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Government Urges Eleventh Circuit to Affirm FBAR Penalty Decision

JAN. 22, 2021

United States v. Isac Schwarzbaum

DATED JAN. 22, 2021
DOCUMENT ATTRIBUTES
  • Case Name
    United States v. Isac Schwarzbaum
  • Court
    United States Court of Appeals for the Eleventh Circuit
  • Docket
    No. 20-12061
  • Institutional Authors
    U.S. Department of Justice
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2021-3091
  • Tax Analysts Electronic Citation
    2021 TNTI 17-24
    2021 TNTF 17-21
    2021 TNTG 17-27

United States v. Isac Schwarzbaum

UNITED STATES OF AMERICA,
Plaintiff-Appellee
v.
ISAC SCHWARZBAUM,
Defendant-Appellant

IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

ON APPEAL FROM THE JUDGMENT OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA

BRIEF FOR THE APPELLEE

DAVID A. HUBBERT
Deputy Assistant Attorney  General

FRANCESCA UGOLINI
(202) 514-1882
CLINT A. CARPENTER
(202) 514-4346
Attorneys
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044

Of Counsel:
ARIANA FAJARDO ORSHAN
United States Attorney

CERTIFICATE OF INTERESTED PERSONS AND CORPORATE DISCLOSURE STATEMENT

Pursuant to Federal Rule of Appellate Procedure 26.1 and Eleventh Circuit Rule 26.1-1, counsel for the United States of America hereby certify that, to the best of their knowledge, information, and belief, the following persons and entities omitted from the certificate contained in the brief for the appellant have an interest in the outcome of this appeal:

Fajardo Orshan, Ariana, United States Attorney, counsel for United States of America

Hubbert, David A., Deputy Assistant Attorney General, Tax Division, U.S. Department of Justice, counsel for United States of America

Ugolini, Francesca, appellate counsel for United States of America No publicly traded company or corporation has an interest in the outcome of this appeal.

STATEMENT REGARDING ORAL ARGUMENT

Oral argument should be heard in this case because it presents issues of first impression in this Court.


TABLE OF CONTENTS

Certificate of Interested Persons and Corporate Disclosure Statement

Statement regarding oral argument

Table of contents

Table of citations

Statement of jurisdiction

Statement of the issues

Statement of the case

(i) Course of proceedings and disposition in the court below

(ii) Statement of the facts

1. FBAR penalties generally

2. Schwarzbaum's FBAR violations and other efforts to conceal his foreign bank accounts

3. Schwarzbaum's participation in, and early withdrawal from, the Offshore Voluntary Disclosure Initiative

4. The IRS's assessment of willful FBAR penalties against Schwarzbaum for the years 2006-2009

5. The district court proceedings

a. The district court's disposition of the willfulness and Eighth Amendment issues

b. The district court's initial decision as to the penalty amounts and judgment mistakenly increasing the 2007-2009 penalties

c. The district court's correction of its mistake and amended judgment upholding the IRS's penalty assessments for 2007-2009

(iii) Statement of the standard or scope of review

Summary of argument

Argument:

I. Schwarzbaum has shown no clear error in the district court's finding that his FBAR violations for 2007-2009 were willful

A. The district court applied the correct standard for willfulness, which includes both recklessness and willful blindness

B. The district court's finding of willfulness has ample support in the record

II. The district court correctly upheld the IRS's discretionary determination of the penalty amounts

A. The amended judgment does not “assess new penalties,” but rather upholds and enforces the IRS's penalty assessments

B. The district court correctly declined to remand the penalty assessments to the IRS

1. The district court properly exercised its discretion in holding that Schwarzbaum waived his belated claim for remand to the IRS

2. Remand to the IRS is not warranted because Schwarzbaum fails to show any prejudicial error in the IRS's determination of the penalty amounts

C. Schwarzbaum's argument that the statute of limitations for assessing FBAR penalties would bar the IRS from complying with the mandate on a remand is meritless

III. Schwarzbaum's Eighth Amendment challenge is unavailing because the penalties assessed against him are neither “fines” nor “excessive”

A.The district court correctly held that civil FBAR penalties are not “fines” and are therefore not subject to the Eighth Amendment

B. Even if the Eighth Amendment applied, the penalties that the IRS assessed against Schwarzbaum are not constitutionally “excessive”

Conclusion

Certificate of compliance

TABLE OF CITATIONS

Cases:

Access Now, Inc. v. Sw. Airlines Co., 385 F.3d 1324 (11th Cir. 2004)

Ala. Hosp. Ass'n v. Beasley, 702 F.2d 955 (11th Cir. 1983)

Anderson v. City of Bessemer City, 470 U.S. 564 (1985)

Austin v. United States, 509 U.S. 602 (1993)

*Bedrosian v. United States, 912 F.3d 144 (3d Cir. 2018)

Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017)

Cheek v. United States, 498 U.S. 192 (1991)

Cole v. U.S. Dep't of Agric., 133 F.3d 803 (11th Cir. 1998)

Collins v. SEC, 736 F.3d 521 (D.C. Cir. 2013)

Crawford v. U.S. Dep't of the Treasury, No. 3:15-cv-250, 2015 WL 5697552 (S.D. Ohio Sept. 29, 2015)

Crystal Entm't & Filmworks, Inc. v. Jurado, 643 F.3d 1313 (11th Cir. 2011)

Fund for Animals, Inc. v. Rice, 85 F.3d 535 (11th Cir. 1996)

Garner v. U.S. Dep't of Labor, 221 F.3d 822 (5th Cir. 2000)

Helvering v. Mitchell, 303 U.S. 391 (1938)

Hudson v. United States, 522 U.S. 93 (1997)

In re Watts, 354 F.3d 1362 (Fed. Cir. 2004)

In re Wyly, 552 B.R. 338 (Bankr. N.D. Tex. 2016)

Interstate Erectors, Inc. v. Occup'l Safety and Health Rev. Comm'n, 74 F.3d 223 (10th Cir. 1996)

Jones v. United States, No. CV 19-04950, 2020 WL 2803353 (C.D. Cal. May 11, 2020)

Kelly v. U.S. EPA, 203 F.3d 519 (7th Cir. 2000)

Kitt v. United States, 277 F.3d 1330 (Fed. Cir. 2002)

Little v. Commissioner, 106 F.3d 1445 (9th Cir. 1997)

Long v. Commissioner, 772 F.3d 670 (11th Cir. 2014)

Louis v. Commissioner, 170 F.3d 1232 (9th Cir. 1999)

*Malloy v. United States, 17 F.3d 329 (11th Cir. 1994)

Mazo v. United States, 591 F.2d 1151 (5th Cir. 1979)

McNichols v. Commissioner, 13 F.3d 432 (1st Cir. 1993)

Nat'l Ass'n of Home Builders v. Defs. of Wildlife, 551 U.S. 644 (2007)

Ninestar Tech. Co., Ltd. v. Int'l Trade Comm'n, 667 F.3d 1373 (Fed. Cir. 2012)

*Norman v. United States, 942 F.3d 1111 (Fed. Cir. 2019)

One Lot Emerald Cut Stones & One Ring v. United States, 409 U.S. 232 (1972)

Pharaon v. Bd. of Governors of Fed. Rsrv. Sys., 135 F.3d 148 (D.C. Cir. 1998)

Powers v. United States, 996 F.2d 1121 (11th Cir. 1993)

Qwest Corp. v. Minn. Pub. Utils. Comm'n, 427 F.3d 1061 (8th Cir. 2005)

Ratzlaf v. United States, 510 U.S. 135 (1994)

Roth v. Commissioner, 922 F.3d 1126 (10th Cir. 2019)

*Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007)

Shinseki v. Sanders, 556 U.S. 396 (2009)

Thibodeau v. United States, 828 F.2d 1499 (11th Cir. 1987)

Thomas v. Bryant, 614 F.3d 1288 (11th Cir. 2010)

Thomas v. Commissioner, 62 F.3d 97 (4th Cir. 1995)

United States v. $132,245.00 in U.S. Currency, 764 F.3d 1055 (9th Cir. 2014)

United States v. $134,750 U.S. Currency, 535 F. App'x 232 (4th Cir. 2013)

*United States v. Bajakajian, 524 U.S. 321 (1998)

United States v. Boyle, 469 U.S. 241 (1985)

*United States v. Bussell, 699 F. App'x 695 (9th Cir. 2017)

United States v. Chaplin's, Inc., 646 F.3d 846 (11th Cir. 2011)

United States v. Cheeseman, 600 F.3d 270 (3d Cir. 2010)

United States v. Estate of Schoenfeld, 344 F. Supp. 3d 1354 (M.D. Fla. 2018)

United States v. Garrity, No. 3:15-CV-243(MPS), 2019 WL 1004584 (D. Conn. Feb. 28, 2019)

United States v. Green, 457 F. Supp. 3d 1262 (S.D. Fla. 2020)

*United States v. Horowitz, 978 F.3d 80 (4th Cir. 2020)

United States v. Ill. Cent. R.R., 303 U.S. 239 (1938)

United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33 (1952)

United States v. Mackby, 339 F.3d 1013 (9th Cir. 2003)

United States v. Nat'l Dairy Prods. Corp., 372 U.S. 29 (1963)

United States v. One Parcel Prop. Located at 427 and 429 Hall St., 74 F.3d 1165 (11th Cir. 1996)

United States v. Sperrazza, 804 F.3d 1113 (11th Cir. 2015)

United States v. Toth, No. 15-CV-13367-ADB, 2020 WL 5549111 (D. Mass. Sept. 16, 2020)

United States v. Viloski, 814 F.3d 104 (2d Cir. 2016)

United States v. Ward, 448 U.S. 242 (1980)

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

United States v. Williams, No. 1:09-CV-00437, 2014 WL 3746497 (E.D. Va. June 26, 2014)

*Vidiksis v. E.P.A., 612 F.3d 1150 (11th Cir. 2010)

Statutes:

28 U.S.C. § 2111

31 U.S.C.:

§ 5314(a)

§ 5321

§ 5321(a)(5)

§ 5321(a)(5)(A)

§ 5321(a)(5)(B)

§ 5321(a)(5)(C)

§ 5321(a)(5)(C)(i)

§ 5321(a)(5)(D)(ii)

§ 5321(b)(2)

§ 5322

Administrative Procedure Act, 5 U.S.C. § 706

Bank Secrecy Act, 

Pub. L. No. 91-508, 84 Stat. 1114 (1970)

Internal Revenue Code (26 U.S.C.):

§§ 6203, 6213-6215, 6303, 6501-6503

§ 6663(a)

§ 6672

§ 6672(a)

Other Authorities:

31 C.F.R.:

§ 1010.301

§ 1010.306(c)

§ 1010.350(a)

§ 1010.810(g)

H.R. Rep. No. 91-975 (1970),

reprinted in 1970 U.S.C.C.A.N. 4394

S. Rep. No. 108-192 (2003)

U.S. Const. amend. VIII


STATEMENT OF JURISDICTION

This is an action to recover civil monetary penalties that the Internal Revenue Service assessed against Isac Schwarzbaum for willfully violating his statutory duty to report his ownership of multiple foreign bank accounts on timely filed Reports of Foreign Bank and Financial Accounts (“FBARs”) for the years 2006-2009. (Doc. 1.)1 The United States commenced this action by filing a complaint in the United States District Court for the Southern District of Florida on August 27, 2018. (Id.) The district court had jurisdiction under 28 U.S.C. §§ 1331, 1345, and 1355.

On August 27, 2020, the district court entered an amended judgment in favor of the United States. (Doc. 105.) The amended judgment was final, disposing of all claims of all parties. Schwarzbaum timely filed an amended notice of appeal on September 10, 2020 (Doc. 106). Fed. R. App. P. 4(a)(4)(B). This Court has jurisdiction under 28 U.S.C. § 1291.

STATEMENT OF THE ISSUES

Under the Bank Secrecy Act, U.S. persons who have foreign bank accounts are generally required to disclose those accounts to the Government by filing an annual Report of Foreign Bank and Financial Accounts (“FBAR”), and they are subject to enhanced civil monetary penalties for “willful” noncompliance. The Internal Revenue Service assessed such penalties against Isac Schwarzbaum for willfully violating his FBAR obligations for the years 2006-2009, and the district court upheld the penalties for three of those years: 2007, 2008, and 2009. The issues presented on appeal are:

1. Whether the district court clearly erred in finding that Schwarzbaum's FBAR violations for 2007-2009 were willful.

2. Whether the district court correctly upheld the IRS's discretionary determination of the amounts of the FBAR penalties.

3. Whether the FBAR penalties assessed against Schwarzbaum violate the Excessive Fines Clause of the Eighth Amendment.

STATEMENT OF THE CASE

(i) Course of proceedings and disposition in the court below

The United States brought this action under 31 U.S.C. §5321(b)(2) to recover civil monetary penalties that the IRS assessed against Isac Schwarzbaum for willfully violating his statutory duty to report his foreign accounts for the years 2006, 2007, 2008, and 2009. After a 5-day bench trial, the district court rejected the penalty for 2006, but it ultimately upheld the penalties for 2007-2009.

For 2006, the court held that Schwarzbaum is not liable for a willful penalty because it found that his FBAR violations for that year were not willful. As for the years 2007-2009, the court found that Schwarzbaum's violations were willful, but it initially set aside the IRS's decision as to the penalty amounts based on its sua sponte determination that certain calculations the IRS had made in reaching that decision were not in accordance with the statute.

The court then adopted recalculated amounts for the 2007-2009 penalties against Schwarzbaum, in lieu of the amounts assessed by the IRS, because it mistakenly believed that the recalculated amounts were lower. In reality, the opposite was true. And so, when the district court entered judgment for the Government in the total amount of the recalculated penalties, it inadvertently increased the 2007-2009 penalties against Schwarzbaum by more than $350,000.

The Government moved to amend the judgment, explaining the district court's mistake and asking it to reduce the judgment to the total amount of the IRS's 2007-2009 penalty assessments. Granting the motion, the district court acknowledged its mistake, held that any error in the IRS's penalty calculations was harmless because the penalties the IRS actually assessed were lower than the recalculated penalties, and entered an amended judgment upholding the 2007-2009 penalties in the amounts assessed by the IRS.

(ii) Statement of the facts

1. FBAR penalties generally

In the Bank Secrecy Act (“BSA”), Pub. L. No. 91-508, 84 Stat. 1114 (1970), Congress confronted the “serious and widespread use,” for the “purpose of violating American law,” of “foreign financial facilities located in” jurisdictions that provide secrecy to account holders. H.R. Rep. No. 91-975 (1970), reprinted in 1970 U.S.C.C.A.N. 4394, 4397. To combat such use of secret foreign accounts — and thereby combat terrorism, tax evasion, money laundering, and other wrongdoing — Congress required U.S. persons who have relationships with foreign financial agencies to report those relationships to the government. See 31 U.S.C. § 5314(a). And those with interests in foreign financial accounts (e.g., Swiss bank accounts) are required to do so by filing the Report of Foreign Bank and Financial Accounts, commonly called an “FBAR,” which at all relevant times was Form TD-F 90-22.1 (see Pl. Exs. 24, 25). 31 C.F.R. § 1010.350(a).

Among others, every U.S. citizen who has an interest in foreign financial accounts with an aggregate value of more than $10,000 during a calendar year must report each account, the maximum value of each account during the calendar year being reported, and other account information on a timely filed FBAR. Id. §§ 1010.306(c),.350(a); (Pl. Exs. 24, 25). The deadline for filing an FBAR for each of the calendar years 2006-2009 was June 30 of the following year. 31 C.F.R. § 1010.306(c).

Congress has authorized the Secretary of the Treasury to impose “a civil money penalty on any person who violates” these reporting requirements. 31 U.S.C. § 5321(a)(5)(A). The amount of the penalty is capped at $10,000 for non-willful violations. Id. § 5321(a)(5)(B). But for willful violations, the maximum amount of the civil penalty is “the greater of” $100,000 or 50 percent of “the balance in the [foreign] account at the time of the violation.” Id. § 5321(a)(5)(C)(i), (D)(ii).2

Authority for civil enforcement of the FBAR requirements has been delegated to the IRS, including the authority to investigate possible civil violations, to assess and collect civil FBAR penalties, and to take any other actions reasonably necessary for enforcement. See 31 C.F.R. § 1010.810(g). Thus, for purposes of civil FBAR penalties, it is the IRS that determines whether a violation was willful and exercises the statutory discretion to determine the amount of the penalty, up to the statutory maximum.

The IRS also requires U.S. taxpayers with foreign financial accounts to answer certain questions — and notifies them of their potential obligation to file an FBAR — on their federal income tax returns, Form 1040, Schedule B, Line 7. For example, the Schedule B for 2006 included the following:

Schedule B for 2006; Part III Foreign Accounts and Trusts section(J. Ex. 1.) Schedule B thus requires “Yes” to be checked on Line 7a if the taxpayer had, among other things, an interest in a foreign financial account. And Line 7a also refers taxpayers both to the FBAR form itself (Form TD F 90-22.1) and to information about the FBAR filing requirements found in the instructions for Line 7a. (See J. Ex. 1.)

2. Schwarzbaum's FBAR violations and other efforts to conceal his foreign bank accounts

Isac Schwarzbaum was born in Germany, but he became a U.S. resident in 1995 and a U.S. citizen in 2000. (Doc. 92 at 2-3.) Between 2006 and 2009, Schwarzbaum held interests in eleven Swiss bank accounts and two Costa Rican bank accounts with an aggregate balance during those years that reached more than $28 million at its peak and was never below more than $2 million. (Doc. 92 at 5; Pl. Ex. 26.) As a result, Schwarzbaum was required to file FBARs disclosing all of his foreign accounts for each of those years by June 30 of the following year. But Schwarzbaum failed to file an FBAR for 2008 (until years after it was due), and the FBARs he filed for 2006, 2007, and 2009 collectively disclosed only three of his thirteen foreign accounts. (Doc. 92 at 7-9.) Accordingly, it is undisputed that Schwarzbaum violated the FBAR reporting requirements for each of the years 2006-2009. (Id. at 14.)

Schwarzbaum also engaged in a number of other efforts to keep his foreign accounts secret from the IRS. (Id. at 6, 17.) For example, his Swiss bank accounts held the bulk of his personal wealth (id. at 22; Pl. Ex. 26), but for at least several of those accounts, Schwarzbaum assigned the accounts pseudonyms, paid the banks a fee to retain his correspondence, and instructed the banks to neither disclose his identity nor invest the accounts in U.S. securities (Doc. 92 at 6, 17). Other Swiss accounts he opened with his German passport instead of his American passport. (Id.)

In addition, Schwarzbaum filed U.S. tax returns that attached Schedule B, as required, for each of the years 2006-2009. And for each of those returns, he swore under penalty of perjury that he had reviewed the return and that it was accurate. (Id. at 4; Pl. Ex. 6 at Weitz000077; Pl. Ex. 8 at Weitz000026; Pl. Ex. 10 at Weitz00031; Doc. 80 at 91:11-92:20.) But Schwarzbaum never disclosed his interest in any of his Swiss bank accounts to the accountants who prepared those returns. (Doc. 92 at 7, 22.) Thus, his 2006 Schedule B falsely reported on Line 7b that his only foreign financial accounts were in Costa Rica. (Id. at 7.) And each of his 2007-2009 Schedules B falsely reported on Line 7a that he did not have an interest in any foreign financial accounts. (Id. at 8-9; Pl. Ex. 7 at IS_012504.)

3. Schwarzbaum's participation in, and early withdrawal from, the Offshore Voluntary Disclosure Initiative

In 2009, Schwarzbaum received a letter from one of his Swiss banks informing him that his account appeared to be within the scope of an IRS treaty request seeking information about accounts of certain U.S. persons that were maintained with the bank. The letter also described several options that were available to Schwarzbaum in connection with the treaty request, including consenting to the transmittal of his account information to the IRS, appointing an agent in Switzerland, and participating in the IRS's Offshore Voluntary Disclosure Initiative (“OVDI”). (Doc. 92 at 10; Pl. Ex. 95 at IS_010605-10.) The OVDI program offered taxpayers with unreported accounts immunity from criminal prosecution and civil FBAR penalties in exchange for (1) full disclosure of the taxpayer's foreign account holdings; (2) payment of any tax deficiencies, penalties, and interest; and (3) payment of a miscellaneous civil penalty that would be less than the taxpayer's potential exposure under a full tax and/or FBAR examination. (Doc. 80 at 124:5-125:8.)

After failing to convince the Swiss authorities to withhold his account records, and with their disclosure to the IRS imminent, Schwarzbaum entered the OVDI program in 2011. He disclosed his foreign financial holdings. (Doc. 92 at 10-11.) And he paid additional income tax, interest, and accuracy-related penalties resulting from his failure to report interest earned on foreign accounts. (Doc. 51 at 4.) Schwarzbaum also signed under penalty of perjury a “penalty computation worksheet” declaring the highest balance in each of his foreign accounts during each of the years 2003-2010. (Pl. Ex. 26.) The worksheet indicates that if he had completed the OVDI program, his miscellaneous penalty would have been only about $7 million (id.), instead of the more than $12.5 million in FBAR penalties that the district court upheld below.

But Schwarzbaum decided to withdraw from the OVDI program, and so the IRS referred his case for a full tax examination and an investigation into his compliance with the FBAR requirements. (Doc. 51 at 4; Doc. 92 at 11.)

4. The IRS's assessment of willful FBAR penalties against Schwarzbaum for the years 2006-2009

After completing its investigation, the IRS determined that Schwarzbaum's failures to comply with his FBAR reporting obligations were willful and that a willful FBAR penalty should be imposed for each of the years 2006-2009. As to the amount of the penalties, the per-year statutory maximum penalty for each unreported account is the greater of $100,000 or half of the account balance at the time of the FBAR violation. 31 U.S.C. § 5321(a)(5)(C), (D)(ii). But the IRS exercised its discretion to assess penalties against Schwarzbaum below the statutory maximum.

The IRS first calculated “mitigated” maximum penalties using its internal, non-binding “mitigation guidelines.” (J. Ex. 11 at IS_006060; see Pl. Ex. 111 at 005806-07.) Those calculations resulted in mitigated maximum penalties that, for the four years combined, totaled more than $35 million. (J. Ex. 11 at IS_006060.) In correspondence with Schwarzbaum, the IRS told him that it had based those calculations for each year on the balance in each account as of June 30. (Doc. 92 at 25 (citing Pl. Ex. 48).) But the administrative record shows that the IRS's calculations incorrectly listed the highest balance in each account during each year (from Schwarzbaum's OVDI penalty worksheet) as also being the account balance on the June 30 FBAR filing deadline. (J. Ex. 11 at IS_006060.)

In any event, the IRS concluded that penalties totaling more than $35 million would be excessive and declined to assess them. Instead, the IRS further exercised its discretion to determine appropriate penalties and ultimately decided that the mitigated maximum that it had calculated for 2008, which was $13,729,591, was an appropriate total penalty amount for all four years together and should be assessed against Schwarzbaum as a $1,173,778 penalty for the year 2006 and a $4,185,271 penalty for each of the years 2007-2009.

In a letter dated August 26, 2014, the IRS notified Schwarzbaum's counsel of its official determination to assess those penalties against Schwarzbaum for his willful failure to comply with the FBAR reporting requirements for 2006 through 2009. (J. Ex. 11.) Attached to the letter was a chart showing how the IRS determined the penalties, including its calculations of the mitigated maximum penalties and its use in those calculations of the same amounts as both the highest account balance during the year and the balance on the June 30 filing deadline. (Id. at IS_006060.) The letter also informed Schwarzbaum that he could either consent to the proposed assessments and remit immediate payment or request a conference with the IRS Appeals Office by submitting a written protest of the proposed assessments. (J. Ex. 11 at IS_006042.)

In October 2014, Schwarzbaum sent the IRS a formal protest of the proposed FBAR penalty assessments. The protest contained 19 pages of facts and argument and did not contest the IRS's calculations or methodology by which it determined the amounts of the penalties. (Pl. Ex. 45.) In May 2015, Schwarzbaum submitted a 43-page supplement to his protest letter to IRS Appeals, which once again took no issue with how the penalty amounts were determined. (Pl. Ex. 47.)

The IRS Appeals Office sustained the proposed willful FBAR penalty assessments for 2006 through 2009 in full. (Pl. Ex. 48 at IS_006926.) On September 6, 2016, the IRS assessed willful FBAR penalties pursuant to 31 U.S.C. § 5321(a)(5)(C) against Schwarzbaum as follows:

Year

Penalty

2006

$1,173,778

2007

$4,185,271

2008

$4,185,271

2009

$4,185,271

(J. Ex. 2.)

5. The district court proceedings

When Schwarzbaum failed to pay, the United States brought this action under 31 U.S.C. § 5321(b)(2) to reduce to judgment and recover the IRS's penalty assessments. Schwarzbaum did not dispute that he had violated his statutory duty to disclose all of his foreign accounts for each of the years 2006-2009 on timely filed FBARs. But he contested his liability for the penalties, arguing primarily that his FBAR violations were not “willful” and that the penalties assessed against him — which exceeded the statutory maximum for non-willful violations — were therefore unlawful. See 31 U.S.C. § 5321(a)(5)(B)-(C), (D)(ii). He also argued that the penalties violate the Eighth Amendment.

After a five-day bench trial, the district court made findings of fact consistent with facts discussed above and held for Schwarzbaum as to the penalty for 2006. But the court ultimately upheld the penalties that the IRS assessed against Schwarzbaum for 2007, 2008, and 2009, entering an amended judgment for the total amount of those penalty assessments, plus interest and late-payment penalties.

a. The district court's disposition of the willfulness and Eighth Amendment issues

On the question whether Schwarzbaum's FBAR violations were “willful,” the court found first that Schwarzbaum did not knowingly violate the FBAR reporting requirements for any of the years at issue. (Doc. 92 at 15-18.) And although the court recognized that willfulness can also be shown by recklessness or willful blindness toward the FBAR requirements (id. at 14-15), the court found that Schwarzbaum's 2006 violation resulted from neither. The court acknowledged his efforts to conceal his Swiss bank accounts from U.S. authorities, his failure to ever disclose those accounts to his accountants (even though the Swiss accounts held the bulk of his wealth), and his false Schedule B reporting for all of the years at issue. (Id. at 5-9, 15-17, 22.) But crediting his trial testimony, the court found that when he failed to report on his 2006 FBAR any of his Swiss accounts and one of his two Costa Rican accounts, Schwarzbaum had reasonably relied upon and followed erroneous advice from his then-accountant that he was only required to report foreign accounts that had a “U.S. connection.” (Id. at 18-20.)

On that basis, the district court held (id. at 25 n.4) that Schwarzbaum's FBAR violation for 2006 was not willful and could therefore be subject only to a non-willful penalty of no more than $10,000. See 31 U.S.C. § 5321(a)(5)(B). The court invited the Government to pursue such a penalty in supplemental briefing (Doc. 92 at 26), but the Government declined (Doc. 93 at 2 & n.2). And so the district court held that Schwarzbaum's FBAR penalty liability for 2006 is zero. (Doc. 98 at 7.)

For the years 2007-2009, however, the court found that Schwarzbaum's claimed reliance on his former accountant's bad advice was no longer reasonable. By his own admission, Schwarzbaum “self-prepared” the noncompliant FBARs that he filed for 2007 and 2009, “and at least for 2007, he reviewed the instructions for the FBAR form.” (Doc. 92 at 20.) And the court found further that the FBAR instructions (see id. at 20-22; Pl. Ex. 24-25) are “unequivocal,” contain no language supporting a “U.S. connection” exception, and that Schwarzbaum had admitted as much. (Doc. 92 at 21.) Accordingly, the court found that by the time of his 2007 FBAR, Schwarzbaum “was aware, or should have been aware, of the FBAR requirements.” (Doc. 92 at 20.) And finding further that Schwarzbaum had therefore acted recklessly or been willfully blind to those requirements in failing to report all of his foreign accounts for the years 2007-2009, the court held that those violations were willful. (Id. at 18, 20-22.)

The district court also, in a subsequent order, rejected Schwarzbaum's argument that the FBAR penalties assessed against him violate the Excessive Fines Clause. Concluding that the purpose of civil FBAR penalties is primarily remedial rather than punitive, the court held that they are not “fines” and therefore not subject to the Eighth Amendment. (Doc. 98 at 10-16.)

b. The district court's initial decision as to the penalty amounts and judgment mistakenly increasing the 2007-2009 penalties

Turning to the IRS's determination of the amounts of the willful FBAR penalties that it assessed against Schwarzbaum for 2007-2009, the district court held sua sponte that the IRS's underlying calculations of the mitigated maximum penalty amounts were not in accordance with § 5321(a)(5) because they were based on each account's highest balance during each reporting year. (Doc. 92 at 24-25, 26.) Noting that the statutory maximum penalty is based on the unreported account balance “at the time of the violation,” 31 U.S.C. § 5321(a)(5)(C)(i), (D)(ii), the court concluded that “the time of the violation” is the FBAR filing deadline. And the court reasoned that the IRS's penalty calculations must therefore be based on the account balances on the FBAR filing deadline, which for each of the years at issue was June 30 of the following year. (Id. at 25; Doc. 98 at 1-2.)

Although Schwarzbaum had never argued any of that, and although the IRS had exercised its discretion to assess much smaller penalties than its calculations called for, the IRS's failure to base its calculations on June 30 balances initially led the court to set aside the 2007-2009 penalties. (Doc. 92 at 25; Doc. 98 at 2.) The court also ordered the parties “to submit supplemental briefing with respect to the new proposed amount of penalties.” (Doc. 92 at 26.)

The Government's supplemental brief argued that any error in the IRS's calculations was harmless because redoing those calculations using June 30 balances, per the district court's opinion, would not yield lower penalties than the penalties that the IRS assessed. (Doc. 93 at 3-4, 11.) To illustrate that, the Government set out for each of the years 2007-2009 two calculations of both the statutory maximum penalty and the mitigated maximum penalty (under the IRS's mitigation guidelines) using the balances in Schwarzbaum's unreported accounts as of June 30 of the following year. One set of those calculations used estimated June 30 balances (that Schwarzbaum had provided in discovery) where the actual June 30 balance was unknown, and the other set effectively assumed those unknown balances were $0. (Id. at 4-10.) This showed that even using only the known June 30 account balances, and $0 balances (in lieu of estimated June 30 balances) for all other accounts, would result in mitigated maximum penalties for 2007-2009 (totaling more than $12.9 million) that are higher than the 2007-2009 penalties that the IRS actually assessed against Schwarzbaum (totaling less than $12.6 million). And since any error in the IRS's calculations was therefore harmless, the Government urged the court to uphold the IRS assessments. (Id. at 3-4, 11.)

Schwarzbaum's supplemental brief proposed no calculations or amounts for the 2007-2009 penalties. Instead, he argued for the first time that the district court should remand the penalties to the IRS, and that on remand, he could not be liable for any penalties because the statute of limitations would bar the IRS from assessing any new penalties for his 2007-2009 FBAR violations. (Doc. 94 at 1-10.)

After reviewing the supplemental briefs, the district court held that Schwarzbaum's argument for a remand to the IRS had come too late and was waived. (Doc. 98 at 2-3.) And the court adopted sua sponte the Government's “recalculation” of the mitigated maximum penalties without the estimated June 30 balances as the “correct” calculation method. (Id. at 7-10.) But the court also rejected the government's harmless-error argument because the court mistakenly compared those recalculated penalties ($12.9 million) to the IRS penalties for 2006-2009 ($13.7 million) instead of for 2007-2009 ($12.6 million) and thus found incorrectly that the recalculated penalties were lower. (Id. at 6.) Based on that misapprehension, the court then purported to “assess” the recalculated penalties against Schwarzbaum (which neither party had advocated), inadvertently increasing his 2007-2009 penalties by more than $350,000, and entered a judgment of more than $12.9 million for the Government. (Id. at 16; Doc. 99.)

c. The district court's correction of its mistake and amended judgment upholding the IRS's penalty assessments for 2007-2009

The Government timely moved the district court to alter or amend its judgment, explaining the court's mistake and asking it to reduce the judgment to the amount of the 2007-2009 assessments. The Government also asked the court to specify the amount of prejudgment interest and late-payment penalties. (Doc. 102.)

Granting the motion, the district court acknowledged its mistake and agreed that “any error in the [IRS's penalty] calculations is harmless” because the penalty amounts sought by the Government for 2007-2009 — which were the penalty amounts that the IRS had assessed — were lower than the recalculated penalties. (Doc. 104 at 3-5.) Accordingly, the court entered an amended judgment for the Government in the total amount of the IRS's 2007-2009 penalty assessments ($12,555,813), plus prejudgment interest ($459,577.16) and late-payment penalties ($2,757,462.93). (Id. at 6; Doc. 105.)

(iii) Statement of the standard or scope of review

This Court reviews the district court's conclusions of law de novo but reviews its findings of fact only for clear error. Crystal Entm't & Filmworks, Inc. v. Jurado, 643 F.3d 1313, 1319 (11th Cir. 2011). The Court may affirm the district court's amended judgment on any ground that finds support in the record. See, e.g., Long v. Commissioner, 772 F.3d 670, 675 (11th Cir. 2014); Powers v. United States, 996 F.2d 1121, 1123-24 (11th Cir. 1993).

SUMMARY OF ARGUMENT

The district court correctly found that Schwarzbaum's FBAR violations for the years 2007, 2008, and 2009 were willful, and it correctly upheld the civil FBAR penalties that the IRS assessed against him for those willful violations. Schwarzbaum's arguments to the contrary lack merit and should be rejected.

1. In Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007), the Supreme Court confirmed the rule that “where willfulness is a statutory condition of civil liability,” the term generally covers “not only knowing violations of a standard, but reckless ones as well.” Id. at 57. Nothing in the text of 31 U.S.C. § 5321 suggests that a different willfulness standard applies to civil FBAR penalties, and this Court's sister circuits have uniformly followed the rule of Safeco to hold that civil willfulness in the context of § 5321 includes recklessness. Schwarzbaum urges the Court to create a circuit split by holding that only knowing and intentional violations of the FBAR reporting requirements can be willful for civil penalty purposes, but he identifies no meritorious reason for doing so.

Schwarzbaum also fails to show any clear error in the district court's finding that his FBAR violations for the years 2007, 2008, and 2009 were willful in that he acted with reckless disregard or willful blindness toward the FBAR reporting requirements. That finding has ample support in the record, and Schwarzbaum's argument that it reflects some sort of improper “strict liability” standard is baseless.

2. The district court also correctly upheld the IRS's discretionary determination of the amounts of the 2007-2009 penalties. As the court concluded, any error in the IRS's calculation of the “mitigated” maximum penalties (under its internal mitigation guidelines) was harmless because the penalties that the IRS actually assessed against Schwarzbaum are lower regardless. And it is well settled that harmless errors are not a sufficient basis to set aside agency action.

The burden of showing prejudicial error is on the party opposing the agency action, but Schwarzbaum waived that issue. Indeed, the district court acted well within its discretion in holding that Schwarzbaum's belated request for the remand to the IRS was untimely. And Schwarzbaum also waived the issue both by never arguing in the district court that he was prejudiced by any error in the IRS's penalty calculations and by never raising any challenge to those calculations in the administrative proceedings.

Furthermore, Schwarzbaum fails even on appeal to show any prejudicial error in the IRS's determination of the penalty amounts. And even if there were a prejudicial error warranting a remand to the IRS, Schwarzbaum's argument that the IRS would somehow be time-barred from correcting such error on remand is meritless.

3. The district court correctly held that civil FBAR penalties are not “fines” — and are therefore not subject to the Excessive Fines Clause of the Eighth Amendment — because their purpose is remedial rather than punitive. Moreover, even if the Eighth Amendment applied, Schwarzbaum has failed to carry his burden of showing that the 2007-2009 penalties assessed against him are unconstitutionally “excessive.” To the contrary, each of the relevant factors that the Supreme Court identified in United States v. Bajakajian, 524 U.S. 321 (1998), weighs in favor of the conclusion that Schwarzbaum's penalties are not grossly disproportionate to the offenses and, accordingly, are not excessive for Eighth Amendment purposes.

ARGUMENT

The district court found that Schwarzbaum's FBAR violations for the years 2007, 2008, and 2009 were willful and, ultimately, upheld the penalties for those years in the amounts assessed by the IRS. Schwarzbaum challenges the amended judgment on essentially three grounds, arguing (1) that his FBAR violations for the years 2007-2009 were not willful, (2) that the district court was required to remand the 2007-2009 penalty assessments to the IRS after the court's initial decision (which it later reconsidered) to set aside the penalties, and (3) that the penalties violate the Eighth Amendment. None of Schwarzbaum's arguments has merit, and this Court should reject them for the reasons explained below.

I. Schwarzbaum has shown no clear error in the district court's finding that his FBAR violations for 2007-2009 were willful

A. The district court applied the correct standard for willfulness, which includes both recklessness and willful blindness

Although Congress provided a greater penalty for “willful” violations of the FBAR reporting requirements, it did not define the term “willful.” See 31 U.S.C. § 5321(a)(5)(C). The Supreme Court has made clear, however, that “where willfulness is a statutory condition of civil liability,” the term generally covers “not only knowing violations of a standard, but reckless ones as well.” Safeco Ins. Co. of America v. Burr, 551 U.S. 47, 57 (2007); see also United States v. Ill. Cent. R.R., 303 U.S. 239, 242-43 (1938); Malloy v. United States, 17 F.3d 329, 332 (11th Cir. 1994).

Civil recklessness refers to “conduct violating an objective standard: action entailing 'an unjustifiably high risk of harm that is either known or so obvious that it should be known.'” Safeco, 551 U.S. at 68 (quoting Farmer v. Brennan, 511 U.S. 825, 836 (1994)). Indeed, “[i]t is [the] high risk of harm, objectively assessed, that is the essence of recklessness at common law.” Id. at 69. Thus, the default rule under the Supreme Court's decision in Safeco is that an objectively “reckless disregard of statutory duty” is sufficient to establish willfulness for purposes of civil liability. Id. at 57.

Nothing in the text of § 5321 suggests that a different standard applies to civil FBAR penalties. And the Third, Fourth, and Federal Circuits have all held that the Safeco standard does apply, and that willfulness in the context of § 5321 therefore includes recklessness. United States v. Horowitz, 978 F.3d 80, 88 (4th Cir. 2020); Norman v. United States, 942 F.3d 1111, 1115 (Fed. Cir. 2019); Bedrosian v. United States, 912 F.3d 144, 152-53 (3d Cir. 2018); United States v. Williams, 489 F. App'x 655, 659 (4th Cir. 2012).3

Accordingly, persons who violate the FBAR reporting requirements are liable for “willful” FBAR penalties if they “ought to have known” that “there was a grave risk that an accurate FBAR was not being filed.” Horowitz, 978 F.3d at 89 (quoting Bedrosian, 912 F.3d at 153). This is not to say that willfulness cannot also be shown subjectively. Actual knowledge of the FBAR requirements is undoubtedly sufficient to establish willfulness, as is a “'conscious effort to avoid learning about [the] reporting requirements,'” known as “willful blindness.” Williams, 489 F. App'x at 659 (quoting United States v. Sturman, 951 F.2d 1466, 1476 (6th Cir. 1991)); see Horowitz, 978 F.3d at 89 (contrasting objective standard for civil recklessness with subjective standards for criminal recklessness and willful blindness). But under Safeco and its FBAR-specific progeny, such subjective knowledge or intent is not necessary to establish willfulness if the violator's conduct was objectively reckless.

Incredibly, Schwarzbaum fails even to mention the Supreme Court's binding decision in Safeco, much less the fact that this Court's sister circuits have unanimously followed Safeco in every FBAR case where the question of recklessness has arisen. The district court expressly relied on Safeco — along with Bedrosian, Williams, and several district court authorities — in concluding that “[w]illfulness in the context of a[n] FBAR violation” includes objective recklessness and “does not require actual knowledge of the duty to report [one's] interest in a foreign account.” (Doc. 92 at 14-15 & n.1.) And Schwarzbaum now asks this Court (Br. 33-34, 36-41) to reject those conclusions and hold the opposite. But unable to distinguish Safeco and its FBAR-specific progeny, he simply ignores them.

Nevertheless, the fact remains that the knowledge-only willfulness standard that he urges this Court to adopt is the very standard that the Supreme Court rejected for civil liability generally, see Safeco, 551 U.S. at 56-58, and that the lower courts have uniformly rejected for civil FBAR penalties specifically, see, e.g., Horowitz, 978 F.3d at 87 (rejecting argument that “[u]nder the FBAR statutory scheme, a willful violation cannot be established through mere recklessness”); Norman, 942 F.3d at 1115 (rejecting argument that “willfulness in [the § 5321(a)(5)(C)] context requires a showing of actual knowledge of the obligation to file an FBAR” instead of mere recklessness).

With his head-in-the-sand approach to adverse authority, Schwarzbaum first attempts to insert a “subjective knowledge” requirement into the standard for recklessness, arguing (Br. 33-35) that an FBAR violation cannot be reckless (and therefore willful) unless the violator had “subjective knowledge or appreciation of the reporting requirements.” But as a basis for finding willfulness, recklessness is an objective alternative to subjective knowledge, as the Supreme Court made clear when it recognized that civil willfulness includes “reckless [violations]” in addition to “knowing violations.” Safeco, 551 U.S. at 57; see also id. at 56-57 (“[Petitioners] argue that liability . . . for 'willfully fail[ing] to comply' . . . goes only to acts known to violate the Act, not to reckless disregard of statutory duty, but we think they are wrong.”); id. at 60 (“[A]ction falling within the knowing subcategory does not simultaneously fall within the reckless alternative.”). Accepting Schwarzbaum's argument that recklessness requires subjective knowledge would render Safeco's distinction between objectively reckless violations and subjectively knowing violations meaningless.

Schwarzbaum contends (Br. 33-34) that this Court's precedent compels that bizarre result, but the three cases he cites — Malloy, Thibodeau, and Mazo — do no such thing. All three of those pre-Safeco precedents involved the analogous context of civil penalties under I.R.C. §6672(a) for the willful failure to collect, account for, and pay over employment taxes. And far from imposing a subjective knowledge requirement, they each recognized that an objectively “reckless disregard” of statutory duty was sufficient to establish willfulness. Malloy, 17 F.3d at 332 & n.12; Thibodeau v. United States, 828 F.2d 1499, 1505 (11th Cir. 1987); Mazo v. United States, 591 F.2d 1151, 1155 (5th Cir. 1979). Indeed, Malloy even quotes with approval a Seventh Circuit formulation of the test for objective recklessness under I.R.C. §6672 that is virtually identical to the formulation adopted by the Third and Fourth Circuits in willful FBAR cases under 31 U.S.C. §5321. Compare Malloy, 17 F.3d at 332 n.12 (quoting Wright v. United States, 809 F.2d 425, 427 (7th Cir. 1987)), with Horowitz, 978 F.3d at 89; Bedrosian, 912 F.3d at 153.

Schwarzbaum also urges the Court to abandon recklessness altogether (Br. 36-41), arguing that willfulness requires “a voluntary, intentional violation of a known legal duty” (Br. 39). But that is simply not the law in civil cases, as Safeco and the other authorities cited above make clear. Indeed, Schwarzbaum fails to identify a single civil case in which a court has construed willfulness to require a knowing and intentional violation.

He relies instead (Br. 39-41) on a number of criminal cases, chiefly the Supreme Court's decisions in Cheek v. United States, 498 U.S. 192 (1991), and Ratzlaf v. United States, 510 U.S. 135, 135 (1994). But when the Supreme Court held in Safeco that civil willfulness includes recklessness, it took pains to distinguish cases involving criminal willfulness — and distinguished Cheek and Ratzlaf, specifically — explaining that “[i]t is different in the criminal law. . . . Civil use of the term ['willful' or 'willfully'] typically presents neither the textual nor the substantive reasons for pegging the threshold of liability at knowledge of wrongdoing.” Safeco, 551 U.S. at 57 n.9 (citations omitted); see also id. at 68 n.18 (“Unlike civil recklessness, criminal recklessness also requires subjective knowledge on the part of the offender.”).

Schwarzbaum's reliance on criminal cases is thus misplaced. Moreover, his argument (Br. 40) about a “good faith belief of compliance” negating willfulness would be inapposite even if that criminal standard did apply to civil willfulness. Indeed, any belief by Schwarzbaum that he complied with the FBAR requirements for 2007-2009 was not in good faith because, as the district court found, he knew or should have known better. (Doc. 92 at 20-22.)

B. The district court's finding of willfulness has ample support in the record

After reviewing the evidence in the record, the district court found that Schwarzbaum's FBAR violations for the years 2007, 2008, and 2009 were willful because he “exhibited willful blindness or recklessly violated the FBAR reporting requirements” for those years. (Doc. 92 at 18, 22.) That finding of willfulness is subject to review only for clear error. Norman, 942 F.3d at 1115; Bedrosian, 912 F.3d at 152; see Malloy, 17 F.3d at 332-33. Accordingly, this Court must affirm so long as “the district court's account of the evidence is plausible in light of the record viewed in its entirety,” including any “inferences that may be drawn from the facts in the record.” Anderson v. City of Bessemer City, 470 U.S. 564, 573-74, 577 (1985).

The finding that Schwarzbaum acted recklessly or with willful blindness in violating the FBAR requirements for 2007-2009 easily satisfies this deferential standard. Indeed, Schwarzbaum has not clearly argued otherwise. And he disputes none of the district court's findings that the record contains evidence of all the following facts:

  • When Schwarzbaum's accountant prepared his 2006 FBAR, Schwarzbaum erroneously believed, based on the accountant's advice regarding foreign gifts, that he was only required to report foreign accounts that had a “U.S. connection,” meaning accounts in which money had been transferred to or from the United States. (Doc. 92 at 6-7, 19.)

  • “Schwarzbaum never disclosed his interest in any of [his eleven] Swiss accounts to his [new] accountants for tax years 2007 through 2009, despite the fact that the bulk of his personal wealth was held in those accounts.” (Id. at 22; see id. at 6-7.)

  • Schwarzbaum “self-prepared his 2007 and 2009 FBARs” and did not file a timely 2008 FBAR at all. (Id. at 8, 20.)

  • “[A]t least for 2007, he reviewed the instructions for the FBAR form.” (Id. at 20; see id. at 8.)

  • “[T]he FBAR instructions are unequivocal about their application,” and “Schwarzbaum admitted that nowhere in the FBAR instructions was there language requiring a U.S. connection.” (Id. at 21.)

  • After reviewing the FBAR instructions, “Schwarzbaum did not take any steps to learn about [the FBAR] requirements or inform his accountants.” (Id. at 22.)

  • Schwarzbaum engaged in “efforts to prevent foreign banks from disclosing his account information to the IRS” by:

    • “using account pseudonyms”;

    • “instructing several Swiss banks not to invest in U.S. securities, not to disclose his identity, [and] to retain his correspondence [for a fee]”; and

    • “us[ing] his German passport to open several additional Swiss accounts, rather than his American passport.” (Id. at 6, 17.)

  • Schwarzbaum never asked anyone “whether he had to pay taxes on interest earned on non-U.S. accounts,” and “[n]obody ever told him that he did not.” (Id. at 5.)

  • For each of his U.S. tax returns for the years 2007-2009, “Schwarzbaum signed a form consenting to allow his return to be filed electronically” by his accountant. (Doc. 92 at 4.) The record shows that this consent form was IRS Form 8879, which requires the taxpayer to declare “[u]nder penalties of perjury” that he or she has examined the return and that the return is accurate. (Pl. Ex. 6 at Weitz000077; Pl. Ex. 8 at Weitz000026; Pl. Ex. 10 at Weitz00031; Doc. 80 at 91:11-92:20.)

  • On each of his U.S. tax returns for the years 2007-2009, Schwarzbaum falsely answered “no” to question 7a of Schedule B, which asks whether the taxpayer had a financial interest in a foreign financial account during the tax year and refers the taxpayer to the requirements for filing an FBAR. (Id. at 7-9, 15-16; Pl. Ex. 7 at IS_012504.)4

Taken together, this undisputed evidence is more than sufficient to sustain the district court's finding that Schwarzbaum acted recklessly or with willful blindness toward his statutory duty to file accurate and complete FBARs for the years 2007-2009. This is not to say that the record is devoid of any evidence supporting Schwarzbaum's position, but that is not the issue. It is settled that even if there were “two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.” Anderson, 470 U.S. at 574. And in light of the evidence cited above, the district court's finding of recklessness or willful blindness is, at minimum, a “permissible view.”

Indeed, the evidence of Schwarzbaum's recklessness or willful blindness toward his FBAR obligations for 2007-2009 is at least as strong, if not stronger, than the evidence of recklessness that the other courts of appeals have deemed sufficient in other willful FBAR cases. See Horowitz, 978 F.3d at 89-90; Norman, 942 F.3d at 1115-17; cf. Williams, 489 F. App'x at 659-60 & n.6 (reversing as clearly erroneous district court's finding of non-willfulness because “we are convinced that, at a minimum, Williams's undisputed actions establish reckless conduct”). Indeed, the evidence that the Norman and Horowitz courts relied on is largely identical to much of the above-cited evidence in this case. And unlike Ms. Norman and the Horowitzes, Schwarzbaum also not only self-prepared the non-compliant FBARs he filed for 2007 and 2009 (while filing no timely FBAR for 2008), but also read the FBAR instructions, which unequivocally contain no support for his purported “U.S. connection” rationale for failing to report the foreign accounts that held the vast majority of his assets.

Once again ignoring adverse authority, Schwarzbaum says nothing about the evidence in Horowitz, Norman, or any other FBAR case. And he also makes no attempt to carry his burden of showing that the record as a whole in this case renders the district court's account of the evidence implausible. See Anderson, 470 U.S. at 573-74. Instead, he argues (Br. 31-33) that the district court somehow applied an improper “strict liability” standard by allegedly basing its finding of willfulness for 2007-2009 solely on the fact that Schwarzbaum reviewed the FBAR instructions. That argument fails for at least three reasons.

First, the district court's rationale for its finding of recklessness or willful blindness is not the issue. Rather, the issue before this Court is whether that finding is so inconsistent with the record as a whole that it is clearly erroneous. And as shown above, that is not the case; the evidence in the record provides ample support for the district court's finding, whether or not the court relied on that evidence. Accordingly, the court's finding of reckless or willful blindness (and therefore willfulness) was not clearly erroneous and should be affirmed, regardless of Schwarzbaum's complaints about the sufficiency or consistency of the district court's stated reasons for that finding.

Second, we have already shown that the district court did not, in fact, rely solely on Schwarzbaum's having reviewed the FBAR instructions. Indeed, even if Schwarzbaum had not reviewed the FBAR instructions, the court's findings about the other evidence in the record would still compare favorably with the evidence of recklessness deemed sufficient in Norman and Horowitz. To be sure, the district court found that the evidence pertaining to Schwarzbaum's tax reporting and other efforts to conceal his foreign accounts did not establish that he knowingly violated the FBAR requirements. (Doc. 92 at 15-18.) And for 2006, the court apparently deemed that evidence outweighed even as to recklessness or willful blindness by its finding that Schwarzbaum reasonably relied on erroneous advice. (Id. at 6, 19-20.) But whatever the merits of that finding,5 the district court correctly found that the circumstances had changed by the time of Schwarzbaum's 2007 FBAR because of his review of the FBAR instructions and related circumstances. (Id. 20-22.) Schwarzbaum's review of the instructions was thus central to the district court's distinction between his 2006 violation and his 2007-2009 violations, but it was far from the district court's only basis for finding the latter reckless or willfully blind.

Third, that finding would not be clearly erroneous even if the district court had based it solely on Schwarzbaum's review of the FBAR instructions. As the district court found, Schwarzbaum at least “should have been aware” of the FBAR requirements after reviewing the “unequivocal” FBAR instructions in connection with his 2007 FBAR. (Doc. 92 at 20-22.) And thus, Schwarzbaum “ought to have known” that filing 2007 and 2009 FBARs that disclosed fewer than all of his foreign accounts — and not filing any timely FBAR for 2008 — presented “a grave risk that an accurate FBAR was not being filed.” Horowitz, 978 F.3d at 89 (quoting Bedrosian, 912 F.3d at 153). That Schwarzbaum did so anyway, without any further inquiry into the scope of his statutory duty, was objectively reckless, if not willfully blind, and therefore “willful” for purposes of the resulting FBAR penalties.

Schwarzbaum argues (Br. 32-33) that reviewing the instructions for 2007 cannot negate his reasonable reliance on the erroneous “U.S. connection” advice as a matter of law under United States v. Boyle, 469 U.S. 241, 251 (1985). But as an issue of fact, the district court found — and Schwarzbaum does not dispute — that by the time of his 2007 FBAR, he “should have been aware” of the FBAR requirements. And likewise undisputed are the district court's findings that the FBAR instructions unequivocally recognize no exception for foreign accounts that lack a “U.S. connection,” and that Schwarzbaum admitted as much. Thus, any reliance on the prior bad advice was objectively no longer reasonable after Schwarzbaum reviewed the FBAR instructions. Boyle is not to the contrary and, in any event, concerns a statutory “reasonable cause” exception to certain tax penalties. Although §5321(a)(5) provides the same exception to FBAR penalties for non-willful FBAR violations, it conspicuously does not for willful violations.

Schwarzbaum also suggests (Br. 35) that he did not understand the FBAR instructions he reviewed, but his subjective understanding of the instructions is irrelevant to the objective recklessness inquiry. And in any event, he cites no evidence that he did not understand them, and the district court implicitly found otherwise.

II. The district court correctly upheld the IRS's discretionary determination of the penalty amounts

Although Congress prescribed a maximum penalty for willful FBAR violations, it did not otherwise circumscribe the IRS's discretion to set the amount of the penalty for a particular violation. 31 U.S.C. §5321(a)(5)(C). Accordingly, the IRS's determination of an appropriate penalty amount will be set aside only if it was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” taking “due account . . . of the rule of prejudicial error,” as provided under the Administrative Procedure Act (APA), 5 U.S.C. § 706; see, e.g., Jones v. United States, No. CV 19-04950, 2020 WL 2803353, at *8 (C.D. Cal. May 11, 2020); United States v. Williams, No. 1:09-CV-00437, 2014 WL 3746497, at *1 (E.D. Va. June 26, 2014); accord United States v. Bussell, 699 F. App'x 695, 697 (9th Cir. 2017), cert. denied 138 S. Ct. 1697 (2018). This is consistent with the standard that this Court and others have used to review an agency's selection of an appropriate civil penalty in other contexts. E.g., Vidiksis v. E.P.A., 612 F.3d 1150, 1154 (11th Cir. 2010) (Toxic Substances Control Act penalties); Ninestar Tech. Co., Ltd. v. Int'l Trade Comm'n, 667 F.3d 1373, 1379 (Fed. Cir. 2012) (Tariff Act penalties); Interstate Erectors, Inc. v. Occupational Safety and Health Rev. Comm'n, 74 F.3d 223, 229 (10th Cir. 1996) (OSHA penalties).

This standard is “exceedingly deferential” to the agency. Fund for Animals, Inc. v. Rice, 85 F.3d 535, 541 (11th Cir. 1996). And “[r]egarding a penalty assessment, an agency's determination is considered to be particularly within the agency's competence.” Vidiksis, 612 F.3d at 1154 (citing Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 185 (1973); Lowe v. F.D.I.C., 958 F.2d 1526, 1534 n.30 (11th Cir. 1992)). "Only if the remedy chosen is unwarranted in law or is without justification in fact should a court attempt to intervene in the matter." Id. (quoting Am. Power & Light Co. v. SEC, 329 U.S. 90, 112-13 (1946)).

As we explain below, the IRS's decision as to the amounts of the penalties for Schwarzbaum's 2007-2009 FBAR violations was neither unwarranted in law nor without justification in fact, and the district court's decision to uphold that decision was therefore correct. Schwarzbaum's argument that the district court was required to remand the penalty assessments to the IRS (and that the IRS would somehow be time-barred on remand) lacks merit, has been waived many times over, and should be rejected.

A. The amended judgment does not “assess new penalties,” but rather upholds and enforces the IRS's penalty assessments

As a threshold matter, Schwarzbaum's argument that the district court was required to remand the penalties to the IRS rests on a gross mischaracterization of the district court's decision in this case. According to Schwarzbaum (Br. 21), “the district court determined that the IRS penalty assessments were unlawful and must be set aside,” but instead of “remand[ing] the matter to the IRS for further agency action,” the district court made an “unauthorized assessment of its own FBAR penalties against Mr. Schwarzbaum.” But Schwarzbaum ignores the fact that the district court reconsidered those initial rulings, held that “any error in the [IRS]'s [penalty] calculation” — which was the court's basis for initially setting the penalties aside — “is harmless,” and entered an amended judgment for the exact amount of the IRS's 2007-2009 penalty assessments (plus interest and late-payment penalties). (Doc. 104 at 4, 6 (emphasis added); Doc. 105.)

Thus, the district court ultimately did not set aside the penalties or assess any new or different penalties. Rather, it upheld the 2007-2009 penalties in the amounts assessed by the IRS. Indeed, the district court could do little else once it determined that the error it had identified in the IRS's penalty calculations was harmless because it is well settled that harmless errors are not a sufficient basis to set aside agency action. See 5 U.S.C. § 706; 28 U.S.C. § 2111; Nat'l Ass'n of Home Builders v. Defs. of Wildlife, 551 U.S. 644, 660 (2007); In re Watts, 354 F.3d 1362, 1369 (Fed. Cir. 2004); Ala. Hosp. Ass'n v. Beasley, 702 F.2d 955, 958 & nn.6 & 8 (11th Cir. 1983).

Schwarzbaum insists that the district court nevertheless “refused to reinstate the original assessments” and “issued new assessments” (Br. 30), but that is a nonsensical interpretation of the court's last order (Doc. 104) and amended judgment (Doc. 105). The court granted a motion to amend its original judgment and held that any error in the IRS's penalty calculations was harmless, thereby removing the only basis for its prior decision to set the penalties aside. The court did not do that only to leave in place its now-baseless prior decision and issue “new assessments” in the exact same amount as the IRS assessments. The clear effect, and necessary implication, of the district court's order and amended judgment is that the court upheld the penalties assessed by the IRS, reversing its initial decisions to set aside those penalties and assess different penalties. That the district court did not characterize its final decision in precisely those terms is irrelevant.

B. The district court correctly declined to remand the penalty assessments to the IRS

With the amended judgment properly understood as having upheld the penalties in the amounts assessed by the IRS, Schwarzbaum's only path to a remand is to defend the district court's initial determination that the IRS's penalty calculations were contrary to law, while attacking the district court's subsequent determination that any error in those calculations was harmless. But Schwarzbaum has little to say on either point (Br. 22, 26-27), and none of it carries his burden of showing prejudicial error in the IRS's determination of the penalty amounts. What's more, the little he does say was either said too late in the district court or was never said at all in any of the proceedings below. Accordingly, there is no cause to remand the IRS's discretionary determination of the amounts of Schwarzbaum's FBAR penalties.

1. The district court properly exercised its discretion in holding that Schwarzbaum waived his belated claim for remand to the IRS

This case proceeded through trial, post-trial briefing, and the district court's initial opinion before Schwarzbaum ever asked the district court to remand the penalty assessments to the IRS. He first raised that issue in his court-ordered supplemental brief, in lieu of complying with the district court's order to brief the issue of the correct penalty amounts. (Doc. 98 at 2-3.) And deeming that too late, the district court held that Schwarzbaum's argument for remand to the IRS “has not been properly raised and the Court will not consider it at this late stage.” (Id. at 3.)

That decision was well within the district court's discretion, and the issue of remand to the IRS is therefore waived and not properly before this Court. See, e.g., Norman, 942 F.3d at 1118 (trial court properly exercised its discretion in declining to consider Eighth Amendment challenge to FBAR penalty that appellant first advanced “after her opposition to the Government's summary judgment motion, after trial, and after her first post-trial submission,” and issue is therefore waived); Thomas v. Bryant, 614 F.3d 1288, 1305 (11th Cir. 2010) (collecting cases).

Moreover, Schwarzbaum never argued in the district court that the IRS actually erred in its penalty calculations, much less that any such error was prejudicial, even after the Government twice argued that the calculation error identified by the district court was harmless. So even if Schwarzbaum had not waived the issue of remand altogether by raising it too late, he could not establish that a remand is warranted because he waived any underlying argument of prejudicial error by failing to raise it in the district court at all. See, e.g., Access Now, Inc. v. Sw. Airlines Co., 385 F.3d 1324, 1331 (11th Cir. 2004).

Finally, Schwarzbaum also waived any challenge to the IRS's calculations and methodology for determining the amounts of his penalties by failing to raise such a challenge before the IRS. See, e.g., Vidiksis, 612 F.3d at 1158. As the Supreme Court has explained, “courts should not topple over administrative decisions unless the administrative body not only has erred but has erred against objection made at the time appropriate under its practice." United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 37 (1952). Accordingly, this Court has adopted the rule that “[u]nder ordinary principles of administrative law, a reviewing court will not consider arguments that a party failed to raise in timely fashion before an administrative agency.” Vidiksis, 612 F.3d at 1158 (citation omitted).

Here, Schwarzbaum protested the IRS's proposed penalty assessments to the IRS Appeals Office, submitting two lengthy letter briefs in support. But nowhere in those 62 single-spaced pages of facts and argument challenging the proposed assessments did Schwarzbaum ever contest the calculations or methodology by which the IRS had determined the amounts of the penalties. Accordingly, he should not be heard to do so now; the issue is waived.

2. Remand to the IRS is not warranted because Schwarzbaum fails to show any prejudicial error in the IRS's determination of the penalty amounts

Even if Schwarzbaum had not waived both the issue of remand and his underlying arguments, it is well established that a party seeking to set aside an agency decision must do more than identify one or more errors related thereto; the party must also show that any such errors were prejudicial. 5 U.S.C. § 706; 28 U.S.C. § 2111; Shinseki v. Sanders, 556 U.S. 396, 409 (2009); Nat'l Ass'n of Home Builders, 551 U.S. at 660; Watts, 354 F.3d at 1369. Like the district court, Schwarzbaum contends that because the statutory maximum penalty looks to the unreported account balance “at the time of the violation,” 31 U.S.C. § 5321(a)(5)(C)(i), (D)(ii), the IRS is required to “calculate its penalties based on the account balances as of June 30 of the succeeding year” (Br. 22), which was the deadline for filing an FBAR during the years at issue. And because the IRS based the calculations it made in connection with determining Schwarzbaum's penalties on the highest balance in each of his accounts during the FBAR reporting year, Schwarzbaum contends, like the district court, that the IRS erred and the penalties were not in accordance with law. (Id.)

But this Court need not decide that question because even if the IRS erred as he and the district court suggest, Schwarzbaum has made no serious attempt to carry his burden of showing that the error was prejudicial. The calculations at issue are the IRS's calculations under its internal mitigation guidelines of the “mitigated” maximum penalties for Schwarzbaum's FBAR violations.6 But the IRS decided that even those mitigated penalty amounts were excessive and declined to assess them against Schwarzbaum. Instead, it exercised its discretion to determine and assess lesser penalties. And as we showed in the district court, even if the mitigated maximums are recalculated exactly as the district court and Schwarzbaum contend they should have been (i.e., using the June 30 account balances), the penalties that the IRS actually assessed against Schwarzbaum are still lower:

 

2007

2008

2009

Total

Mitigated Maximum Penalty per IRS

$8,865,216

$13,729,591

$11,648,082

$34,242,889

Mitigated Maximum Penalty per court/Schwarzbaum

$4,498,486

$4,212,871

$4,196,595

$12,907,952

Penalty Assessed by IRS

$4,185,271

$4,185,271

$4,185,271

$12,555,813

Thus, the district court correctly (Doc. 104 at 4) held that any error in the IRS's calculation of the mitigated maximums was harmless. See Bussell, 699 F. App'x at 697 (“Because the district court reviewed Bussell's [FBAR] penalty . . . and the assessment is consistent with the limits set by Congress, Bussell has not shown that the district court erred. . . .”); Williams, 2014 WL 3746497, at *2 (departures below the statutory maximum FBAR penalty “are within the discretion of the agency”).

The burden is on Schwarzbaum to show otherwise, and he has failed to do so. Indeed, the closest he comes to even attempting to show prejudicial error is to quibble (Br. 26-27) about nonexistent inconsistencies in the recalculation adopted by the district court of the mitigated maximums using June 30 balances.7 Calculating mitigated maximums under the IRS's mitigation guidelines is merely a matter of applying account balances to mathematical formulae, a rote computation involving no discretion.8 (See Pl. Ex. 111 at 005806-07.) So if there were any actual error in the district court's recalculation, this Court can have little doubt that Schwarzbaum would have pointed it out instead of casting vague aspersions.

For example, Schwarzbaum implies error in the fact that the district court's recalculation of the mitigated maximums included “unmitigated penalties of $100,000 for all accounts with balances of $0, even though other accounts with larger account balances were subject to much lower mitigated penalties.” (Br. 27.) But he neglects to mention that his accounts with $0 balances on the June 30 FBAR filing deadline had balances totaling more than $27 million during the years for which he failed to report them. (Doc. 93 at 8-10.) And as a result, the $100,000 statutory maximum penalties for those violations (based on the June 30 balances of $0) were ineligible for any mitigation under the mitigation guidelines. (See Pl. Ex. 111 at 005807 (regarding Level IV penalties).)

Having failed to undermine the district court's determination that any error in the IRS's calculations was harmless, and having failed even to attempt any affirmative showing of harm, Schwarzbaum cannot carry his burden of showing prejudicial error in the IRS's determination of the penalty amounts. Accordingly, the amended judgment upholding Schwarzbaum's 2007-2009 FBAR penalties in the amounts assessed by the IRS should be affirmed.

C. Schwarzbaum's argument that the statute of limitations for assessing FBAR penalties would bar the IRS from complying with the mandate on a remand is meritless

After arguing at length that principles of administrative law required the district court to remand the issue of the penalty amounts to the IRS in order to protect agency discretion against judicial encroachment (Br. 24-27), Schwarzbaum reveals that he does not actually want a remand to the IRS. Rather, he wants this Court to give him a judgment excusing him from any liability for FBAR penalties whatsoever. (Br. 27, 31, 48). Treating the principles of agency remand as a convenient “gotcha” to defeat liability, Schwarzbaum contends (Br. 27-31) that a remand to the IRS would, in essence, be futile because the IRS is now time-barred from assessing any new penalties for his 2007-2009 FBAR violations.

But it is undisputed that the IRS timely assessed the penalties at issue here. And giving agencies the opportunity to fix their mistakes is the very purpose of remand. Adopting Schwarzbaum's view would effectively nullify that purpose for every agency action that is subject to a statute of limitations, transforming judicial review of such action into an all-or-nothing proposition.

It is therefore telling that he is unable to cite even a single case in which a court has held that a statute of limitations could thwart a remand to the agency under the APA. Schwarzbaum cites instead (Br. 29) a case involving a tax assessment, but FBAR penalty assessments and tax assessments are apples and oranges. Unlike FBAR penalty assessments, tax assessments are subject to de novo judicial review, are not subject to the APA, and are only an intermediate step in a statutory tax collection scheme in which “assessment” is a term of art. I.R.C. §§ 6203, 6213-6215, 6303, 6501-6503; see, e.g., Roth v. Commissioner, 922 F.3d 1126, 1131-32 (10th Cir. 2019); Chai v. Commissioner, 851 F.3d 190, 218 (2d Cir. 2017).

According to Schwarzbaum, a remand would be futile here because the district court supposedly set aside the IRS's penalty assessments for 2007-2009, and the IRS is now time-barred from making new assessments for those years. But as we have explained, the district court upheld the IRS's assessments. Moreover, the agency decision that the Court is reviewing under the APA is the IRS's decision as to the appropriate amount of the penalties.

So if a remand to the IRS were warranted in this case — which it is not — then the remand would merely be for the IRS to reconsider the amounts of the penalties that it has already assessed. See Jones, 2020 WL 2803353, at *8 (rejecting very same statute of limitations argument because any remand to the IRS “would not be [for] a new assessment of penalties, but rather a recalculation of the initial penalty”). Schwarzbaum's assumption that a remand would require the IRS to make “new” assessments is baseless; at the most, the IRS would abate some portion of the existing assessments.

III. Schwarzbaum's Eighth Amendment challenge is unavailing because the penalties assessed against him are neither “fines” nor “excessive”

The Eighth Amendment prohibits “excessive fines,” but “fines” include only payments made “as punishment for some offense.'” United States v. Bajakajian, 524 U.S. 321, 327-28 (1998) (citation omitted). And a fine violates the Excessive Fines Clause only if it is “grossly disproportional to the gravity of a [defendant's] offense.” Id. at 324. Contrary to Schwarzbaum's argument (Br. 42-48), the civil FBAR penalties assessed against him here are neither fines nor excessive.

A. The district court correctly held that civil FBAR penalties are not “fines” and are therefore not subject to the Eighth Amendment

The civil FBAR penalties assessed against Schwarzbaum are not “fines” covered by the Eighth Amendment because they are not “punishment for some offense.” Bajakajian, 524 U.S. at 328 (quotation marks omitted). In Bajakajian, the Supreme Court held that a sanction is a punishment if it is “imposed at the culmination of a criminal proceeding” and requires “conviction of an underlying” crime. Id. at 328. Those conditions are absent here — and Schwarzbaum's reliance on Bajakajian is therefore misplaced — because a civil FBAR penalty can be imposed even where, as here, the Secretary chooses not to undertake a criminal action.

Indeed, Congress separately provided criminal penalties to punish those who willfully violate FBAR requirements. 31 U.S.C. § 5322. And unlike the civil monetary penalties provided in § 5321, Congress expressly characterized the criminal monetary penalties in § 5322 as “fine[s].” Id. § 5322(a), (b); see United States v. Ward, 448 U.S. 242, 249 (1980) (“[W]here Congress has indicated an intention to establish a civil penalty, we have inquired further whether the statutory scheme was so punitive either in purpose or effect as to negate that intention. . . . [but] 'only the clearest of proof could suffice to establish the unconstitutionality of a statute on such a ground.'”).

In contrast to the punitive purpose of criminal FBAR penalties, the purpose of civil FBAR penalties is remedial, which is to say that it has the “purpose of compensating the Government for a loss.” Bajakajian, 524 U.S. at 328; cf. Bussell, 699 F. App'x at 697 (Section 5321 does not “have a punitive purpose or effect” for Ex Post Facto Clause purpose); One Lot Emerald Cut Stones & One Ring v. United States, 409 U.S. 232, 236-37 (1972) (civil forfeiture provisions, as distinct from parallel criminal provisions, are remedial for double jeopardy purposes). When it enacted the BSA, Congress called the use of “secret foreign bank account[s]” the “largest single tax loophole permitted by American law,” and one that caused the “debilitating effect[ ]” of “hundreds of millions” of dollars in lost tax revenues. H.R. Rep. No. 91-975, at 12-13 (1970), reprinted in 1970 U.S.C.C.A.N. 4394, 4397-98. Moreover, investigating secret bank accounts is time consuming and expensive. See id. at 4397. And by concealing such accounts from the Government, FBAR violations also inhibit or even prevent the Government from investigating and prosecuting crimes and other misconduct. See id.; 31 C.F.R. § 1010.301 (“The Secretary hereby determines that the [FBAR] ha[s] a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.”); United States v. Green, 457 F. Supp. 3d 1262, 1270 (S.D. Fla. 2020) (citation omitted).

The civil FBAR penalties in § 5321 serve to offset these losses to the Government and are therefore remedial, as the district court below (Doc. 98 at 15) and every other court to address the issue have recognized. Green, 457 F. Supp. 3d at 1270-71; United States v. Estate of Schoenfeld, 344 F. Supp. 3d 1354, 1369-73 (M.D. Fla. 2018); United States v. Toth, No. 15-CV-13367-ADB, 2020 WL 5549111, at *7 (D. Mass. Sept. 16, 2020). Thus, the statutory maximum civil penalty of $100,000 or 50 percent of the account balance at the time of the violation “was selected to ensure that the Government would be made completely whole.” Green, 457 F. Supp. 3d at 1271.

Schwarzbaum's contrary argument (Br. 42-43) turns on Austin v. United States, 509 U.S. 602 (1993), in which the Supreme Court held that in rem civil forfeitures can qualify as fines within the meaning of the Eighth Amendment. Id. at 606-22. Schwarzbaum contends that Austin establishes a generally applicable rule that civil penalties are fines subject to Eighth Amendment scrutiny unless they solely serve a remedial purpose. But nothing in “the Austin opinion . . . suggests that the Court intended for its Eighth Amendment analysis to extend beyond the civil forfeiture context.” Thomas v. Commissioner, 62 F.3d 97, 103 (4th Cir. 1995); see also McNichols v. Commissioner, 13 F.3d 432, 434 (1st Cir. 1993) (rejecting proposed extension of Austin to tax penalties as a “giant leap” the court was unwilling to make); Toth, 2020 WL 5549111, at *7 (following McNichols to reject extension of Austin to FBAR penalties). Indeed, the distinction between in personam penalties (like the ones at issue here) and in rem forfeitures (like the one at issue in Austin) is well established. See United States v. One Parcel Property Located at 427 and 429 Hall St., 74 F.3d 1165, 1169 (11th Cir. 1996) (collecting cases). And this Court recognized in Cole v. U.S. Department of Agriculture, 133 F.3d 803 (11th Cir. 1998), that whereas Austin “dealt with in rem civil forfeitures,” “[t]he Supreme Court has not articulated a comprehensive test to determine whether an in personam civil penalty violates the Excessive Fines Clause.” Id. at 807.

Schwarzbaum relies on the district court's acknowledgment that civil FBAR penalties also promote deterrence, but the notion that any deterrence constitutes punishment (Br. 42-45) cannot be reconciled with the Supreme Court's decision in Helvering v. Mitchell, 303 U.S. 391, 401 (1938), that civil tax penalties are remedial.9 The courts of appeals, following Mitchell, have routinely held that even very substantial civil tax penalties — such as the penalty for civil fraud, which constitutes 75 percent of the tax not paid as a result of fraud, I.R.C. § 6663(a) — are not fines within the meaning of the Eighth Amendment. See, e.g., Kitt v. United States, 277 F.3d 1330, 1337 (Fed. Cir. 2002); Louis v. Commissioner, 170 F.3d 1232, 1236 (9th Cir. 1999); Little v. Commissioner, 106 F.3d 1445, 1454-55 (9th Cir. 1997); Thomas, 62 F.3d 97; McNichols, 13 F.3d 432; see also In re Wyly, 552 B.R. 338, 609-13 (Bankr. N.D. Tex. 2016) (more than $427 million in penalties for failure to disclose foreign trusts not fines and, in any event, not excessive). And although the civil FBAR penalty is not a Title 26 “tax” penalty, it is more analogous to a nonpunitive tax penalty than to the criminal and civil forfeitures tied to criminal convictions that were at issue in Bajakajian and Austin.

B. Even if the Eighth Amendment applied, the penalties that the IRS assessed against Schwarzbaum are not constitutionally “excessive”

In addressing excessiveness challenges, the courts of appeals consider factors used by the Supreme Court in Bajakajian to determine whether a fine is grossly disproportionate: the amount of the penalty authorized by Congress; the class of persons for whom the statute at issue was principally designed; the seriousness of the offense and the harm it caused; and a comparison with the potential criminal penalties, including imprisonment. See, e.g., United States v. Viloski, 814 F.3d 104, 110-11 (2d Cir. 2016); United States v. $132,245.00 in U.S. Currency, 764 F.3d 1055, 1058 (9th Cir. 2014); United States v. Cheeseman, 600 F.3d 270, 283-84 (3d Cir. 2010). The burden of proof rests on Schwarzbaum to show that the penalty is excessive under these factors. E.g., Viloski, 814 F.3d at 109; $132,245.00 in U.S. Currency, 764 F.3d at 1058; Cheeseman, 600 F.3d at 283. Schwarzbaum fails to carry that burden.

The sole court of appeals to decide an Eighth Amendment challenge to a willful FBAR penalty did not reach the question whether the penalty was a “fine” because it held that the penalty was not excessive regardless. In Bussell, 699 F. App'x at 696, the Ninth Circuit considered the constitutionality of “an approximately $1.2 million penalty” imposed against an account holder for failing to file an FBAR for calendar year 2006. That penalty represented half of the account balance — i.e., the statutory maximum. See Br. for the Appellee, United States v. Bussell (9th Cir. No. 16-55272), 2016 WL 7046939, at *8 (Dec. 2016). The Ninth Circuit upheld the penalty as “not grossly disproportional to the harm she caused because Bussell defrauded the government and reduced public revenues.” Bussell, 699 F. App'x at 696.

The district courts that have addressed the issue have likewise upheld FBAR penalties against excessiveness challenges (without holding that FBAR penalties are “fines”). For example, the district court in Toth, 2020 WL 5549111, at *2, *8-*9, held that a willful FBAR penalty of $2,173,703 — 50 percent of an account's $4,347,407 balance — was not “excessive” under the Eighth Amendment. The district court in United States v. Garrity, No. 3:15-CV-243(MPS), 2019 WL 1004584, at *1, *6-*9 (D. Conn. Feb. 28, 2019), held likewise as to a willful FBAR penalty of $936,691 that was 50 percent of an account's $1,873,382 balance. In Schoenfeld, 344 F. Supp. 3d at 1359, 1375, the district court held that a willful FBAR penalty in the amount of “$614,300 — 50 percent of [an] account's $1,228,600 balance” — was not “excessive.” And the court in Crawford v. U.S. Department of the Treasury, No. 3:15-cv-250, 2015 WL 5697552, at *16 (S.D. Ohio Sept. 29, 2015), rejected a facial challenge to the FBAR penalty, holding that “[a] maximum penalty fixed by Congress is due substantial deference from the courts” and that “the maximum penalty” in § 5321(a)(5)(C) “will be constitutional in at least some circumstances.”

Here, it is undisputed that the penalties the IRS assessed against Schwarzbaum are below the statutory maximum, and even below the mitigated maximum under the IRS's non-binding mitigation guidelines. Applying the Bajakajian factors to those penalties confirms that they are not constitutionally excessive. As an initial matter, acts of Congress are entitled to a strong presumption of constitutionality, e.g., United States v. Nat'l Dairy Prods. Corp., 372 U.S. 29, 32 (1963), and the Supreme Court emphasized in Bajakajian that “judgments about the appropriate punishment for an offense belong in the first instance to the legislature,” 524 U.S. at 336. The courts therefore give substantial deference to legislative judgments regarding the appropriate penalty. See, e.g., $132,245.00 in U.S. Currency, 764 F.3d at 1058; United States v. $134,750 U.S. Currency, 535 F. App'x 232, 240 (4th Cir. 2013); Collins v. SEC, 736 F.3d 521, 527 (D.C. Cir. 2013); United States v. Chaplin's, Inc., 646 F.3d 846, 851 (11th Cir. 2011); Crawford, 2015 WL 5697552, at *16.

Since the penalties assessed against Schwarzbaum fall within the congressionally prescribed range, see 31 U.S.C. § 5321(a)(5)(C), they are presumptively constitutional. See Qwest Corp. v. Minn. Pub. Utils. Comm'n, 427 F.3d 1061, 1069 (8th Cir. 2005); Kelly v. U.S. EPA, 203 F.3d 519, 524 (7th Cir. 2000); Pharaon v. Bd. of Governors of Fed. Rsrv. Sys., 135 F.3d 148, 157 (D.C. Cir. 1998). Schwarzbaum argues (Br. 45) that he made the Government whole merely by paying the taxes he had avoided for years by failing to report the existence of his foreign accounts. But as we have explained, the harms of secret foreign accounts and willful FBAR violations reach well beyond the tax loss.

Indeed, Congress based the willful FBAR penalty on the account balance and not the tax loss, reflecting a judgment that the harm to the Government increases with the size of the account balance, irrespective of the size of the tax loss. Green, 457 F. Supp. 3d at 1271; see Chaplin's, Inc., 646 F.3d at 852 (“Congress . . . can distill the monetary value society places on harmful conduct”); United States v. Sperrazza, 804 F.3d 1113, 1128 (11th Cir. 2015) (acknowledging harm from structuring beyond direct financial loss); United States v. Mackby, 339 F.3d 1013, 1019 (9th Cir. 2003) (harm of false claims “extends beyond the money paid out of the treasury”). The size of Schwarzbaum's penalties (about $12.5 million in total) is a reflection of that congressional judgment, notwithstanding Schwarzbaum's efforts (Br. 47) to cast doubt on their proportionality. See supra pp. 51-52.

Further, Schwarzbaum falls squarely within a class of individuals targeted by the BSA — i.e., Americans who avoid their tax obligations by holding income or assets in undisclosed foreign bank accounts. Both when Congress enacted the BSA in 1970 and when it increased FBAR penalties in 2004, one of its objects was to combat tax avoidance using offshore bank accounts. See H.R. Rep. No. 91-975, at 12-13 (1970), reprinted in 1970 U.S.C.C.A.N. at 4397-98; S. Rep. No. 108-192, at 108 (2003). That is precisely the activity in which Schwarzbaum engaged.

Although Schwarzbaum seeks to downplay the seriousness of his actions and the harm he caused (Br. 45-48), those factors too weigh against a finding of excessiveness. When it enacted the BSA, Congress explained that “secret foreign bank accounts” had enabled the proliferation of crime, including tax evasion, securities violations, and fraud, H.R. Rep. No. 91-975, at 12, reprinted in 1970 U.S.C.C.A.N. at 4397-98, and when it increased the maximum civil FBAR penalty, Congress found that improving compliance was “vitally important,” S. Rep. No. 108-192, at 108. In addition, as shown above, Schwarzbaum acted willfully — which means that his actions fall into the more serious category of FBAR violations. And there can be no question that his willful failures to disclose his foreign accounts “reduced public revenues,” Bussell, 699 F. App'x at 696, and harmed the integrity of the tax system. Schwarzbaum's assertions that his conduct is less culpable than others' and his complaints about the total amount of his penalties (while failing to acknowledge that the IRS could have imposed even larger penalties without exceeding the statutory maximum) do not make the penalties unconstitutionally excessive.

Finally, Schwarzbaum's penalties are not excessive when compared with the potential criminal sanctions for his actions. Those sanctions include imprisonment of up to five years in addition to a fine of up to $250,000 for an FBAR offense standing alone (and double that if there are other violations or a pattern of illegal activity). 31 U.S.C. §5322(a)-(b). That is much more serious than even the maximum civil penalty permitted by § 5321(a)(5)(C). All of the Bajakajian factors therefore weigh heavily against Schwarzbaum's contention that the penalties assessed against him violate the Eighth Amendment.

CONCLUSION

The amended judgment of the district court should be affirmed.

Respectfully submitted,

DAVID A. HUBBERT
Deputy Assistant Attorney General

FRANCESCA UGOLINI (202) 514-1882
CLINT A. CARPENTER (202) 514-4346
Attorneys
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044
Appellate.TaxCivil@usdoj.gov
Clint.A.Carpenter@usdoj.gov

Of Counsel:
Ariana Fajardo Orshan
United States Attorney

JANUARY 2021

FOOTNOTES

1Cases or authorities chiefly relied upon have asterisks.

2“Doc.” references are to the documents contained in the record on appeal, as numbered by the clerk of the district court. “Ex.” references are to the exhibits admitted at trial.

3For simplicity, our brief generally refers to the statutory and regulatory reporting requirements as the “FBAR requirements” or “FBAR obligations,” to violations of those requirements as “FBAR violations,” and to the penalties for such violations as “FBAR penalties.”

4Although this Court has yet to address this issue, it is pending not only in this case, but also in United States v. Rum, 11th Cir. No. 19-14464-HH, which is scheduled for oral argument on February 11, 2021.

5In a seemingly inadvertent omission, the district court did not directly address Schwarzbaum's 2008 Schedule B, so we have cited the copy of that document in the record.

6Although we disagree that Schwarzbaum reasonably relied on any such advice, we elected not to pursue our cross-appeal of the district court's finding of non-willfulness for 2006.

7The IRS's mitigation guidelines are contained in the Internal Revenue Manual, which is a non-binding compilation of internal procedures for IRS examiners. A copy of the mitigation guidelines that were in effect when the IRS decided the amount of Schwarzbaum's penalties are in the record at Pl. Ex. 111 at 005806-07.

8He also erroneously asserts (Br. 26-27) that the district court “assessed” the mitigated maximums that it recalculated. As we have shown, although the district court initially purported to do just that, the court reconsidered after realizing that any error in the IRS's calculation was harmless and upheld IRS's penalty assessments.

9The IRS's discretion lies in its decisions whether to use the mitigation guidelines, and whether to either impose the mitigated maximum calculated thereunder or determine that a different penalty amount is more appropriate under the facts and circumstances.

*“[A]ll civil penalties have some deterrent effect,” Hudson v. United States, 522 U.S. 93, 102 (1997), but the fact “[t]hat a statute serves to deter future conduct does not automatically render it punitive,” Garner v. U.S. Dep't of Labor, 221 F.3d 822, 827 (5th Cir. 2000).

END FOOTNOTES

DOCUMENT ATTRIBUTES
  • Case Name
    United States v. Isac Schwarzbaum
  • Court
    United States Court of Appeals for the Eleventh Circuit
  • Docket
    No. 20-12061
  • Institutional Authors
    U.S. Department of Justice
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2021-3091
  • Tax Analysts Electronic Citation
    2021 TNTI 17-24
    2021 TNTF 17-21
    2021 TNTG 17-27
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