r]easonable cause exception," § 5321(a)(5)(B)(ii). "In the case of any person willfully violating" the FBAR statute, however, "the maximum penalty under subparagraph (B)(i) shall be increased to the greater of — (I) $100,000, or (II) 50 percent of the amount determined under subparagraph (D)," and the reasonable cause exception will not apply. § 5321(a)(5)(C). The constructive-knowledge theory adopted by the district court "ignores the distinction Congress drew between willful and non-willful violations of section 5314." Flume, 2018 WL 4378161, at *7; see also Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 128 (1985) (holding that a statutory violation could not be "willful" if the defendant simply knew of the statute's applicability because "[b]oth the legislative history and the structure of the statute show that Congress intended a two-tiered liability scheme").

As the court stated in Flume, "[i]f every taxpayer, merely by signing a tax return, is presumed to know of the need to file an FBAR, 'it is difficult to conceive of how a violation could be nonwillful.'" 2018 WL 4378161, at *7 (quoting Kyle Niewoehner, Cmt., Feigning Willfulness: How Williams and McBride Extend the Foreign Bank Accounts Disclosure Willfulness Requirement and Why They Should Not Be Followed, 68 Tax Law. 251, 257 (2014)). Is it non-willful if the taxpayer never filed a tax return? Or would that show an attempt to avoid payment of taxes, indicating willfulness? Is there any situation in which a person who signed his tax return would not be liable for a willful violation? If the Horowitzes' situation does not qualify, it is hard to imagine what does.

By inferring that the Horowitzes examined their tax returns and therefore knew about the FBAR requirements in 2007 and 2008, the district court not only ignored the statutory scheme but also exceeded its authority on summary judgment. Although the Horowitzes signed their tax returns under penalty of perjury, they testified at deposition — to lawyers from the U.S. Department of Justice ("DOJ") — that they did not know of the FBAR requirements in 2007 and 2008. "It is the factfinder's role, not the Court's at summary judgment, to decide which of the two sworn statements carries more weight." Flume, 2018 WL 4378161, at *7.

C. The District Court Erred in Refusing to Limit Penalties as Required by Treasury Regulation.

Even if the district court were correct on the willfulness issue (it was not), the district court still erred by failing to limit the penalty per willful violation to the $100,000 limit set by 31 C.F.R. § 1010.820(g)(2). The district court concluded that the regulation was invalid and unenforceable "in light of its conflict with 31 U.S.C. § 5321(a)(5)(C)(1)" as well as a "provision from the IRS's Internal Revenue Manual." (JA1219.) Neither of these reasons stands given the statutory and regulatory framework at issue. There is no conflict between the statute and the regulation, and the IRS simply does not have authority — through its internal manual or otherwise — to subvert the very regulations it is charged with enforcing.

1. Statutory and Regulatory Framework

The FBAR requirements were enacted by the Secretary of the Treasury pursuant to authority delegated by Congress in the Bank Secrecy Act of 1970 ("BSA"). These statutes give the Secretary broad rulemaking authority over their implementation, see 31 U.S.C. § 5314(a) (providing that "the Secretary of the Treasury shall require" certain reports or filings "in the way and to the extent the Secretary prescribes"); § 5314(b)(5) ("The Secretary may prescribe . . . other matters the Secretary considers necessary to carry out this section or a regulation under this section."), including, via a 1986 amendment, authority to enforce these laws through civil penalties: "The Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314 [the FBAR requirement]." § 5321(a)(5)(A). At that time, the statute limited penalties for a willful violation to "the greater of — (I) an amount (not to exceed $100,000) equal to the balance in the account at the time of the violation; or (II) $25,000." 31 U.S.C. § 5321(a)(5)(B) (1986).

In 1987, pursuant to that authority, Treasury promulgated the current regulation, which likewise sets a maximum penalty of $100,000 for a willful FBAR violation:

(g) For any willful violation committed after October 27, 1986, of any requirement of § 1010.350, § 1010.360 or § 1010.420, the Secretary may assess upon any person, a civil penalty:

* * *

(2) In the case of a violation of § 1010.350 or § 1010.420 involving a failure to report the existence of an account or any identifying information required to be provided with respect to such account, a civil penalty not to exceed the greater of the amount (not to exceed $100,000) equal to the balance in the account at the time of the violation, or $25,000.

31 C.F.R. § 1010.820(g)(2); see Amends. to Implementing Regs. under BSA, 52 Fed. Reg. 11436, 11446 (Apr. 8, 1987).3

In 2002, Treasury delegated its authority under the BSA, over both "the promulgation and amendment of regulations" as well as "the assessment of penalties," to one of its bureaus, the Financial Crimes Enforcement Network ("FinCEN"). See Treas. Order 180-01, 67 Fed. Reg. 64697 (Oct. 21, 2002). Although FinCEN then delegated to the IRS authority to assess penalties for FBAR violations, it did not so delegate its rulemaking authority. See 31 C.F.R. § 1010.810(g); FinCEN; Delegation of Enforcement Auth. Re Foreign Bank Account Report Requirements, 68 Fed. Reg. 26489 (May 16, 2003). The IRS was never given authority to make or amend regulations under the BSA, relating to FBAR penalties or otherwise.

As part of the American Jobs Creation Act of 2004, Congress amended § 5321 to increase the maximum penalty that could be assessed for a willful FBAR violation. The current statute still states that the "Secretary of the Treasury may impose a civil penalty" for a violation of the FBAR requirements, but the maximum penalty for a willful violation was increased "to the greater of — (I) $100,000, or (II) 50 percent of the [balance in the account at the time of the violation]." 31 U.S.C. § 5321(a)(5)(C)(i).

Although the statute now allows Treasury to increase the maximum penalty, it has not chosen to do so. Section 1010.820(g)(2) continues to cap the maximum civil penalty for willful failure to file an FBAR at $100,000.4 Since 2004, however, the IRS has taken the position that the regulatory cap of § 1010.820(g)(2) is invalid and was superseded by statute. Accordingly, the IRS's Internal Revenue Manual provides, "For violations occurring after October 22, 2004, the statutory ceiling is the greater of $100,000 or 50% of the balance in the account at the time of the violation." (IRM 4.26.16.6.5(3) (Nov. 6, 2015).) As the district court correctly noted, "[t]he provisions of the manual do not have the force of law." (JA1218.)

2. There Is No Conflict Between 31 C.F.R. § 1010.820(g)(2) and 31 U.S.C. § 5321(a)(5).

The district court's conclusion that the Treasury regulation conflicts with the statute as amended in 2004 ignores basic cannons of construction and the plain language of the statute. When read together, there is no conflict between the statute and the regulation: the statute grants to the Secretary regulatory authority over FBAR penalties, including discretion to set penalties up to a certain limit; the Secretary, by regulation, set the maximum penalty within that limit.

"The starting point in statutory interpretation is 'the language [of the statute] itself.'" United States v. James, 478 U.S. 597, 604 (1986) (citation omitted), abrogated on other grounds by Cent. Green Co. v. United States, 531 U.S. 425 (2001). When interpreting a statute,

a court should always turn first to one, cardinal canon before all others. [The Supreme Court has] stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there. When the words of a statute are unambiguous, then, this first canon is also the last: judicial inquiry is complete.

Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253-54 (1992) (citations omitted). When a statute provides that an agency "may" act, that permissive language grants the agency discretion to act-or not act-within the statutory authority. See Big Sky Network Canada, Ltd. v. Sichuan Provincial Gov't, 533 F.3d 1183, 1186 (10th Cir. 2008) (noting that a statute's use of the word "may" renders it "permissive, rather than mandatory"); Conservancy of Sw. Fla. v. U.S. Fish & Wildlife Serv., 677 F.3d 1073, 1084 (11th Cir. 2012) ("[T]he statue's permissive language makes it all the more apparent that the decision at issue is committed to agency discretion."); Neuwirth v. La. State Bd. of Dentistry, 845 F.2d 553, 557 (5th Cir. 1988) ("Use of the word 'may' as opposed to mandatory language as 'shall' has been found to indicate a legislature's intention to bestow discretion on the [ ] agency charged to apply the statute.").

Further, "[r]egulations, like statutes, are interpreted according to canons of construction." Black & Decker Corp. v. Comm'r, 986 F.2d 60, 65 (4th Cir. 1993). "Chief among these canons is the mandate that 'constructions which render regulatory provisions superfluous are to be avoided.'" Id. (citation omitted). Unless a regulation is "plainly inconsistent" with the statute, the regulation must be interpreted according to its terms. United States v. Larionoff, 431 U.S. 864, 872-73 (1977). "In the end, a regulation will be interpreted to avoid conflict with a statute." Austin v. Comm'r, 141 T.C. 551, 563 (2013).

Here, the language of § 5321(a)(5) is unambiguous. Congress gave the Secretary broad discretion to impose — or not impose — penalties for FBAR violations: "The Secretary of the Treasury may impose a civil monetary penalty on any person who violates . . . any provision of section 5314." § 5321(a)(5)(A) (emphasis added). Congress also gave the Secretary a ceiling within which to exercise that discretion. In general, that ceiling "shall not exceed $10,000," § 5321(a)(5)(B), but, in the case of willful violations, that ceiling "shall be increased to the greater of" $100,000 or 50 percent of the account balance, § 5321(a)(5)(C). There is no requirement that the Secretary must set the maximum penalty at the ceiling in either case. So long as Treasury regulates within the applicable ceiling, it properly exercises its authority.

This is what Treasury, and now FinCEN, have done here. By regulation, Treasury set the cap at $100,000 for willful violations, which initially was the top of the statutory ceiling. Congress then raised that ceiling but did not change Treasury's discretion to act — or not act — within that ceiling. Treasury, through FinCEN, has used that discretion not to increase the maximum penalty to the top of the new ceiling. That choice is clearly within its regulatory authority.

Reading the statute and regulation in harmony, as is required, at least two district courts have concluded that the regulation does not conflict with the statute's unambiguous terms and have enforced the limits as set by Treasury and FinCEN. E.g., United States v. Wahdan, 325 F. Supp. 3d 1136, 1139-40 (D. Colo. 2018); United States v. Colliot, No. AU-16-CA-01281-SS, 2018 WL 2271381, at *2 (W.D. Tex. May 16, 2018). As explained in Wahdan, "the statute and the regulation are not inconsistent on their face" because "[t]he statute does not mandate imposition of the maximum penalty, but instead gives the Secretary discretion to impose penalties below the statutory cap. This means that compliance with the lower cap set in 31 C.F.R. § 1010.820(g) also complies with 31 U.S.C. § 5321." 325 F. Supp. 3d at 1139. In light of this "simple and straightforward interpretation that gives coherent meaning to both the statute and the regulation," there is no reason to read in a conflict that does not exist. Id.

The district court here found such a conflict by adopting the flawed reasoning of Kimble v. United States, 141 Fed. Cl. 373, 388 (2018), appeal docketed, No. 19-1590 (Fed. Cir. Feb. 26, 2019), to read the phrase "shall be increased" in § 5321(a)(5)(C) to mandate a maximum penalty.5 But the concept of a "mandatory" maximum penalty is incongruous with the broad regulatory authority provided to the Secretary, who "may impose" penalties or not. There simply is no mandate that any penalties be imposed at all. Treasury could choose to promulgate only minimal, periodic reporting requirements regulations and impose no FBAR penalties, and the intent of Congress — that the Secretary determine whether, when, and to what extent penalties are appropriate — would still be satisfied. Because the regulatory cap on willful FBAR penalties does not exceed the statutory maximum, any interpretation that the regulation either conflicts with or is superseded by the statute is inconsistent with Congress's broad grant of discretion.

The district court also adopted Kimble's flawed reliance on the Federal Circuit's decision in Barsebäck Kraft AB v. United States for the proposition that regulations conflicting with a statute are not "save[d] . . . from invalidity" by the fact that they have "not been formally withdrawn from the Code of Federal Regulations." 121 F.3d 1475, 1480 (Fed. Cir. 1997). This proposition, however, has no application here, where there is no such conflict. Barsebäck dealt with a situation where, unlike here, a statute was amended in such a way as to create a conflict with an existing regulation. The statute there mandated that the pricing strategy for certain products, materials, and services be changed from recuperation of costs to maximization of profits. Id. at 1478. The previous regulation was no longer valid for two reasons. First, the statute rescinded the previously delegated regulatory authority and redelegated it to another agency — so any regulations promulgated by the former agency lacked legal authority. Second, the statute mandated that the policy be changed.

Here, on the other hand, the 2004 amendment did not mandate any change. Rather, it merely raised the permissible ceiling under which Treasury could regulate and left Treasury with broad authority to regulate within that ceiling.

3. The IRS Has No Authority to Subvert Treasury Regulation, Through Its Internal Manual or Otherwise.

The district court also improperly relied on the IRM, which the court admitted does not have the effect of law, even though the IRS has no authority over the regulatory cap. Where the IRS has no authority to regulate, it is bound to follow Treasury's regulations, and a statement in its manual or elsewhere that conflicts with those regulations is not entitled to any deference. It is simply the articulation of a statement taken by a litigant and must be evaluated as such.

The IRS has no regulatory authority over the FBAR requirements or penalties. Agencies are creatures of statutory authority. They "may not confer power upon" themselves and have "literally . . . no power to act . . . unless and until Congress confers power upon" them. La. Pub. Serv. Comm'n v. FCC, 476 U.S. 355, 374 (1986). As discussed above, Congress delegated to Treasury the authority to act with respect to the financial-reporting requirements; Treasury delegated to FinCEN the authority to regulate and to assess penalties; and FinCEN delegated to the IRS only the authority to assess — not the authority to regulate. The IRS has no authority to promulgate or amend-much less disregard — the FBAR regulations promulgated by Treasury and FinCEN. The extent of the IRS's regulatory authority is to "propose to FinCEN revisions" to regulations, which FinCEN may then adopt or not. See FinCen; Delegation of Enforcement Auth. Re Foreign Bank Account Report Requirements, 68 Fed. Reg. 26489 (May 16, 2003).

The district court's reasoning not only conflates the IRS with FinCEN (which is a separate bureau) and with Treasury itself, but it also disregards the distinction between the authority to assess penalties and the authority to promulgate and amend regulations. The district court was correct that "[t]he authority to enforce such assessments has been delegated to the IRS." (JA1219 (quoting Williams, 489 F. App'x at 656).) But the authority to assess is not the authority to regulate-or to disregard regulations. The IRS may have the former but it does not have the latter.

Moreover, the IRS's interpretation of the regulation, as set forth in the IRM, is not entitled to deference because it is inconsistent with the regulation. An agency's interpretation of governing regulations is entitled to deference "only when the language of the regulation is ambiguous." Christensen v. Harris Cty., 529 U.S. 576, 588 (2000) (citing Auer v. Robbins, 519 U.S. 452, 461 (1997)). And the agency's interpretation carries no weight if "it is plainly erroneous or inconsistent with the regulation." Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994) (citation omitted). As discussed above, the language of 31 C.F.R. § 1010.820(g)(2) is unambiguous and is consistent with 31 U.S.C. § 5321(a)(5).

Here, of course, the IRM conflicts with the regulation by setting a higher maximum penalty than the regulatory cap. The IRM interprets that cap to be outdated and to apply only to violations occurring after October 22, 2004, but there is no such distinction in 31 C.F.R. § 1010.820(g)(2). That section applies to all violations occurring after October 27, 1986. After the statute was amended in 2004, FinCEN certainly could have amended the regulation to provide a separate penalty cap for post-October 22, 2004, violations, but it did not do so.

If Treasury — or FinCEN — desires that the IRS have the authority to amend the regulation to raise the cap to the statutory maximum, it need only delegate that authority to the IRS. It has not done so. If the IRS desires authority to assess willful FBAR penalties beyond the regulatory cap, it may propose such a regulatory revision to FinCEN. It has not done so. As it stands, neither Treasury nor FinCEN has sought to amend the regulation, and the IRS does not have authority to read out the regulatory cap through its internal manual. By deferring to a legally unenforceable internal agency manual to override an unambiguous regulation, the district court impermissibly permitted the IRS, "under the guise of interpreting a regulation, to create de facto a new regulation." Christensen, 529 U.S. at 588. This it cannot do.

D. The District Court Erred in Concluding that the Government Was Entitled to Summary Judgment in the Face of Disputed Issues of Fact Material to Whether the Government's Claims Are Time Barred.

Finally, the district court erred in granting summary judgment to the Government because there are material issues of fact as to whether the IRS assessed the penalties against the Horowitzes outside of the statutory limitations period. Section 5321(b)(1) sets a 6-year statute of limitations for assessing civil penalties for FBAR violations, which begins to run on the date that the FBAR is due. Although the Horowitzes agreed to extend that period for both the 2007 and 2008 FBARs to December 31, 2015, the evidence shows that the IRS did not finally make these assessments until after that deadline. Specifically, although the penalties originally were assessed in 2014, internal IRS documents and the testimony of the IRS's FBAR penalty coordinator show that those penalties were changed to an "unassessed" state while the IRS conducted its Appeals process in accordance with the procedures for pre-assessed FBAR penalties. The penalties were not reassessed until May 2016, making them time-barred and precluding the Government's enforcement action.

In denying the Horowitzes' cross-motion for summary judgment, the district court specifically identified disputed questions of fact material to the limitations issue:

Therefore, Defendants have not proven that the timely FBAR assessments were reversed or removed when Beasley altered the data, nor have they established that she had the authority to reverse an assessment. Consequently, they have not met their burden of proving that the statute of limitations ran before the FBAR penalties were assessed. Insofar as the Horowitzes rely on the statute of limitations, their Cross-Motion for Summary Judgment is denied.

(JA1229 (citations omitted).) But denying summary judgment to one party is not sufficient grounds for granting it to the other party. And the district court identified disputed material facts that should also have precluded summary judgment to the Government so that the trier of fact could weigh the evidence and determine whether the penalty assessments actually were unassessed. Moreover, to the extent the district court granted summary judgment on the basis that the erroneous assessments could not have been reversed as a matter of law, that conclusion is without legal support.

1. The Questions of Fact Identified by the District Court Preclude Summary Judgment for the Government.

In considering the Government's motion for summary judgment, the district court was required to view the facts in the light most favorable to the Horowitzes, as the non-moving party, and to draw all reasonable inferences in their favor. See Variety Stores, 888 F.3d at 659-60. While the court applied this standard to its evaluation of the Horowitzes' cross-motion for summary judgment — viewing the facts in the light most favorable to the Government — it took the opposite approach in evaluating the Government's motion — continuing erroneously to view the facts and inferences in the light most favorable to the Government.

As detailed above, the evidence establishes that the IRS FBAR Penalty Coordinator, Nancy Beasley, erroneously assessed the penalties in 2014 even though the parties had agreed to extend the statute of limitations so that they could go through the IRS Appeals process in a pre-assessment posture. Once the IRS Appeals officer noticed this error, she asked that the assessments be reversed, and Ms. Beasley did so by removing the penalty input date. This reversal is evidenced by the IRS's penalty module and internal emails, as well as by Ms. Beasley's own testimony that, when she removed the penalty input date, she reversed the assessments. (JA1787 at 28:7-9 (Q: "Did you remove and reverse the assessed penalties for '07 and '08?" A: "Yes.").) That is, from October 2104 through May 2016, the penalties were in an unassessed state within the IRS. Only after the Appeals process concluded without a settlement, and the Government sought to enforce the penalties, did IRS employees realize that the penalties had not been reinstated prior to the end of the limitations period. They then attempted to reverse the reversal by backdating the penalty input field. Again there is no question that this action, which put the penalties back into an assessed state, was not taken until May 2016.

Ms. Beasley, however, made conflicting statements regarding the effect of her removal of the penalty input dates in 2014. The district court concluded that a factual dispute precluded summary judgment for the Horowitzes: "Defendants have not demonstrated through evidence of undisputed facts that Beasley reversed the assessment, such that the timely assessment was vacated and the statute of limitations for assessing penalties had run by the time the IRS assessed FBAR penalties in 2016." (JA1227.) The district court also pointed to evidence that Ms. Beasley's manager had to sign off on the assessment of penalties, from which it inferred in the light most favorable to the Government that the manager's signature would be required for removal. (JA1228.)

While such inferences may have been proper in denying summary judgment to the Horowitzes, they are not proper when considering the Government's motion. On the contrary, the trier of fact easily could infer, based on the actions of Ms. Beasley and her co-workers, that the assessments were reversed in 2014 as she testified, and were not reinstated until 2016, after it was discovered that the period of limitations had run. After all, if the removal of the input dates in 2014 had no effect, why would it be necessary to backdate them in 2016? This inference is especially strong in light of the contrast between Ms. Beasley's emails in 2014 and 2016, once the mistake had been discovered, as well as the inconsistent statements made by Ms. Beasley between her written declaration and her deposition testimony. The trier of fact should have the opportunity to hear Ms. Beasley's testimony and to weigh her credibility along with the other evidence to determine whether her actions indeed reversed the 2014 assessments pending the IRS Appeals process for pre-assessed FBAR penalties.

2. There Is No Legal or Factual Support for the Conclusion That the IRS Was Powerless to Reverse the Assessments.

The district court's conclusion also relied on the proposition that the "compromise" of a claim of the Government in excess of $100,000 requires DOJ approval. (JA1228 (citing 31 U.S.C. § 3711(a)(2) and 31 C.F.R. § 902.1(b)).) While this may be true, it is irrelevant here because there was no "compromise" of any claim. The district court's dismissal of this point as a matter of semantics, and its characterization of the IRS's actions in reversing the assessments, again subverts the summary-judgment standard by making inferences in favor of the Government, rather than the non-moving party.

The word "compromise" contained in § 3711(a)(2) is unambiguous. Black's Law Dictionary defines "compromise" as "[a]n agreement between two or more persons to settle matters in dispute between them; an agreement for the settlement of a real or supposed claim in which each party surrenders something in concession to the other," or "[a] debtor's partial payment coupled with the creditor's promise not to claim the rest of the amount due or claimed." Black's 347 (10th ed. 2014).6

There was no compromise here, because nothing was settled, and neither party made any "concession." The IRS's unassessment of the penalties was neither mutual nor final. It did not "settle" or abandon the penalties. Indeed, the IRS fully intended to (and did) pursue those penalties through the pre-assessment IRS Appeals process and then through an enforcement action, The district court acknowledged that there was no "compromise" here but dismissed this as merely "semantically true." (JA1229.) This dismissal is based on the district court's improper inference that, if DOJ approval is needed to "compromise" a claim, then it must also be needed to "remove" an assessed penalty. (Id.) Not only is this inference unsupported by any legal authority, it is belied by the facts. Although it makes sense that DOJ must approve the final settlement of a claim, it does not follow logically, much less as a matter of law, that DOJ would have to approve IRS's internal decision to reverse a premature assessment so that it could be reassessed at a later date.

That is what happened here. The reversal of the assessments was followed, not by an agreement that some amount less than the originally assessed penalties was owed, but by an appeals hearing and continued discussions regarding the merits of the entire amount of the FBAR penalties. The IRS corrected the mistaken assessment so that it could hold a pre-assessment appeals hearing before the amount of the liability was conclusively determined. Even after the penalties were unassessed, the IRS continued to claim that all of the FBAR penalties should be imposed, and all of the penalties remained under consideration by the IRS Appeals Office. No compromise had been reached between the parties. The premature assessments were simply unassessed to allow the administrative process to proceed, whereby IRS Appeals evaluated the merits of the Horowitzes' claims. IRS Appeals concluded that the willful FBAR penalties were appropriate, but it did not make this determination until May 2016, after the limitations period lapsed. If the IRS's actions in 2014 to unassess the penalties had been intended to compromise or concede any portion of the penalty, the consideration before IRS Appeals would necessarily have been limited to some reduced amount. It was not.

Because a reasonable factfinder could find that the IRS's actions had the effect of reversing the assessments so that the penalties against the Horowitzes were not assessed when the limitations period lapsed in 2015, the district court's grant of summary judgment to the Government was in error and must be reversed.

CONCLUSION

For these reasons, the district court's judgment should be reversed and the case remanded for further proceedings.

Stacey M. Mohr
James N. Mastracchio
Daniel G. Strickland
EVERSHEDS SUTHERLAND (US) LLP
700 Sixth Street, NW, Suite 700
Washington, DC 20001-3980
202.383.0100

Stacey M. Mohr
EVERSHEDS SUTHERLAND (US) LLP
999 Peachtree Street, NE, Suite 2300
Atlanta, Georgia 30309-3996
404.853.8000

Attorneys for Defendants-Appellants Peter and Susan Horowitz

STATEMENT REGARDING ORAL ARGUMENT

Counsel for Peter Horowitz and Susan Horowitz believe that oral argument would be helpful in this case to aid the Court's understanding of the issues presented.

FOOTNOTES

1Peter was the only owner of the Finter account as of October 13, 2008. (JA0970.) Peter informed Susan that he transferred the funds to Finter when he returned from Switzerland. (JA0355 ir 39.) As of June 30, 2009, the Finter account was held solely in Peter's name. (See JA0970.) The Finter account remained in the sole name of Peter until he and Susan flew to Switzerland to add her as an owner of the account in October 2009. (JA0355 ir 41; JA1254 at 114:6-9, 144:18-145:1; JA1507 at 89:18-90:16; JA0991.)

2The district court held that Susan Horowitz was not required to report the existence of the Finter account in 2008. Any references to failing to report the existence of this account are with respect to Peter Horowitz.

3The regulation was at 31 C.F.R. § 103.47 but was moved to § 1010.820 as part of a large-scale reorganization and renumbering.

4FinCEN has, however, amended other parts of the regulation, including a 2016 amendment to account for inflation. See Civil Monetary Penalty Adjustment & Table, 81 Fed. Reg. 42503, 42505 (June 30, 2016). Accordingly, "penalties that are assessed after August 1, 2016," are governed by 31 C.F.R. § 1010.821, so that, for example, the $100,000 maximum willful FBAR penalty assessed after January 15, 2017, is now $129,210. §§ 1010.820(i), 1010.821.

5This conclusion also was adopted by the district court in United States v. Garrity, No. 3:15-CV-243(MPS), 2019 WL 1004584 (D. Conn. Feb. 28, 2019), appeal docketed, No. 19-1145 (2d Cir. Apr. 25, 2019), which was issued after the district court's opinion in this case. Garrity also has been appealed and is pending before the U.S. Court of Appeals for the Second Circuit.

6The definition of "compromise" was substantially similar at the time the statute was enacted. See Black's 260 (5th ed. 1979); Black's 287 (6th ed. 1990).

END FOOTNOTES

DOCUMENT ATTRIBUTES
  • Case Name
    United States v. Peter Horowitz et ux.
  • Court
    United States Court of Appeals for the Fourth Circuit
  • Docket
    No. 19-1280
  • Institutional Authors
    Eversheds Sutherland (US) LLP
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2019-17007
  • Tax Analysts Electronic Citation
    2019 TNT 85-37
    2019 WTD 85-20
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