Government Sues CPA for Failure to File FBAR

UNITED STATES OF AMERICA,
Plaintiff,
v.
KENNETH G. KRONOWITZ,
Defendant.

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF FLORIDA
FORT LAUDERDALE DIVISION

COMPLAINT

The United States of America brings this action to collect outstanding civil penalties assessed against Defendant Kenneth G. Kronowitz (“Kronowitz”) for his willful failure to timely report his financial interest in foreign bank accounts, as required by 31 U.S.C. § 5314 and its implementing regulations. The United States also seeks to collect accrued interest on such penalties, late payment penalties and associated fees.

JURISDICTION AND VENUE

1. The United States brings this suit under 31 U.S.C. §§ 5321(b)(2) and 3711(g)(4)(C), at the direction of a delegate of the Attorney General of the United States and at the request of, and with the authorization of, a delegate of the Secretary of the Treasury of the United States.

2. The Court has jurisdiction over this action under 28 U.S.C. §§ 1331, 1345, and 1355 because it arises under a federal statue, the United States is the plaintiff, and the action seeks recovery of civil penalties.

3. Venue is proper in this district under 28 U.S.C § 1391(c)(1) because, upon information and belief, Kronowitz is domiciled in this district as he resides in Cooper City, Broward County, Florida.

REGULATORY BACKGROUND REGARDING
THE DUTY TO REPORT FOREIGN FINANCIAL ACCOUNTS

4. Section 5314 of Title 31 of the U.S. Code authorizes the Secretary of the Treasury to require United States citizens to report certain transactions with foreign financial agencies. Under the statute's implementing regulations, “[e]ach person subject to the jurisdiction of the United States . . . having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country shall report such relationship to the Commissioner of Internal Revenue for each year in which such a relationship exists.” 31 C.F.R § 103.24(a) (2010).

5. To fulfill this requirement, a person must file a Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR.” See id. An FBAR requires the taxpayer to disclose, among other things, the maximum value of each foreign account during the calendar year reported, the type of account, the name of the financial institution in which the account is held, the account number, and the mailing address of the financial institution in which the account is held. See Form TD F 90-22.1.

6. Schedule B is an attachment to the individual federal income tax return (Form 1040) that is used for reporting, among other things, interest and dividend income, as well as any financial interest in, or signature or other authority, over financial accounts located in foreign countries. Schedule B refers to the FBAR filing requirement and alerts the taxpayer that if he or she had an interest in, or signature or other authority, over a financial account located in a foreign country the taxpayer should see the instructions for Form TD F 90-22.1 (FBAR).

7. Section 5321(a)(5) of Title 31 authorizes the imposition of civil penalties for willful failure to comply with the reporting requirements of § 5314. Specifically, § 5321(a)(5)(C) provides for a maximum willful penalty equal to the greater of $100,000 or 50% of the balance in the account at the time of the violation.

8. An assessed penalty under 31 U.S.C § 5321(a)(5)(C) is subject to interest and further penalties pursuant to 31 U.S.C. § 3717.

FACTUAL BACKGROUND

9. Kronowitz was born in the United States and is a United States citizen. Kronowitz was a licensed Certified Public Accountant (“CPA”) from 1962 to 2018 and prepared tax returns for both individuals and corporate entities as the primary function of his business. Kronowitz's CPA licensure in the State of Florida expired in 2018.

10. Kronowitz self-prepared his tax returns for years 2005 through 2010.

Kronowitz's Foreign Financial Accounts

11. From 2005 through 2010, Kronowitz held a financial interest and possessed signature authority over accounts at various overseas financial institutions:

Account Name	Account Owner	Location	Date Opened	Date Closed
Republic 0880	KG and SM Kronowitz	Cayman Islands	Open as of 2005	Open as of 2014
Republic 4300	Capistrano Ltd.	Cayman Islands	2001	Open as of 2014
UBS 7227	Cramo Foundation	Switzerland	October 10, 2005	2009
Basler 693	Cramo Foundation	Switzerland	2008	2010

12. From 2005 through 2009, Kronowitz had control of, and a beneficial interest in, two bank accounts in the Cayman Islands at Republic Bank Limited. One account was held in the name of KG & SM Kronowitz and the other was held in the name “Capistrano Ltd.” Kronowitz was a named financial beneficiary, and held signature authority, over the accounts.

13. From 2005 through 2009, Kronowitz owned and controlled an account at the United Bank of Switzerland (“UBS”). The account was held in the name of “Cramo Foundation” which is a Liechtenstein Stiftung (a private foundation/legal entity whose earnings on assets are used to pursue a specific purpose set by the founder). Kronowitz was the beneficiary of the foundation's proceeds. This account was maintained in Switzerland.

14. In 2009, the money held in the UBS 7727 account was transferred to an account Kronowitz owned and controlled at Basler Kantonalbank. This account was also maintained in the name of “Cramo Foundation” in Switzerland.

15. For calendar year 2005:

a. The Internal Revenue Service (“IRS”) examined Kronowitz's tax return and determined that he had a financial interest in foreign accounts with the following maximum balances:

Account	Maximum Net Balance
Republic 0880	$1,924.33
Republic 4300	$604,460.57
UBS 7227	$934,061.00
Maximum Total	$1,540,445.90

b. Kronowitz did not disclose his financial interest in the foreign accounts in a Schedule B to his 2005 Form 1040 or in an FBAR.

16. For calendar year 2006:

a. The IRS examined Kronowitz's tax return and determined that he had a financial interest in foreign accounts with the following maximum balances:

Account	Maximum Net Balance
Republic 0880	$1,880.84
Republic 4300	$527,787.06
UBS 7227	$946,575.46
Max Total	$1,476,243.36

b. Kronowitz did not disclose his financial interest in the foreign accounts in a Schedule B to his 2006 Form 1040 or in an FBAR.

17. For calendar year 2007:

a. The IRS examined Kronowitz's tax return and determined that he had a financial interest in foreign accounts with the following maximum balances:

Account	Maximum Net Balance
Republic 0880	$1,615.84
Republic 4300	$527,070.47
UBS 7227	$924,356.46
Max Total	$1,453,042.77

b. Kronowitz did not disclose his financial interest in the foreign accounts in a Schedule B to his 2007 Form 1040 or in an FBAR.

18. For calendar year 2008:

a. The IRS examined Kronowitz's tax returns and determined that he had a financial interest in foreign accounts with the following maximum balances:

Account	Maximum Net Balance
Republic 0880	$1,615.84
Republic 4300	$132,098.36
UBS 7227	$637,194.68
Max Total	$770,908.88

b. Kronowitz was required to disclose his financial interest in the foreign accounts in a Schedule B to his 2008 Form 1040. While Kronowitz filed a Schedule B in 2008, in response to the following question: “[a]t any time during 2008, did you have an interest in or signature or other authority over a financial account in a foreign country, such as a bank account, securities account or other financial account?” Kronowitz incorrectly marked “No.”

c. Further, Kronowitz did not file a required FBAR for 2008.

19. For calendar year 2009:

a. The IRS examined of Kronowitz's tax return and determined that he had a financial interest in foreign accounts with the following maximum balances:

Account	Maximum Net Balance
Republic 0880	$1,495.84
Republic 4300	$453,659.43
Basler 693	$314,975.90
Max Total	$770,131.17

b. Kronowitz did not disclose his financial interest in the foreign accounts in a Schedule B to his 2009 Form 1040 or in an FBAR.

20. For calendar year 2010:

a. The IRS examined Kronowitz's tax return and determined that he had a financial interest in foreign accounts with the following maximum balances:

Account	Maximum Net Balance
Republic 0880	$1,375.84
Republic 4300	$719,222.91
Max Total	$720,598.75

b. Kronowitz did not disclose his financial interest in the foreign accounts in a Schedule B to his 2010 Form 1040 or in an FBAR.

Kronowitz's Failure to Timely Report His Interest in Foreign Financial Accounts

21. Kronowitz was required to file an FBAR reporting his financial interests in the foreign accounts by June 30 of the following year. Kronowitz did not timely file an FBAR for years 2005 through 2010.

22. On information and belief, Kronowitz knew of his obligation to file an FBAR for years 2005 through 2010.

23. In the alternative to paragraph 22, Kronowitz recklessly avoided learning of his reporting requirements.

24. From 2006 through 2008, Kronowitz was required to file a Schedule B to his Form 1040 return due to his receipt of interest in excess of $1,500 and because of his beneficial interest in a foreign account. Except for 2008, he failed to comply with this requirement.

25. For years 2005, 2009 and 2010, Kronowitz was required to file a Schedule B with his Form 1040 Tax Returns because of his interest in foreign accounts.

26. Kronowitz knew, or should have known, of his obligation to file a Schedule B with his Form 1040 tax returns.

27. Kronowitz's failure to file an FBAR for years 2005 through 2010 was willful.

Actions to Enforce Kronowitz's Willful Failure to Comply with FBAR Requirements

28. On February 11, 2017, Kronowitz, through his counsel of record at the time, consented to extend the statute of limitations for the assessment of FBAR penalties for years 2005 through 2010 to June 30, 2018.

29. As detailed separately below, on November 1, 2017, Kronowitz was assessed penalties for willfully failing to file FBARs for each year between 2005 and 2010.

30. In total, the assessed penalty for years 2005 through 2010 was $663,771.00. Since that time, penalties and interest have accumulated. As of October 18, 2019, the total owed amount, including interest and assessed penalty fees, is $753,680.37.

31. On November 3, 2017, a delegate of the Secretary of the Treasury sent Kronowitz notices of assessment of FBAR penalties for each year between 2005 and 2010. The notice also demanded payment for each year. Kronowitz failed to comply with this demand.

CLAIMS FOR RELIEF

Count I
(Reduce 2005 FBAR Penalty to Judgment Pursuant to 31 U.S.C. § 5321(a)(5))

32. In 2005, Kronowitz had a financial interest in, and signature authority over, at least three foreign accounts in which the maximum aggregate balance exceeded $10,000. See ¶15. Kronowitz did not timely file an FBAR, or a required schedule B, for 2005.

33. On November 1, 2017, a delegate of the Secretary of the Treasury, under 31 U.S.C § 5321, timely assessed against Kronowitz a total penalty of $141,667.00 because of his willful failure to timely file a 2005 FBAR that disclosed his interest in foreign bank accounts.

34. Despite the notice and demand for payment, Kronowitz failed to pay the penalties assessed against him. As a result, he owes $141,667.00 for the willful FBAR penalty for 2005, plus interest and failure to pay penalty under 31 U.S.C. § 3717, and associated fees. Interest and statutory additions continue to accrue.

Count II
(Reduce 2006 FBAR Penalty to Judgment Pursuant to 31 U.S.C. § 5321(a)(5))

35. In 2006, Kronowitz had a financial interest in, and signature authority over, at least three foreign accounts in which the maximum aggregate balance exceeded $10,000. See ¶16. Kronowitz did not timely file an FBAR, or a required schedule B, for 2006.

36. On November 1, 2017, a delegate of the Secretary of the Treasury, under 31 U.S.C § 5321, timely assessed against Kronowitz a total penalty of $140,066.00 because of his willful failure to timely file a 2006 FBAR that disclosed his interest in foreign bank accounts.

37. Despite the notice and demand for payment, Kronowitz failed to pay the penalties assessed against him. As a result, he owes $140,066.00 for the willful FBAR penalty for 2006, plus interest and a failure to pay penalty under 31 U.S.C. § 3717, and associated fees. Interest and statutory additions continue to accrue.

Count III
(Reduce 2007 FBAR Penalty to Judgment Pursuant to 31 U.S.C. § 5321(a)(5))

38. In 2007, Kronowitz had a financial interest in, and signature authority over, at least three foreign accounts in which the maximum aggregate balance exceeded $10,000. See ¶17. Kronowitz did not timely file an FBAR, or a required schedule B, for tax year 2007.

39. On November 1, 2017, a delegate of the Secretary of the Treasury, under 31 U.S.C § 5321, timely assessed against Kronowitz a total penalty of $145,063.00 because of his willful failure to timely file a 2007 FBAR that disclosed his interest in foreign bank accounts.

40. Despite the notice and demand for payment, Kronowitz failed to pay the penalties assessed against him. As a result, he owes $145,063.00 for the willful FBAR penalty for 2007, plus interest and a failure to pay penalty under 31 U.S.C. § 3717, and associated fees. Interest and statutory additions continue to accrue.

Count IV
(Reduce 2008 FBAR Penalty to Judgment Pursuant to 31 U.S.C. § 5321(a)(5))

41. In 2008, Kronowitz had a financial interest in, and signature authority over, at least three foreign accounts in which the maximum aggregate balance exceeded $10,000. See ¶18. Kronowitz did not timely file an FBAR, and filed an incorrect schedule B, for 2008.

42. On November 1, 2017, a delegate of the Secretary of the Treasury, under 31 U.S.C § 5321, timely assessed against Kronowitz a total penalty of $76,781.00 because of his willful failure to timely file a 2008 FBAR that disclosed his interest in foreign bank accounts.

43. Despite the notice and demand for payment, Kronowitz failed to pay the penalties assessed against him. As a result, he owes $76,781.00 for the willful FBAR penalty for 2008, plus interest and a failure to pay penalty under 31 U.S.C. § 3717, and associated fees. Interest and statutory additions continue to accrue.

Count V
(Reduce 2009 FBAR Penalty to Judgment Pursuant to 31 U.S.C. § 5321(a)(5))

44. In 2009, Kronowitz had a financial interest in, and signature authority over, at least three foreign accounts in which the maximum aggregate balance exceeded $10,000. See ¶19. Kronowitz did not timely file an FBAR, or a required schedule B, for 2009.

45. On November 1, 2017, a delegate of the Secretary of the Treasury, under 31 U.S.C § 5321, timely assessed against Kronowitz a total penalty of $82,504.00 because of his willful failure to timely file a 2009 FBAR that disclosed his interest in foreign bank accounts.

46. Despite the notice and demand for payment, Kronowitz failed to pay the penalties assessed against him. As a result, he owes $82,504.00 for the willful FBAR penalty for 2009, plus interest and a failure to pay penalty under 31 U.S.C. § 3717, and associated fees. Interest and statutory additions continue to accrue.

Count VI
(Reduce 2010 FBAR Penalty to Judgment Pursuant to 31 U.S.C. § 5321(a)(5))

47. In 2010, Kronowitz had a financial interest in, and signature authority over, at least two foreign accounts in which the maximum aggregate balance exceeded $10,000. See ¶20. Kronowitz did not timely file an FBAR, or a required schedule B, for 2010.

48. On November 1, 2017, a delegate of the Secretary of the Treasury, under 31 U.S.C § 5321, timely assessed against Kronowitz a total penalty of $77,690.00 because of his willful failure to timely file a 2010 FBAR that disclosed his interest in foreign bank accounts.

49. Despite the notice and demand for payment, Kronowitz failed to pay the penalties assessed against him. As a result, he owes $77,690.00 for the willful FBAR penalty for 2010, plus interest and a failure to pay penalty under 31 U.S.C. § 3717, and associated fees. Interest and statutory additions continue to accrue.

WHEREFORE, the United States of America requests that the Court:

A. Enter judgment against Kenneth G. Kronowitz and in favor of the United States as to Counts I through VI in the amount of $753,680.29 for the FBAR penalties assessed against him for calendar years 2005 through 2010 under 31 U.S.C. § 5321(a)(5) and the late payment penalties assessed against him pursuant to 31 U.S.C. § 3717(e)(2) including further interest and statutory additions thereon as allowed by law to the date of payment. This amount is based upon the original assessment of $663,771.00 and includes accrued interest and penalties through October 18, 2019; and

B. Award the United States its costs incurred in connection with this action, along with such other relief as justice requires.

Dated: October 23, 2019

Respectfully submitted,

RICHARD E. ZUCKERMAN
Principal Deputy Assistant Attorney General

CONOR PATRICK DESMOND
DC Bar No. 1531356
Special Fla Bar. No. A5502587
Trial Attorney, Tax Division
U.S. Department of Justice
P.O. Box 14198
Washington, D.C. 20044
202-616-1857 (v)
202-514-4963 (f)
Conor.P.Desmond@usdoj.gov

Of counsel:
Ariana Fajardo Orshan
United States Attorney
Southern District of Florida