Government Urges Fourth Circuit to Affirm FBAR Penalty Decision

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

IN THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND

BRIEF FOR THE APPELLEE

RICHARD E. ZUCKERMAN
Principal Deputy Assistant Attorney General

TRAVIS A. GREAVES
Deputy Assistant Attorney General

GILBERT S. ROTHENBERG (202) 514-3361
FRANCESCA UGOLINI (202) 514-1882
DOUGLAS C. RENNIE (202) 305-7546
Attorneys
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044

Of Counsel:
ROBERT K. HUR
United States Attorney

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TABLE OF CONTENTS

Table of contents

Table of authorities

Statement of jurisdiction

Statement of the issues

Statement of the case

Summary of argument

Argument:

The District Court correctly granted summary judgment to the Government in relevant part

Conclusion

Statement regarding oral argument

Certificate of compliance

Certificate of service

TABLE OF AUTHORITIES

Cases:

Aerolineas Argentinas v. United States, 77 F.3d 1564 (Fed. Cir. 1996)

Allnutt v. Commissioner, 523 F.3d 406 (4th Cir. 2008)

Am. Arms Int'l v. Herbert, 563 F.3d 78 (4th Cir. 2009)

Badaracco v. Commissioner, 464 U.S. 386 (1984)

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

In re Becker, 407 F.3d 89 (2d Cir. 2005)

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

Bufferd v. Commissioner, 506 U.S. 523 (1993)

Matter of Bugge, 99 F.3d 740 (5th Cir. 1996)

California ex rel. State Lands Comm'n v. United States, 457 U.S. 273 (1982)

Connecticut Office of Prot. & Advocacy for Persons with Disabilities v. Hartford Bd. of Educ., 464 F.3d 229 (2d Cir. 2006)

Consol. Edison Co. of N.Y. v. United States, 221 F.3d 364 (2d Cir. 2000)

Crompton-Richmond Co. v. United States, 311 F. Supp. 1184 (S.D.N.Y. 1970)

Erwin v. United States, 591 F.3d 313 (4th Cir. 2010)

Farmer v. Brennan, 511 U.S. 825 (1994)

Farrell v. United States, 313 F.3d 1214 (9th Cir. 2002)

Gonzales v. Oregon, 546 U.S. 243 (2006)

Goodman v. Praxair, Inc., 494 F.3d 458 (4th Cir. 2007)

Greer v. Commissioner, 595 F.3d 338 (6th Cir. 2010)

Hayman v. Commissioner, 992 F.2d 1256 (2d Cir. 1993)

Helm v. Kansas, 656 F.3d 1277 (10th Cir. 2011)

Helvering v. Safe Deposit & Tr. Co. of Baltimore, 95 F.2d 806 (4th Cir. 1938)

Island Creek Ky. Mining v. Ramage, 737 F.3d 1050 (6th Cir. 2013)

Jardin De Las Catalinas Ltd. P'ship v. Joyner, 766 F.3d 127 (1st Cir. 2014)

Johnson v. United States, 50 F. App'x 113 (4th Cir. 2002)

Johnson v. United States, 734 F.3d 352 (4th Cir. 2013)

Kimble v. United States, 141 Fed. Cl. 373 (2018), appeal filed, No. 19-1590 (Fed. Cir.)

Knochelmann v. Commissioner, 455 F. App'x 536 (6th Cir. 2011)

Kroyer v. United States, 55 F.2d 495 (Ct. Cl. 1932)

Lefcourt v. United States, 125 F.3d 79 (2d Cir. 1997)

Leonhart v. Commissioner, 414 F.2d 749 (4th Cir. 1969)

Levin v. Commissioner, 986 F.2d 91 (4th Cir. 1993)

Lyon v. United States, 68 F. App'x 461 (4th Cir. 2003)

Mach Mining, LLC v. EEOC, 135 S. Ct. 1645 (2015)

Miller v. United States, 949 F.2d 708 (4th Cir. 1991)

Moore v. Harris, 623 F.2d 908 (4th Cir. 1980)

Nat'l R.R. Passenger Corp. v. Morgan, 536 U.S. 101 (2002)

Newbill v. United States, 441 F. App'x 184 (4th Cir. 2011)

Norman v. United States, 138 Fed. Cl. 189 (2018), appeal filed, No. 18-2408 (Fed. Cir.)

Orquera v. Ashcroft, 357 F.3d 413 (4th Cir. 2003)

Plett v. United States, 185 F.3d 216 (4th Cir. 1999)

Posey v. United States, 449 F.2d 228 (5th Cir. 1971)

Prino v. Simon, 606 F.2d 449 (4th Cir. 1979)

R & W Flammann GmbH v. United States, 339 F.3d 1320 (Fed. Cir. 2003)

Ragsdale v. Wolverine World Wide, Inc., 535 U.S. 81 (2002)

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

Scofield v. Lewis, 251 F.2d 128 (5th Cir. 1958)

Shaw v. AutoZone, Inc., 180 F.3d 806 (7th Cir. 1999)

Shockley v. Commissioner, 686 F.3d 1228 (11th Cir. 2012)

Simon v. United States, 261 F. Supp. 2d 567 (M.D. La. 2003)

Skouras v. United States, 26 F.3d 13 (2d Cir. 1994)

Sorenson v. United States, 521 F.2d 325 (9th Cir. 1975)

Stone v. Univ. of Md. Med. Sys. Corp., 855 F.2d 167 (4th Cir. 1988)

Umbach v. Commissioner, 357 F.3d 1108 (10th Cir. 2003)

United Dominion Indus., Inc. v. United States, 532 U.S. 822 (2001)

United States v. Abuagla, 336 F.3d 277 (4th Cir. 2003)

United States v. Bloom, 112 F.3d 200 (5th Cir. 1997)

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

United States v. California, 332 U.S. 19 (1947)

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

United States v. Doherty, 233 F.3d 1275 (11th Cir. 2000)

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

United States v. Flume, No. 5:16-CV-73 (S.D. Tex. June 11, 2019)

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

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

United States v. Jackson, 511 F. App'x 200 (3d Cir. 2013)

United States v. Jinwright, 683 F.3d 471 (4th Cir. 2012)

United States v. Kelley-Hunter, 281 F. Supp. 3d 121 (D.D.C. 2017)

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

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

United States v. Park, No. 16 C 10787, 2019 WL 2248544 (N.D. Ill. May 24, 2019)

United States v. Paul, 23 F.3d 365 (11th Cir. 1994)

United States v. Pomerantz, No. C16-689 MJP, 2017 WL 4418572 (W.D. Wash. Oct. 5, 2017), appeal dismissed, No. 17-35812, 2017 WL 6879994 (9th Cir. Nov. 16, 2017)

United States v. Poole, 640 F.3d 114 (4th Cir. 2011)

United States v. Samara, 643 F.2d 701 (10th Cir. 1981)

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

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

United States v. Wall, 670 F.2d 469 (4th Cir. 1982)

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

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

United States v. Wingfield, 822 F.2d 1466 (10th Cir. 1987)

William v. Gonzales, 499 F.3d 329 (4th Cir. 2007)

Statutes:

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

28 U.S.C.:

31 U.S.C.:

American Jobs Creation Act of 2004, Pub. L. No. 108-357, § 821(a), 118 Stat. 1418, 1586

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

Federal Civil Penalties Inflation Adjustment Act, Pub. Law No. 101-410, § 3(2), 104 Stat. 890 (Oct. 5, 1990)

USA Patriot Act, Pub. L. No. 107-56, § 361(b), 115 Stat. 272, 332 (2001)

Regulations:

Treasury Regulations (26 C.F.R.):

31 C.F.R.:

Amendments to Implementing Regulations; the Bank Secrecy Act, 51 Fed. Reg. 30233-01 (Aug. 25, 1986)

Amendments to Implementing Regulations Under the Bank Secrecy Act, 52 Fed. Reg. 11436-01 (Apr. 8, 1987)

Amendment to the Bank Secrecy Act Regulations — Reports of Foreign Financial Accounts, 75 Fed. Reg. 8844-01 (Feb. 26, 2010)

Civil Monetary Penalty Adjustment and Table, 81 Fed. Reg. 42503-01 (June 30, 2016)

Miscellaneous:

Department of the Treasury, “Memorandum of Agreement and Delegation of Authority for Enforcement of FBAR Requirements” (Apr. 2, 2003), available at Internal Revenue Manual Exhibit 4.26.1-2, https://www.irs.gov/irm/part4/irm_04-026-001

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

Fed. R. Civ. P. 1

H.R. Rep. No. 91-975 (1970), reprinted in 1970 U.S.C.C.A.N. 4394

Internal Revenue Manual 4.26.16.4.5.1(4), 2008 WL 5900930 (July 1, 2008)

Internal Revenue Manual 4.63.3.1(1), 2007 WL 9703580 (Jan. 24, 2018)

Internal Revenue Manual 8.11.6.1(6), 2013 WL 8003415 (Oct. 28, 2013)

USCA4 Appeal: 19-1280Doc: 44Filed: 06/20/2019Pg: 12 of 82

Joint Comm. on Taxation, General Explanation of Tax Legislation Enacted in the 108th Congress, JCS-5-05 NO 32 (I.R.S.), 2005 WL 5783636 (May 2005)

OMB, Memorandum for the Heads of Executive Departments and Agencies 2 (Feb. 24, 2016), http://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2016/m-16-06.pdf

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

Secretary of the Treasury, A Report to Congress 6 (Apr. 26, 2002),
https://www.treasury.gov/press-center/press-releases/Documents/fbar.pdf

Secretary of the Treasury, A Report to Congress 4 (Apr. 24, 2003),
https://www.fincen.gov/sites/default/files/shared/fbar3613.pdf

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STATEMENT OF JURISDICTION

The Government filed this action in the United States District Court for the District of Maryland to collect penalties assessed against Peter and Susan Horowitz pursuant to 31 U.S.C. § 5321(a)(5)¹ for their failure to report an interest in a foreign bank account for the calendar years 2007 and 2008. (JA11-23.)² The District Court had jurisdiction pursuant to 28 U.S.C. §§ 1331, 1345, and 1355.

On February 6, 2019, the District Court issued a judgment in favor of the Government, in part, and Susan Horowitz, in part. (JA1245-46.) That judgment was final, disposing of all claims of all parties. On March 14, 2019, the Horowitzes timely filed a notice of appeal. (JA1247-48); Fed. R. App. P. 4(a)(1)(B). This Court has jurisdiction pursuant to 28 U.S.C. § 1291.

STATEMENT OF THE ISSUES

1. Whether the undisputed facts established that the Horowitzes willfully failed to report their foreign bank accounts under the civil standard for willfulness, which includes recklessness and willful blindness.

2. Whether Congress's 2004 amendment to 31 U.S.C. §5321(a)(5)(C), which increased the maximum civil penalty for willful foreign-bank-account-reporting violations to the greater of $100,000 or 50 percent of the value of the undisclosed account, supersedes a prior regulation stating a different maximum penalty.

3. Whether a Treasury Department employee's deletion of a date in a computer program constituted a formal reversal of a penalty assessment for statute-of-limitations purposes.

STATEMENT OF THE CASE

A. The nature of the case and course of proceedings below

Peter and Susan Horowitz are married U.S. citizens who lived and worked in Saudi Arabia for over fourteen years between 1984 and 2001. Throughout that time-period and for several years thereafter, they held funds in various foreign bank accounts, including a joint UBS account in Switzerland. They did not disclose these bank accounts on their U.S. tax returns or file an annual “Report of Foreign Bank and Financial Account” (“FBAR”), as required by the Bank Secrecy Act and regulations thereunder. See 31 U.S.C. § 5314(a); 31 C.F.R. § 103.24 (2008).

In 2008, the United States began investigating Swiss banks for facilitating U.S. tax evasion. In November 2009, UBS notified the Horowitzes that their account would be disclosed to U.S. authorities. In January 2010, the Horowitzes disclosed the accounts for the first time and attempted to resolve past years by participating in an IRS voluntary disclosure initiative. However, they dropped out of the initiative. In 2014, the IRS determined that the Horowitzes willfully failed to file FBARs for 2007 and 2008 and imposed civil penalties. See 31 U.S.C. § 5321(a)(5)(C)(i), (D)(ii). The IRS assessed $494,060 (representing $247,030 for each year at issue) against each spouse. After discovery, the District Court granted Susan Horowitz's motion for summary judgment regarding the 2008 penalty, but otherwise granted the Government's motion for summary judgment. The Horowitzes now appeal.

B. Facts

1. The Horowitzes and their Swiss bank accounts

Peter Horowitz has a bachelor's degree and an M.D. from the University of Pennsylvania. (JA355, 1262-63.) His job as an anesthesiologist requires him to review his patients' medical charts so that he can determine the dosage of anesthetic that he can safely deliver. (JA355, 1262-64.) Susan Horowitz has a Ph.D in clinical social work and previously worked as an epidemiologist and as a public health analyst for the Department of Health and Human Services. (JA355, 704, 1139, 1514, 1518.) Her job required her to review technical reports prepared by program grantees. (JA1515-16.)

The Horowitzes lived and worked in Saudi Arabia between 1984 and 1992, and then again from 1994 to 2001. (JA355-56.) While living in Saudi Arabia, Peter worked at a hospital and earned wages that he deposited into a Saudi Arabian bank account, which did not earn interest. (JA356, 1275.) At the time, Peter earned approximately $120,000 per year. (JA1279-80.) The Horowitzes used Susan's salary to pay for household expenses while in Saudi Arabia and, as a consequence, most of Peter's salary was deposited into his Saudi Arabian account. (JA356, 1273.) The Horowitzes reported and paid U.S. taxes on the wages they earned while in Saudi Arabia. (JA1279-82, 1670-71, 1728.)

In 1988, the Horowitzes opened a bank account at the Swiss bank Foreign Commerce Bank (“FOCO”) using funds from the Saudi Arabian account. (JA356-57.) FOCO was subsequently acquired by an Italian bank. (JA357.) After he moved back to Saudi Arabia in 1994, Peter opened an account at UBS in Switzerland that he jointly owned with Susan. (JA357.) Susan thought of the account as a “nest-egg retirement account.” (JA1546.) Peter closed the FOCO account and transferred the funds from the FOCO account into the UBS account. (JA357, 1276.) Peter later claimed that while they “felt good about having a Swiss bank,” they “didn't feel comfortable having an Italian bank.” (JA1301; see also JA1549.)

The Horowitzes initially elected to receive mail concerning the UBS account at their address in Saudi Arabia. (JA358, 580.) After they moved back to the United States, however, the Horowitzes did not provide an updated U.S. mailing address to UBS and did not recall receiving mail from UBS in the United States. (JA1306-07, 1570-71.) The UBS account statements list “BLST Zurich” or “BLNA ZH-PARADEPLATZ” in the address field instead of an actual address. (JA587-88, 596, 863.) Rather than receiving written correspondence by mail, Peter monitored the UBS account by calling the bank every year or two. (JA358, 1288, 1572.) Susan did not communicate with the bank at all. (JA1555.) In subsequent dealings with the IRS concerning the UBS account, Peter responded affirmatively when asked if “a representative of the foreign financial institution suggest[ed] to you the use of practices such as holding mail at the institution . . . to avoid the disclosure of your ownership of the account or asset?” (JA696.) Peter later claimed that he answered incorrectly because he had not read the entire question. (JA1384.)

Peter made additional deposits into the account from his earnings in Saudi Arabia. (JA357.) By the time that the Horowitzes moved back to the United States in 2001, the UBS account balance was approximately $1.6 million, making it one of the largest assets — if not the largest asset — they owned. (JA1317-22.) After 2001, the Horowitzes did not make any deposits into, or withdrawals from, the UBS account. (JA358.) As of October 2008, the account value was $1,955,718. (JA877.)

In 2008, Peter read troubling news articles concerning UBS, which he shared with Susan. (JA358.) Peter claimed that the articles “describe[d] how UBS was in big trouble because of their involvement in the . . . worldwide housing bubble.” (JA1297.) Susan claimed that the articles related to certain individuals at UBS carrying out “illegal activities” in the United States or with U.S. citizens that involved “smuggling,” “phony trusts,” and “sham companies.” (JA1582-83.) At that same time, major newspapers announced that UBS was being forced to disclose the names of U.S. account holders to U.S. authorities. (See JA902-35.) Those articles specifically discussed an individual who Susan mentioned reading about — Bradley C. Birkenfeld — who had pled guilty to helping a wealthy American evade taxes and admitted to helping clients conceal offshore accounts from U.S. authorities, including by smuggling diamonds in a tube of toothpaste. (Compare JA1582 with JA902-05.)

In July 2008, after reading the articles, Peter called UBS to check on the account. (JA1296-98.) Peter claims that a UBS representative told him that the bank was closing the accounts of all Americans by the end of the year. (JA1297.) In October 2008, he then traveled by himself to Switzerland, where he closed the UBS account. (JA358.) He transferred the funds into an account he opened at another Swiss bank, Finter Bank (“Finter”). (JA358, 1294.) He never considered transferring the money back to the United States. (JA1338.)

Peter brought Susan's passport with him to Switzerland, hoping to add her as a joint account holder. (JA358, 1339, 1347.) Finter, however, would not add Susan as a joint account holder unless she was present. (JA358-59, 1339.) Peter did fill out a form giving Susan “an unlimited power of attorney,” but as she was not present, Susan was not able to provide a “Signature Specimen” as required on the form. (JA605-06.) In October 2009, the Horowitzes traveled to Switzerland together and cosigned forms designating Susan as a joint owner of the Finter account. (JA359.)

The Finter account was set up as a “numbered” account with “hold mail” service. (JA610-11, 675.) The “numbered” account feature substitutes a number for the customer's name. (JA610, 675.) The “hold mail” service meant that, for a fee, the bank would hold all correspondence at the bank. (JA685-86, 1302-03.) Finter later conceded that these “services allowed U.S. clients to eliminate the paper trail associated with the undeclared assets and income they held at Finter in Switzerland.” (JA686.) Peter claimed that he did not read the entirety of the account opening forms and thus was not “on alert” about the Finter account features. (JA1352-54.)

In November 2009, Peter received a letter from UBS stating that the Horowitzes' former account there “appear[ed] to be within the scope” of an IRS treaty-based request for information regarding “accounts of certain US persons.” (JA936.) Peter spoke to a lawyer later that month regarding the Swiss accounts. (JA1437.)

2. The Horowitzes' tax returns

Since the 1970s, the Horowitzes used tax-return preparers to prepare their joint income tax returns. (JA359-60, 1409, 1413.) Peter did not seek guidance from the return preparers, such as by asking questions about the tax treatment of income or assets, and considered the preparer to be more of a scribe. (JA1420-21.) The Horowitzes' returns (including those for the 2007 and 2008 tax years) were generally prepared using summaries of pertinent tax information that Peter prepared and mailed to the return preparer each year. (JA360, 697-702, 1418.) Peter would ask Susan for relevant forms and information to prepare his summaries. (JA1659-61.) These summaries listed income from domestic accounts, such as Bank of America accounts. (JA697-700.) They did not mention the UBS or Finter accounts. (JA360; see also JA697-702.) Peter did not ask the return preparers any questions, and Susan did not communicate with them. (JA360, 669, 1421, 1668-69.) Prior to 2010, the Horowitzes did not mention their Swiss bank accounts to their return preparers. (See JA668, 780.)

The Horowitzes signed “e-file” authorizations in 2007 and 2008 to allow their return preparers to file their returns. (JA756-57.) Each signed the following statement: “Under penalty of perjury, I declare that I have examined a copy of my electronic individual income tax return and accompanying schedules and statements for the tax year [at issue], and to the best of my knowledge and belief, it is true, correct, and complete.” (JA756-57.) Nonetheless, the Horowitzes later claimed that they did not closely read their tax returns (if they read them at all). (See JA1416-17, 1667-68, 1676-77, 1681, 1684-85.) They also claimed that Peter's colleagues in Saudi Arabia had told them that if they banked overseas, they did not have to pay United States income taxes on income earned from foreign bank accounts. (JA1425-26, 1692-93.)

The Horowitzes filed their 2007 and 2008 tax returns on Forms 1040. (JA703-55.) On Schedule B, which is used to report interest and dividends, they reported income from their domestic accounts, but did not mention UBS or Finter. (JA710, 736.) On Schedule B, Part III, they checked the box for “No” in response to the following question: “At any time during [relevant year], did you have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account?” (JA710, 736.) Below the question, the tax form refers the taxpayer to Form TD F 90-22.1, which is the FBAR form. (See JA710, 736.) A copy of Part III as it appeared in 2007 is excerpted below:

(JA410). The Horowitzes did not file an FBAR form for 2007 or 2008. (JA360; see also JA762.)

Peter claimed it was only in November 2009, after seeing reports of people disclosing foreign accounts, that he was first struck by the possibility that he and Susan were among the “bad people” who needed to disclose their Swiss account. (JA1437-38.) Peter came to this supposed realization around the same time that UBS notified the Horowitzes that it was required to disclose their account to U.S. authorities. (JA936.) In January 2010, the Horowitzes disclosed the accounts to the IRS for the first time and attempted to resolve their liability by participating in the IRS's Offshore Voluntary Disclosure Initiative (the “initiative”). (JA361, 758-62.) They subsequently filed FBAR forms covering the 2003 through 2008 tax years for the first time, along with amended tax returns for 2003 through 2008. (JA361, 762-63.) They reported an additional $215,126 in income earned over that time-period (JA862) and paid over $100,000 in back taxes owed (JA765-66). Even after realizing the need to file these amended returns, however, Peter did not review the returns any closer than the original ones, stating that he “could care less” what they said. (JA1445-46.) Susan did not read them at all. (JA1697-1703.)

Taxpayers participating in IRS programs such as the initiative may receive protection from criminal prosecution and reduced penalties in exchange for their cooperation. See Internal Revenue Manual (“IRM”) 4.63.3.1(1), 2007 WL 9703580 (Jan. 24, 2018). In December 2012, the Horowitzes opted out of the initiative. (JA361.) They were advised that, as a consequence of doing so, the tax due, interest, and penalties would be determined under standard examination procedures rather than under the initiative's more lenient procedures. (JA794.)

3. The IRS assesses penalties

By letters dated May 19, 2014, the IRS proposed FBAR penalties for the unreported Swiss bank accounts the Horowitzes owned in 2007 and 2008. (JA800-61.) It noted that the Horowitzes failed to file FBARs for 2003 through 2008, but that the limitations period for 2006 had lapsed after the Horowitzes' attorney stated he would sign a consent form to extend it, but did not follow through.³ (JA809, 840.) For 2007 and 2008, the IRS determined that the Horowitzes willfully failed to file FBARs and proposed a civil penalty for each year equal to approximately 25% of the highest account balance during the years under examination. (See JA805, 830, 836, 861); see also 31 U.S.C. §5321(a)(5)(C)(i), (D)(ii). The IRS allocated half of this amount against Peter (approximately $494,060, representing $247,030 for each year at issue) and the other half against Susan. (JA803, 829-30, 834, 860-61.) The IRS informed the Horowitzes that if they did not take any action by June 2, 2014, the IRS would proceed with assessment. (JA802, 833.) It also enclosed forms consenting to extend the limitations period for 2007 and 2008, which the Horowitzes could execute “to provide additional time to discuss the adjustments.” (JA802, 833.) Without an extension, the limitations period for 2007 would end on June 30, 2014, and the period for 2008 would end on June 30, 2015. See 31 U.S.C. § 5321(b)(1).

The IRS did not receive a response from the Horowitzes by June 2, so it assessed the proposed penalties on June 13, 2014. (JA361-62, 878-87, 942-43.) The Treasury Department's FBAR Penalty Coordinator, Nancy Beasley, prepared Penalty Assessment Certifications which were signed by her supervisor, CTR Operations Manager William Calamas, on that date. (JA878-81, 1792-95; see also JA942-43.) The Horowitzes were notified of the assessments by letter demanding payment. (JA882-87.) As it turned out, the Horowitzes had sent a letter on June 3, 2014, consenting to extend the limitations period for both years to December 31, 2015, and requesting an administrative appeal.⁴ (JA888-92; see also JA362.)

In October 2014, Grayse Rodrigo, the IRS Appeals officer assigned to the Horowitzes' appeal, asked another Appeals officer, Daisy Batman, to have the FBAR assessments “remove[d]” because the Horowitzes had consented to extend the limitations period. (JA894-95.) Batman then contacted Beasley to request that the assessments “be removed/reversed for each year.” (JA894, JA896, 898, 900.) Beasley responded that she “removed the penalty input date on the penalties” in the computer program used by the Treasury Department. (JA893; see also JA964-67.) She later explained that although she intended to follow Batman's instruction when she deleted the input date, she had never been asked to remove or reduce a penalty before. (JA1813-14, 1818.) Thus, she had simply “cleared” the date field on the computer file but had not issued any document reversing the assessments. (JA1832-33.)

During the IRS Appeals proceeding, the Horowitzes were unaware of Rodrigo's request to reverse the assessments. In fact, Rodrigo told the Horowitzes' attorney that DOJ would have to approve any concession of the penalties and that the Government had two years from the assessment date of June 13, 2014, to file suit against the Horowitzes. (JA1933-34); see also 31 C.F.R. § 902.1(b) (settlements over $100,000 require DOJ approval). Rodrigo, Batman, and Beasley did not contact DOJ regarding their attempts to remove/reverse the penalties, and were not aware of anyone else doing so. (JA896-901.) They also stated that the assessments were never formally reversed. (JA943, 1903-04, 1908, 1950-51, 1955-57.)

At some point in 2016, a settlement was proposed, but Rodrigo declined to process it because the Government's 2-year deadline for filing suit against the Horowitzes was approaching, and Rodrigo was concerned that there was insufficient time to obtain DOJ's approval for a settlement. (JA1948-49.) In a May 2016 email exchange between Beasley and Batman, Beasley explained that although she had removed the penalty input date in 2014, she “did not clear the” other information in the program regarding the assessment and “was awaiting [a] determination.” (JA893.) Consequently, when the Horowitzes failed to reach a settlement with the Appeals office, she simply input the original penalty date back into the computer program. (JA893.)

C. District Court proceedings

The Horowitzes did not pay the penalties (see JA899), and, on June 9, 2016, i.e., within 2 years of the June 13, 2014 assessments, the Government brought this suit in the District Court to collect (JA11-17).

After the close of discovery in 2018, the parties submitted a joint stipulation of facts and joint exhibits, and filed cross-motions for summary judgment. (See JA7-8, 241-42, 281-82, 293-95.) In its motion, the Government argued that the undisputed facts demonstrated that the Horowitzes willfully failed to report their Swiss bank accounts through knowing concealment, constructive knowledge, willful blindness, and reckless disregard. (JA410-11, 421-39, 450-68.) The Government also argued that Susan Horowitz had a financial interest in, or signature authority (or other authority) over, the Finter account in 2008. (JA439-40, 465-66, 482-91.) The Government further contended that it timely assessed the FBAR penalties and that Beasley's deletion of the penalty input field did not abate the assessment. (JA440-44, 468-79.)

In their motion for summary judgment and opposition to the Government's motion, the Horowitzes argued that the FBAR penalties were barred by the statute of limitations because Beasley “reversed” the assessments and they were not reassessed until after the applicable deadline. (JA494-507, 532-40.) They also argued that they did not have actual knowledge of the FBAR form or reporting requirements, and therefore, their conduct was not willful. (JA508-13, 541-43, 550-51.) They further contended that they could not be held liable under constructive knowledge, willful blindness, or recklessness standards. (JA508-13, 551-572.) Susan Horowitz separately moved for partial summary judgment, arguing that she did not have a reporting obligation in 2008 because she did not own or have any authority over the Finter account in that year. (JA373-99.)

In their reply, the Horowitzes further argued that the FBAR penalties should be capped at $100,000 under the Bank Secrecy Act regulations. (JA507-08 (citing United States v. Colliot, No. AU-16-CA-01281-SS, 2018 WL 2271381, at *3 (W.D. Tex. May 16, 2018).)

D. District Court decision

In January 2019, the District Court (Judge Paul Grimm) issued a memorandum opinion and order largely in favor of the Government. (JA1214-44.) The court first concluded that the penalty was not capped at $100,000 pursuant to the Bank Secrecy Act regulation because the regulation, which was issued in 1987, conflicted with the 2004 amendments to the statute. (JA1217-19.) Regarding the limitations period, the court noted that although Beasley gave conflicting statements about the effect of removing the penalty input date, there was no showing that she had authority to reverse the assessment. (JA1226-29.) The court explained that “[f]or Beasley to be able to reverse or remove an FBAR penalty assessment without her manager's signature would be incongruous with his initial signature required to impose the penalty in the first instance.” (JA1228.) The court also concluded that Susan had no obligation to report the Finter account in 2008 as she did not have a financial interest in, or other authority over, the account in 2008. (JA1231-36)

The court then held that the Horowitzes willfully failed to report the UBS account in 2007 and that Peter willfully failed to report the Finter account in 2008. (JA1236-42.) Reviewing the caselaw, the court observed that the civil willfulness standard may be satisfied not only through evidence of actual knowledge, but also through recklessness and willful blindness. (See JA1238-41.) It also observed that a taxpayer who signs a tax return is charged with constructive knowledge of its contents and that the questions on Schedule B regarding foreign accounts were “simple” and “clear.” (See JA1237, 1241-42.) Thus, the court held that the Horowitzes had, at the very least, constructive knowledge of the FBAR requirement. (See JA1241.) The court concluded that “the fact that the Horowitzes discussed their tax liabilities for their foreign accounts with their friends [i.e., Peter's colleagues] demonstrates their awareness that the income could be taxable” and that “their failure to have the same conversation with the accountants they entrusted with their taxes for years . . . easily shows 'a conscious effort to avoid learning about reporting requirements.'” (JA1242 (quoting United States v. Williams, 489 F. App'x 655, 658 (4th Cir. 2012).)

The court entered judgment against Peter in the amount of $494,060 (plus interest) and against Susan in the amount of $247,030 (plus interest). (JA1245-46.) The Horowitzes now appeal.⁵ (JA1247.)

SUMMARY OF ARGUMENT

Peter and Susan Horowitz are highly-educated, successful individuals who have held demanding jobs that require paying attention to detail. Yet, by their own account, they chose to remain ignorant about their legal duty to report and pay tax on a $2 million Swiss bank account. After disclosure of their account became inevitable, they came clean and revealed it to the IRS. The IRS imposed penalties and brought this action to collect them. The District Court correctly held that the undisputed facts establish that the Horowitzes' failure to report the account was at least reckless and, therefore, willful under the applicable legal standard. It also held that an obsolete regulation did not cap the amount of the penalties and that the penalty assessments were not time-barred.

1. The District Court correctly held that the undisputed facts establish that the Horowitzes' failure to file FBARs for 2007 and 2008 was reckless and, therefore, willful. All courts that have addressed the civil willfulness standard in the FBAR context — including this Court and the Third Circuit — have held that reckless conduct meets the standard. The Supreme Court has explained that, in the context of civil willfulness, recklessness is shown by “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 Ins. Co. of Am. v. Burr, 551 U.S. 47, 68 (2007) (citation omitted).

The undisputed facts establishing recklessness here come straight from the Horowitzes' own deposition testimony: (1) While living in Saudi Arabia in the 1980s and 1990s, the Horowitzes were concerned enough about whether they had to report their Swiss bank account to the IRS that they discussed the issue with Peter's colleagues. The colleagues told them they did not have to report the account, so they never did. At the same time, the Horowitzes used U.S. tax professionals to prepare their returns, but they never bothered to ask those professionals about their duty to report the Swiss account, nor did they even disclose the account to them. (2) In 2007 and 2008 — 6 years after having moved back to the U.S. — the Horowitzes continued to operate under the wrong advice allegedly given by Peter's former colleagues. Even though their Swiss account had grown to nearly $2 million, they never asked their tax-return preparer whether their 20-year-old, too-good-to-be-true belief that they did not have to report the account was, in fact, correct. Indeed, they did not even tell their return preparer about the account. (3) In the meantime, the Horowitzes signed tax returns for 2007 and 2008 that explicitly asked whether they owned any foreign accounts. They answered “no.” The return also explicitly directed the Horowitzes to consult the FBAR form, but they did not do so — claiming that they did not actually read their return. These undisputed facts meet Safeco's objective test for recklessness: action entailing an unjustifiably high risk of violating the law that is so obvious that it should be known.

The Horowitzes argue that there are material facts in dispute warranting a trial. But they do not contest the facts above. Rather, they urge that they held their incorrect beliefs in good faith and that they never knew about the FBAR requirement. But even if that is so (and the Government maintains that it is not), their subjective beliefs would not change the fact that their conduct meets the objective test for recklessness. Thus, the court's grant of summary judgment was correct.

2. The District Court also correctly rejected the Horowitzes' argument that an outdated regulation limits willful FBAR penalties to $100,000. Although the statute previously capped penalties at that level and a 1987 regulation repeated the language of the statute, Congress amended the statute to explicitly increase the maximum penalty in 2004. Congress did so using mandatory language, stating that the maximum penalty “shall be increased” to the greater of $100,000 or 50 percent of the account balance at the time of the violation. 31 U.S.C. § 5321(a)(5)(C). And although Congress gave the Secretary of the Treasury some discretion to determine the amount of the penalty in any given case, it did not give him discretion to set a different maximum level penalty. Moreover, while the Horowitzes claim that the IRS does not have the authority to amend the relevant regulation, the agency that does have that authority has explicitly recognized that the statutory maximum penalty applies rather than the $100,000 cap set forth in the obsolete regulation. Consequently, most courts that have considered this argument have rejected it (including the most recent decisions).

3. The District Court also properly rejected the Horowitzes' statute-of-limitations defense. It is undisputed that the IRS formally assessed the penalties on June 13, 2014, when an IRS manager (William Calamas) signed the certifications, which was within the limitations period. A subordinate Treasury Department employee's subsequent deletion of a date field in a computer program did not reverse the assessments as a matter of fact or law. Indeed, that employee had no authority to reverse the assessments: first, Calamas did not approve the “reversal” or give any authorization to change the assessment; and second, DOJ approval was required for any such decision, and it is undisputed that no such approval was given, or even sought. The court was correct to reject the Horowitzes' attempt to wriggle out of the FBAR penalties on this ground.

The District Court's decision should be affirmed.

ARGUMENT
The District Court correctly granted summary judgment to the Government in relevant part

Standard of review

This Court “review[s] de novo a district court's grant of summary judgment,” resolving all disputed facts in favor of the non-moving party. Johnson v. United States, 734 F.3d 352, 359 (4th Cir. 2013). Questions of statutory interpretation are reviewed de novo. United States v. Abuagla, 336 F.3d 277, 278 (4th Cir. 2003).

A. Foreign bank accounts and the FBAR requirement

United States citizens and residents are subject to U.S. income taxation on their worldwide income, regardless of where the income is earned. See 26 U.S.C. § 61(a); 26 C.F.R. § 1.1-1(b). To ensure compliance with that requirement and combat tax evasion, Congress passed the Bank Secrecy Act, Pub. L. No. 91-508, 84 Stat. 1114 (1970) (codified as amended at 31 U.S.C. §§ 5311-32.). Before the Act was passed, “[s]ecret foreign financial facilities, particularly in Switzerland” offered the wealthy a “grossly unfair” but “convenient avenue of tax evasion.” See H.R. Rep. No. 91-975 (1970), reprinted in 1970 U.S.C.C.A.N. 4394, 4397-98.

To combat the use of such secret accounts, Congress required U.S. citizens who have relationships with foreign financial agencies to report them to the Treasury. See 31 U.S.C. § 5314(a); see also 31 C.F.R. §103.24 (2008), renumbered as 31 C.F.R. § 1010.350(a). For the years at issue, the prescribed form for doing so was the Report of Foreign Bank and Financial Accounts, Form TD F 90-22.1, or “FBAR.” See 31 C.F.R. § 103.27(c) (2008), renumbered as 31 C.F.R. § 1010.306(c). A United States citizen had to file an FBAR on or before June 30 if the aggregate value of his or her foreign accounts exceeded $10,000 at any time during the previous calendar year. See id. Similarly, at all relevant times, the U.S. individual income tax return (IRS Form 1040) required taxpayers to disclose whether they had “an interest in or a signature or other authority over a financial account in a foreign country,” and directed taxpayers to consult the “filing requirements for Form TD F 90-22.1.” (See JA710, 736.)

Congress has authorized the Secretary of the Treasury to “impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314.” 31 U.S.C. § 5321(a)(5)(A). From 1986 to 2004, the Secretary could impose penalties only on “any person who willfully violate[d]” the FBAR requirement. See 31 U.S.C. §5321(a)(5)(A) (2000). And, at that time, the maximum penalty for such willful violations was the greater of $25,000 or the amount equal to the account balance at the time of the violation (not to exceed $100,000). 31 U.S.C. § 5321(a)(5)(B)(ii) (2000). In 1987, the Treasury Department issued a regulation reflecting that statutory maximum penalty. 31 C.F.R. § 103.47(g)(2) (1987), renumbered as 31 C.F.R. §103.57(g)(2) (2000), renumbered as 31 C.F.R. § 1010.820(g)(2).

After the terrorist attacks of September 11, 2001, Congress directed that attempts be made to improve compliance with the reporting requirements. See USA Patriot Act, Pub. L. No. 107-56, §361(b), 115 Stat. 272, 332 (2001). In response, the Treasury Department studied the issue and reported that the compliance rate with the FBAR requirement could be as low as 20 percent, meaning that as many as 800,000 individuals each year failed to comply with the requirement. Secretary of the Treasury, A Report to Congress 6 (Apr. 26, 2002), https://www.treasury.gov/press-center/press-releases/Documents/fbar.pdf.

Against this backdrop, Congress amended 31 U.S.C. § 5321 to cover all failures to comply with the reporting requirements, whether willful or not, and increased the maximum penalty. See American Jobs Creation Act of 2004, Pub. L. No. 108-357, § 821(a), 118 Stat. 1418, 1586. Congress believed that increasing the penalty for a willful FBAR violation would improve compliance with the reporting requirement. See Joint Comm. on Taxation, General Explanation of Tax Legislation Enacted in the 108th Congress, JCS-5-05 NO 32 (I.R.S.), 2005 WL 5783636, at *34 (May 2005). Congress also determined that improved FBAR compliance “is vitally important to sound tax administration, to combating terrorism, and to preventing the use of abusive tax schemes and scams.” S. Rep. No. 108-192, at 108 (2003).

Accordingly, at all times relevant to this litigation, the statute has provided that “in general” (i.e., for non-willful violations) the penalty “shall not exceed $10,000” and is subject to a “[r]easonable cause exception.” 31 U.S.C. § 5321(a)(5)(B). But “[i]n the case of any person willfully violating, or willfully causing any violation of” section 5314, the maximum penalty “shall be increased to the greater of” $100,000 or 50 percent of the account balance at the time of the violation, and there is no reasonable-cause exception. 31 U.S.C. § 5321(a)(5)(C), (D).

In 2003, the Treasury Department also redelegated its authority to enforce the FBAR requirements from the Financial Crimes Enforcement Network (“FinCEN”) to the IRS. See Department of the Treasury, “Memorandum of Agreement and Delegation of Authority for Enforcement of FBAR Requirements” (Apr. 2, 2003), available at IRM Exhibit 4.26.1-2, https://www.irs.gov/irm/part4/irm_04-026-001. One reason for the change was that “the FBAR is directed more towards tax evasion, as opposed to money laundering or other financial crimes,” and thus fell within the IRS's primary area of jurisdiction. Secretary of the Treasury, A Report to Congress 4 (Apr. 24, 2003), https://www.fincen.gov/sites/default/files/shared/fbar3613.pdf. Accordingly, the IRS has been delegated authority to assess and collect the penalty “and take any other action reasonably necessary for the enforcement of these and related provisions.” 31 C.F.R. § 1010.810(g). The IRS has thus developed a comprehensive scheme for enforcing and assessing the FBAR penalty. See Bedrosian v. United States, 912 F.3d 144, 151 (3d Cir. 2018).

B. The Horowitzes willfully failed to file FBARs

The Horowitzes do not dispute that they are United States citizens, that they owned the UBS account during 2007, that Peter Horowitz owned the Finter account during 2008,⁶ that the balance in those accounts far exceeded $10,000, and that they failed to file FBARs. (JA355, 360-61, 1230.) Rather, they contend that the District Court erred in granting summary judgment because there is a genuine dispute of material fact as to whether their failure to file FBARs was willful. (Br. 20, 24-36.) The District Court correctly held that the undisputed facts established that the civil willfulness standard was satisfied.

1. Willfulness includes reckless conduct and willful blindness

Congress provided heightened penalties for willful failures to file the FBAR form. See 31 U.S.C. § 5321(a)(5)(C), (D). Although Congress did not define the term “willful” in this context, the Supreme Court has made clear that “where willfulness is a statutory condition of civil liability,” the term covers “not only knowing violations of a standard, but reckless ones as well.” Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 57 (2007); see also, e.g., United States v. Ill. Cent. R. Co., 303 U.S. 239, 242-43 (1938) (holding, in civil penalty context, that willfulness includes “careless disregard whether or not one has the right so to act”). In civil cases, 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)).

Nothing in the text of § 5321 suggests that a different standard applies here. This Court has already recognized as much in Williams, 489 F. App'x at 659, in holding — albeit in an unpublished opinion — that reckless conduct is sufficient for the imposition of heightened FBAR penalties. The Third Circuit and other courts have followed this Court's well-reasoned approach. See Bedrosian, 912 F.3d at 152-53; Kimble v. United States, 141 Fed. Cl. 373, 385 (2018), appeal filed, No. 19-1590 (Fed. Cir.); Norman v. United States, 138 Fed. Cl. 189, 191-92 (2018), appeal filed, No. 18-2408 (Fed. Cir.); United States v. Bohanec, 263 F. Supp. 3d 881, 888-89 (C.D. Cal. 2016); United States v. McBride, 908 F. Supp. 2d 1186, 1204-05 (D. Utah 2012). To the extent that an unpublished district court opinion cited by the Horowitzes suggests otherwise, it failed to explain its reasoning and is against the weight of authority. (Br. 25 (citing United States v. Pomerantz, No. C16-689 MJP, 2017 WL 4418572, at *3 (W.D. Wash. Oct. 5, 2017), appeal dismissed, No. 17-35812, 2017 WL 6879994 (9th Cir. Nov. 16, 2017)).)

Under the civil standard, an improper motive or bad purpose is not necessary to establish willfulness. See Am. Arms Int'l v. Herbert, 563 F.3d 78, 83 (4th Cir. 2009); Prino v. Simon, 606 F.2d 449, 451 (4th Cir. 1979). Similarly, a “subjective good faith belief that one's conduct is lawful” does not preclude the imposition of a penalty in these circumstances. Lefcourt v. United States, 125 F.3d 79, 82 (2d Cir. 1997); see also Bedrosian, 912 F.3d at 153. And, as is the case in many other contexts, “[a] taxpayer who signs a tax return will not be heard to claim innocence for not having actually read the return, as he or she is charged with constructive knowledge of its contents.” Williams, 489 F. App'x at 659 (quoting Greer v. Commissioner, 595 F.3d 338, 347 n.4 (6th Cir. 2010), and citing United States v. Doherty, 233 F.3d 1275, 1282 n.10 (11th Cir. 2000)).

Willful blindness, or intentional ignorance of the relevant facts, also constitutes willfulness. See Williams, 489 F. App'x at 658-59. “'[W]illful blindness' may be inferred where 'a defendant was subjectively aware of a high probability of the existence of a tax liability and purposefully avoided learning the facts point to such liability.'” Id. at 658 (quoting United States v. Poole, 640 F.3d 114, 122 (4th Cir. 2011)). Indeed, as this Court has explained in the criminal context, “[t]o allow the most clever, inventive, and sophisticated wrongdoers to hide behind a constant and conscious purpose of avoiding knowledge of criminal misconduct would be an injustice in its own right.” United States v. Jinwright, 683 F.3d 471, 478 (4th Cir. 2012); accord McBride, 908 F. Supp. 2d at 1210.

The Horowitzes are liable for the enhanced penalty due to recklessness if they “ought to have known” that “there was a grave risk that the filing requirement was not being met” and they were “in a position to find out for certain very easily.” Bedrosian, 912 F.3d at 153 (internal quotation marks and alteration omitted). Similarly, the penalty applies under a willful blindness theory if they “made a 'conscious effort to avoid learning about reporting requirements.'” Williams, 489 F. App'x at 659 (quoting United States v. Sturman, 951 F.2d 1466, 1476 (6th Cir. 1991)).

Although willfulness is generally a question of fact, Williams, 489 F. App'x at 658, courts have decided the question on summary judgment where the undisputed facts demonstrated that the civil willfulness standard was satisfied. See Kimble, 141 Fed. Cl. at 385-86; United States v. Kelley-Hunter, 281 F. Supp. 3d 121, 124 (D.D.C. 2017). Indeed, in the analogous context of payroll tax penalties under § 6672 of the Internal Revenue Code, this Court has regularly held that a determination of willfulness was appropriate on summary judgment. See Johnson, 734 F.3d at 364-65; Erwin v. United States, 591 F.3d 313, 325-26 (4th Cir. 2010); Plett v. United States, 185 F.3d 216, 222-23 (4th Cir. 1999); Newbill v. United States, 441 F. App'x 184, 189 (4th Cir. 2011); Lyon v. United States, 68 F. App'x 461, 469-70 (4th Cir. 2003); Johnson v. United States, 50 F. App'x 113, 114 (4th Cir. 2002). In that context, this Court has recognized that “in the absence of disputed material facts, summary judgment represents a favored mechanism to secure the 'just, speedy, and inexpensive determination' of such issues.” Plett, 185 F.3d at 223 (quoting Fed. R. Civ. P. 1). Thus, “[i]f the record justifies it, willfulness may be determined at the summary judgment stage.” Skouras v. United States, 26 F.3d 13, 14 (2d Cir. 1994). Below, the Horowitzes themselves argued that willfulness should be determined on summary judgment in this very case. (JA508-09, 513, 541.)

2. The evidence shows that, at a minimum, the Horowitzes acted recklessly and with willful blindness in failing to file FBARs

In Williams, this Court concluded that the fact that the defendant provided false answers on both a tax return and in a tax organizer was alone sufficient to “constitute[ ] willful blindness to the FBAR requirement.” 489 F. App'x at 659. This Court reached that conclusion even before considering the fact that, in that case, the defendant had pled guilty to filing false tax returns on which he failed to disclose his foreign accounts. Id. at 659-60 (explaining that the guilty plea allocution “further confirm[ed]” that the defendant's violation was willful). This Court explained that “'[e]vidence of acts to conceal income and financial information, combined with the defendant's failure to pursue knowledge of further reporting requirements as suggested on Schedule B, provide a sufficient basis to establish willfulness on the part of the defendant.'” Id. (quoting Sturman, 951 F.2d at 1476); accord United States v. Samara, 643 F.2d 701, 704 (10th Cir. 1981).⁷

Following this Court's guidance in Williams, the District Court correctly held that the Horowitzes' conduct was reckless. The following facts, which were not genuinely disputed, were more than sufficient to demonstrate recklessness:

• The Horowitzes are highly-educated U.S. citizens. (JA355.)

• The Horowitzes signed a declaration under penalty of perjury indicating that they had reviewed their 2007 and2008 tax returns and that, to the best of their knowledge and belief, the returns were “true, correct, and complete.” (JA756-57.)

• The Horowitzes did not mention their Swiss accounts on their 2007 and 2008 tax returns, responding “No” on Schedule B when asked if they had an interest in a foreign account. (JA710, 736.)

• The Horowitzes did not mention their Swiss accounts in their tax summaries that they sent to their professional tax-return preparers, even though the balance of the account was nearly $2 million by 2007. (JA697-700, 862.)

• The Horowitzes reported interest income from their U.S. bank accounts on their tax summaries and their tax returns, but did not report any income from their Swiss bank accounts. (JA697-700, 710, 736.)

• The Horowitzes reported wages that they earned while living and working in Saudi Arabia and paid U.S. taxes on it. (JA1279-82, 1670-71, 1728.)

• In the 1980s and 1990s, the Horowitzes discussed with Peter's colleagues whether they had to pay taxes on income from their foreign accounts and report their foreign accounts (JA1425-26, 1692-93), but they did not raise the issue with their professional tax-return preparers, even after moving back to the U.S. in 2001 (JA358, 360, 669, 1421, 1668-69).

• Peter Horowitz traveled from the United States to Switzerland to move money to a different Swiss bank (rather than bringing it back to the United States) in 2008 after reading troubling news reports. (JA358, 1294, 1338.)

• At that time, it was widely reported that UBS would disclose the names of U.S. account holders. (JA902-35, 1175-93.)

• The Horowitzes did not update UBS with their address in the United States (JA1306-07, 1570-71) — despite the fact that the UBS account was one of their largest assets (JA1317-22) — preferring to call the bank every year or two to check on it (JA358, 1288, 1572).

• After Peter moved the money from UBS to Finter, the Finter account was set up as a numbered account with “hold mail” service. (JA610-11, 675.)

• Finter admitted that these services were used to conceal accounts from U.S. authorities. (JA685-86.)

• The Horowitzes reported their foreign accounts to U.S. authorities in 2010 only after learning that UBS was going to disclose their names. (JA361, 762, 936.)

• According to their own explanations for their conduct, the Horowitzes habitually failed to read tax and bank forms. (JA1352-54, 1372-73, 1416-17, 1445-46, 1667-68, 1676-77, 1681, 1684-85, 1697-1703.)

Thus, it is undisputed that the Horowitzes: (a) knew that they had foreign accounts holding about $2 million; (b) knew that they were subject to U.S. tax law, including that they had to pay U.S. taxes on wages earned abroad and on domestic interest income (indeed, they lived in the U.S. in 2007 and 2008); (c) had professional tax-return preparers available to answer questions but chose to rely on the 20-year-old advice of Saudi work colleagues instead; (d) did not report the existence of their foreign accounts to their professional tax-return preparers; and (e) signed their tax returns stating they had no foreign accounts. This evidence was more than sufficient to establish recklessness as a matter of law under Williams, 489 F. App'x at 659, and Bedrosian, 912 F.3d at 153, with no “inferences” (cf. Br. 26) needed. Accord Kimble, 141 Fed. Cl. at 385.

Moreover, it is irrelevant whether a trier of fact might credit the Horowitzes' purported (and incredibly specific) belief that they did not have to pay U.S. taxes on income from foreign bank accounts. See Plett, 185 F.3d at 223 (explaining that the fact that there are “some disputed facts” is not enough to defeat summary judgment; there must be “a genuine dispute over material facts”); see also Stone v. Univ. of Md. Med. Sys. Corp., 855 F.2d 167, 176-77 (4th Cir. 1988) (rejecting non-movant's explanations as “simply incredible” and “patently incredible” and affirming summary judgment). Even if they were still relying on the purported 20-year-old advice of Peter's former colleagues that they did not have to report foreign bank accounts to the IRS, as they claim (Br. 28-29), such reliance was objectively unreasonable and “entail[ed] 'an unjustifiably high risk of harm that is . . . so obvious that it should be known.'” Safeco, 551 U.S. at 68 (citation omitted). In short, the Horowitzes' version of events still meets the legal standard for recklessness and, in turn, civil willfulness.

The Horowitzes' allegation (Br. 28) they did not read their returns does not help them. As this Court held in Williams and the District Court held here, taxpayers cannot claim innocence based on their own failure to read their return because they are charged with constructive knowledge of its contents. (JA1241.) A contrary holding would undermine this bedrock principle that applies not only in tax law, but also a variety of other circumstances. See generally Consol. Edison Co. of N.Y. v. United States, 221 F.3d 364, 371 (2d Cir. 2000) (“In general, individuals are charged with knowledge of the contents of documents they sign — that is, they have 'constructive knowledge' of those contents.”).⁸

Rather than help their cause, the Horowitzes' choice not to read their returns only bolsters a recklessness finding. Their admitted carelessness toward their reporting requirements is astounding: Peter claims that although he might glance at the first two pages of the return, he “got into the habit of not reading my taxes.” (JA1416-17.) Susan claims that she never looked at anything other than the signature page (JA1667-68), and even then, did not read the statements she signed (JA1676-77). Their cavalier attitude continued even after they realized their returns were incorrect and they had to file amended returns — they made it clear that they “could care less” what they reported to the IRS and did not carefully read IRS forms even when participating in the IRS voluntary disclosure initiative.⁹ (E.g., JA1445-46.) Thus, the Horowitzes' claim that there is “no evidence in the record that either Peter or Susan made a conscious effort to avoid learning of their FBAR obligations” (Br. 28) is not supported by the undisputed facts, including their own testimony. Their conduct is the embodiment of recklessness and only serves to demonstrate that the Horowitzes actively “fail[ed] to pursue knowledge of” reporting requirements related to their Swiss accounts. Sturman, 951 F.2d at 1477.

3. The Horowitzes' arguments are unavailing

In their brief, the Horowitzes attack the District Court's decision on a basis that it did not rely on, attempt to shift the blame to their return preparers, and protest innocence. (Br. 28, 33-36.) These arguments are irrelevant and fundamentally flawed.

The Horowitzes' primary argument on appeal consists of building up and tearing down a strawman — they claim that the District Court based its decision on the lone fact that they signed their tax returns and that its holding would eliminate the two tiers of liability envisioned by the statute for willful and non-willful violations.¹⁰ (See Br. 33-34.) They ignore the District Court's explicit emphasis of their admitted awareness of the possibility that the Swiss account had to be reported — claiming that they raised it with Peter's work colleagues and chose to rely on those colleagues' incorrect advice rather than raise the issue with their professional tax-return preparers. (JA1242.) The District Court also recited many of the undisputed facts described above in detail, demonstrating its awareness of the record. (JA1219-23.)

Regardless, the fact that willfulness can arise from constructive knowledge does not create a strict-liability standard in FBAR cases such that all violations become willful. Cf. Flume, 2018 WL 4378161, at *7. For example, a person who reports the existence of, and interest income from, foreign accounts on his or her return, but negligently fails to check the “Yes” box on Schedule B and file an FBAR, could be liable for a non-willful violation. As a second example, a person who fails to file an FBAR based on an incorrect belief that the aggregate value of his or her foreign accounts is less than $10,000 could be liable for a non-willful violation. Third, a person who relies on incorrect professional advice that there is no reporting obligation could be liable for a non-willful violation. Fourth, a person could be given signature or other authority over a foreign bank account (such as by a relative), and therefore have an FBAR reporting obligation, even if he or she claimed to be unaware of the account's existence or the fact that it was a foreign (rather than domestic) account. That person could also be liable for a non-willful violation. Of course, any person subject to a non-willful penalty would have the opportunity to assert a reasonable-cause defense, which — depending on the specific circumstances — could succeed.

The Horowitzes try to avoid the result compelled by the undisputed facts by casting blame on their professional tax-return preparers for failing to ask if they had any foreign accounts while knowing that they previously lived in Saudi Arabia. (Br. 28.) But, of course, the years at issue here are 2007 and 2008 — 6 years after they moved back to the United States. (JA356, 358.) Moreover, in similar circumstances, courts have held that a taxpayer's reliance on self-imposed misapprehensions — while failing to ask professionals — does not excuse a willful violation. Sorenson v. United States, 521 F.2d 325, 329 (9th Cir. 1975); see also 31 U.S.C. § 5321(a)(5)(C)(ii). The Horowitzes' attempt to shift the blame is particularly unpersuasive given that they relegated their return preparers to the role of “scribe[s]” (JA1420-21) who merely filled out the relevant forms for them. Cf. Leonhart v. Commissioner, 414 F.2d 749, 750 (4th Cir. 1969) (stating that a taxpayer who attempts to avoid penalties for understatement of tax based on an accountant's advice must “show that the accountant reached his decisions independently after being fully apprised of the circumstances of the transactions”).

The Horowitzes also claim that “[t]here is no evidence whatsoever” that they “took part in an intentional scheme to underpay their taxes.” (Br. 33.) Although it is unnecessary to reach the issue for the reasons discussed above, the undisputed evidence showed that: (a) the Horowitzes avoided receiving mail concerning their Swiss bank accounts in the U.S.; (b) they preferred to monitor their $2 million bank account by calling Switzerland once every year or two; (c) they moved their money to a different Swiss bank rather than the U.S. (where they lived at the time) after it was reported that UBS would disclose the names of U.S. account holders to the IRS; (d) their new Swiss account was set up as a “numbered” account with “hold mail” service, which are features that were used to conceal accounts from U.S. authorities; and (e) they only came clean after being notified that UBS was going to disclose their names. See Part B.2, supra.

Regardless, this Court need not decide whether the Horowitzes were as ignorant about their Swiss account as they claim. The undisputed evidence demonstrated that, at the very least, the Horowitzes ought to have known that there was a grave risk that a filing requirement was not being met and they were in a position to find out for certain very easily. See Bedrosian, 912 F.3d at 153. Accordingly, the District Court correctly granted summary judgment to the Government on willfulness.

C. An obsolete Treasury Regulation did not limit the applicable penalties

The Horowitzes also claim that the District Court erred by refusing to cap the penalties at $100,000 pursuant to a 1987 regulation. (Br. 36-47 (citing 31 C.F.R. § 1010.820(g)(2)).) They contend that the regulation does not conflict with the statute, as amended, and that the IRS is subverting the regulation by imposing penalties pursuant to the statutory limits, rather than those set by the regulation. (Br. 36.) The District Court correctly rejected these arguments.

1. When Congress increased the maximum willful FBAR penalty in 2004, it superseded the 1987 regulation stating a lower maximum penalty

The plain text of 31 U.S.C. § 5321, as amended by Congress in 2004, makes clear that a willful FBAR penalty may exceed $100,000. Under § 5321(a)(5)(C), “[i]n the case of any person willfully violating” that requirement, “the maximum penalty . . . shall be increased to the greater of — (I) $100,000, or (II) 50 percent of the amount determined under” § 5321(a)(5)(D). Section 5321(a)(5)(D), in turn, states that where the taxpayer has failed “to report the existence of an account,” the alternate maximum under prong (II) above is one-half of “the balance in the account at the time of the violation.” 31 U.S.C. § 5321(a)(5)(D). The current maximum penalty for willful FBAR violations is thus the greater of $100,000 or 50 percent of the account's value at the time of the violation.

This maximum penalty is higher than the maximum penalty set by the prior version of § 5321. Under the statutory language in effect from 1986 until 2004, the maximum penalty was “the greater of” $25,000 or “an amount (not to exceed $100,000) equal to the balance in the account at the time of the violation.” 31 U.S.C. § 5321(a)(5)(B)(ii) (2000). Thus, until 2004, $100,000 was the absolute maximum civil penalty for a single willful FBAR violation. Congress, however, removed that hard ceiling for accounts worth more than $200,000 (i.e., accounts for which 50 percent of the value exceeds $100,000) and instead provided for a variable maximum penalty based on the value of the account.

Moreover, Congress specified that the maximum penalty “shall be increased to” the greater of the two current alternatives (31 U.S.C. §5321(a)(5)(C)). As the Horowitzes appear to recognize (Br. 40-41), the use of “shall” makes what follows “mandatory, not discretionary.” Orquera v. Ashcroft, 357 F.3d 413, 422 (4th Cir. 2003); accord, e.g., Mach Mining, LLC v. EEOC, 135 S. Ct. 1645, 1651 (2015) (citing Nat'l c. Passenger Corp. v. Morgan, 536 U.S. 101, 109 (2002)). Congress therefore set a maximum penalty that must govern — which is to say, must function as the ceiling — whenever the IRS imposes a willful FBAR penalty. Thus, the Horowitzes' claim that the 2004 amendment “did not mandate any change” (Br. 44) is plainly wrong.

In short, Congress in 2004 deliberately increased the maximum penalty for willful FBAR violations, and it did so in language that made the change mandatory. The plain language of the statute therefore compels rejection of the Horowitzes' argument that the maximum penalty is $100,000.

The regulation that the Horowitzes rely on, 31 C.F.R. §1010.820(g)(2), states a maximum penalty different from the one now found in § 5321(a)(5)(C). That regulation, however, was abrogated by Congress's 2004 amendment to the statute and is therefore no longer valid. The 1987 regulation did nothing more than track the maximum penalty language in the 1986 version of 31 U.S.C. § 5321. The relevant statutory language in 1986 provided that “in the case of [a willful] violation . . . involving a failure to report the existence of an account or any identifying information required to be provided with respect to such account,” the penalty shall not exceed “the greater of — (I) an amount (not to exceed $100,000) equal to the balance in the account at the time of the violation; or (II) $25,000.” 31 U.S.C. § 5321(a)(5)(B)(ii) (Supp. IV 1986). The regulation repeats that language, stating that in the case of “a failure to report the existence of an account or any identifying information required to be provided with respect to such account,” the Secretary may impose “a civil penalty not to exceed the greater of the amount (not to exceed $100,000) equal to the balance in the account at the time of the violation, or $25,000.”¹¹ 31 C.F.R. § 1010.820(g)(2). When Congress superseded the earlier statutory language setting the maximum penalty, it necessarily also superseded the regulation containing the same language.

That commonsense conclusion is confirmed by governing law. In order to be valid, regulations “must be consistent with the statute under which they are promulgated.” United States v. Larionoff, 431 U.S. 864, 873 (1977); United States v. Wall, 670 F.2d 469, 471 (4th Cir. 1982); Moore v. Harris, 623 F.2d 908, 919 (4th Cir. 1980). Thus, a regulation that conflicts with the plain text of a statute “lacks authority and is invalid.” William v. Gonzales, 499 F.3d 329, 334 (4th Cir. 2007); accord Helvering v. Safe Deposit & Tr. Co. of Baltimore, 95 F.2d 806, 810-11 (4th Cir. 1938). Thus, a regulation cannot alter a statutory framework. See Ragsdale v. Wolverine World Wide, Inc., 535 U.S. 81, 96 (2002). Similarly, a “[r]egulation, valid when promulgated, becomes invalid upon the enactment of a statute in conflict with the [r]egulation.” Scofield v. Lewis, 251 F.2d 128, 132 (5th Cir. 1958); accord Connecticut Office of Prot. & Advocacy for Persons with Disabilities v. Hartford Bd. of Educ., 464 F.3d 229, 240 (2d Cir. 2006); R & W Flammann GmbH v. United States, 339 F.3d 1320, 1324 (Fed. Cir. 2003); Farrell v. United States, 313 F.3d 1214, 1219 (9th Cir. 2002). This is because “[r]egulations do not maintain an independent life, defeating the statutory change.” Aerolineas Argentinas v. United States, 77 F.3d 1564, 1575 (Fed. Cir. 1996).

As the District Court in this case (JA1216-19) and several other trial courts have recognized, those rules apply here. See Kimble, 141 Fed. Cl. at 388-89; Norman, 138 Fed. Cl. at 196; United States v. Garrity, No. 3:15-CV-243(MPS), 2019 WL 1004584, at *1 (D. Conn. Feb. 28, 2019), appeal filed, No. 19-1145 (2d Cir.); United States v. Park, No. 16 C 10787, 2019 WL 2248544, at *7-9 (N.D. Ill. May 24, 2019).¹² The 1987 regulation, which states that the maximum penalty is $100,000, cannot be squared with the subsequent statutory language stating that the maximum penalty “shall be increased” to the greater of $100,000 or half the account balance. The obsolete regulatory cap on willful FBAR penalties in 31 C.F.R. § 1010.820(g)(2) is therefore no longer valid.

2. The Horowitzes' arguments to the contrary are unavailing

The Horowitzes contend that 31 U.S.C. § 5321(a)(5)(A) gives the Secretary the discretion to set a lower maximum penalty and consequently, there is no conflict between the statute and regulation. (Br. 39-44.) That contention misreads the statute.

The language on which the Horowitzes rely states that the Secretary “may impose a civil money penalty on any person who violates, or causes any violation of,” the FBAR requirement. 31 U.S.C. §5321(a)(5)(A). The Secretary, in other words, has the discretion to impose a penalty, or not impose a penalty, in any given case. Further, because the statute specifies a maximum penalty but not a minimum penalty for willful violations (see § 5321(a)(5)(C)), the Secretary also has the discretion to impose a penalty below the maximum in any given case. In this case, for instance, the IRS (as the Secretary's delegate) exercised that discretion and imposed approximately 25% of the full statutory penalty on the Horowitzes. (See JA805, 829-30, 836, 860-61.)

That does not, however, mean that the Secretary has the authority to set a generally applicable maximum penalty that is lower (or higher) than the one that Congress mandated. To the contrary, although Congress used the discretionary “may” in discussing whether a penalty applies in any given case (31 U.S.C. § 5321(a)(5)(A)), it used the mandatory “shall” in setting the maximum penalty (§ 5321(a)(5)(C)). Contrary to the Horowitzes' contention, there is nothing “incongruous” (Br. 43) about a result that directly follows from the words that Congress chose. The Secretary therefore lacks the discretion to set a generally applicable maximum penalty that departs from Congress's chosen cap.

The Horowitzes also contend that the IRS is attempting to undercut FinCEN's authority by amending its regulations through the Internal Revenue Manual (“IRM”). (Br. 44-47.) They also claim that FinCEN's failure to amend the regulation, while also updating the inflation tables, suggests that it considers the regulation to be valid. (See Br. 39 n.4, 47.)

To the contrary, FinCEN has recognized that the amended maximum penalty that Congress enacted in 2004 now governs all FBAR cases. In 2010, FinCEN noted that “[a] person who willfully fails to” file a required FBAR “may be subject to a civil monetary penalty equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation.” Amendment to the Bank Secrecy Act Regulations — Reports of Foreign Financial Accounts, 75 Fed. Reg. 8844-01, 8854 (Feb. 26, 2010). Consequently, it agreed with the IRS's interpretation set forth in the IRM. Cf. IRM § 4.26.16.4.5.1(4), 2008 WL 5900930 (July 1, 2008).

Nor can FinCEN's failure to repeal 31 C.F.R. § 1010.820(g)(2) (see Br. 39, 47) be seen as a continuing endorsement of that regulation's vitality. The 2004 amendment went into effect immediately upon being enacted. See American Jobs Creation Act of 2004, § 821(b) (“The amendment made by this section shall apply to violations occurring after the date of the enactment of this Act.”). Consequently, it “is a self-executing statute, requiring no regulatory implementation.” United States v. Paul, 23 F.3d 365, 367 (11th Cir. 1994). Moreover, as the statute itself is clear, there is no need to wait for an implementing regulation parroting its language. See Island Creek Ky. Mining v. Ramage, 737 F.3d 1050, 1062 (6th Cir. 2013).

The Supreme Court has also recognized that “[t]he Treasury's relaxed approach to amending its regulations to track Code changes is well documented.” United Dominion Indus., Inc. v. United States, 532 U.S. 822, 836 (2001). As a result, the Court has refused to read “any affirmative intention” into the failure to amend a regulation. Id. at 836-37; accord Umbach v. Commissioner, 357 F.3d 1108, 1112 (10th Cir. 2003); Knochelmann v. Commissioner, 455 F. App'x 536, 539 (6th Cir. 2011). In any event, when Congress amends a statute in ways that invalidate preexisting regulations, the failure to “formally withdraw[ ] [regulations] from the Code of Federal Regulations does not save them from invalidity.” Barseback Kraft AB v. United States, 121 F.3d 1475, 1480 (Fed. Cir. 1997); accord Umbach, 357 F.3d at 1112; Knochelmann, 455 F. App'x at 539; see also Gonzales v. Oregon, 546 U.S. 243, 257 (2006) (“the existence of a parroting regulation does not change the fact that the” underlying question involves “the meaning of the statute”).

The Horowitzes also note that FinCEN has periodically updated 31 C.F.R. § 1010.821, which lists the amounts of various penalties as adjusted for inflation, implying that FinCEN considers the 1987 regulation to be valid. (Br. 39 n.4 (citing Civil Monetary Penalty Adjustment and Table, 81 Fed. Reg. 42503-01 (June 30, 2016).) Any such suggestion is incorrect. By statute, the inflation adjustments apply only to penalties that are (i) “for a specific monetary amount as provided by Federal law,” or (ii) have “a maximum amount provided for by Federal law.” 28 U.S.C. § 2461 note; see also Federal Civil Penalties Inflation Adjustment Act, Pub. Law No. 101-410, § 3(2), 104 Stat. 890 (Oct. 5, 1990). The Office of Management and Budget has advised agencies that this language does not include “penalties written as functions of violations,” such as penalties based on “the value of the transaction.” OMB, Memorandum for the Heads of Executive Departments and Agencies 2 (Feb. 24, 2016), http://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2 016/m-16-06.pdf. FinCEN has more specifically recognized, in the preamble to the 2016 inflation adjustments, that those adjustments do not apply to penalties that “lack a stated dollar amount and are instead written solely as functions of violations.” 81 Fed. Reg. at 42504. In short, although the $100,000 penalty in § 5321(a)(5)(C) is one that Congress has said should be adjusted for inflation, the alternate maximum based on the value of the account is not. Thus, the Horowitzes' arguments are not supported by the relevant history and statements of FinCEN. Consequently, they should be rejected.

D. The District Court correctly granted summary judgment on the Horowitzes' statute-of-limitations defense

It is undisputed that the limitations period for the IRS to assess FBAR penalties against the Horowitzes for 2007 and 2008 expired on December 31, 2015. (JA362.) It is also undisputed that the IRS assessed the penalties on June 13, 2014 — well in advance of the deadline — because it did not receive the Horowitzes' consent to extend the limitations period by the requested date. (See JA802, 883, 888-92.) The penalties were formally assessed as indicated on Penalty Assessment Certifications, signed by William Calamas. (JA878-81.) The IRS notified the Horowitzes of the assessments by letter mailed on June 13, 2014. (JA882-87.)

Nonetheless, the Horowitzes claim that a trier of fact should have determined whether a Treasury Department employee's subsequent deletion of a date field in a computer program constituted a formal “reversal” of the penalty assessments. (Br. 49-51.) This is the opposite of what they claimed below, where they contended that there were no material facts in dispute and that the court should decide the issue on summary judgment. (See JA499, 540.) Regardless, the Horowitzes' contentions are beside the point because that Treasury employee had no authority to reverse any assessment.

“Ordinarily, a defense based on the statute of limitations must be raised by the defendant through an affirmative defense, and the burden of establishing the affirmative defense rests on the defendant.” Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007) (citations omitted). That burden is even higher when the other party is the United States. Allnutt v. Commissioner, 523 F.3d 406, 412 (4th Cir. 2008). “'Statutes of limitation sought to be applied to bar rights of the Government, . . . must receive a strict construction in favor of the Government.'” Id. (quoting Badaracco v. Commissioner, 464 U.S. 386, 392 (1984)); accord Bufferd v. Commissioner, 506 U.S. 523, 527 n.6 (1993); Levin v. Commissioner, 986 F.2d 91, 93 n.12 (4th Cir. 1993); Shockley v. Commissioner, 686 F.3d 1228, 1235 (11th Cir. 2012).

The unauthorized conduct of Government employees generally does not preclude the Government from asserting its rights. “'[O]fficers who have no authority at all to dispose of Government property cannot by their conduct cause the Government to lose its valuable rights by their acquiescence, laches, or failure to act.'” California ex rel. State Lands Comm'n v. United States, 457 U.S. 273, 277 n.4 (1982) (quoting United States v. California, 332 U.S. 19, 39-40 (1947)). Similarly, the Government is not bound by the incorrect statements of its agents. Miller v. United States, 949 F.2d 708, 712 (4th Cir. 1991); Posey v. United States, 449 F.2d 228, 234 (5th Cir. 1971). And, more specifically, courts have held that unauthorized bookkeeping errors did not preclude the Government from proceeding on an assessment. See In re Becker, 407 F.3d 89, 97 (2d Cir. 2005); Matter of Bugge, 99 F.3d 740, 745 (5th Cir. 1996); Kroyer v. United States, 55 F.2d 495, 499 (Ct. Cl. 1932); Simon v. United States, 261 F. Supp. 2d 567, 573 (M.D. La. 2003); Crompton-Richmond Co. v. United States, 311 F. Supp. 1184, 1187 (S.D.N.Y. 1970).

These principles are particularly apt where the employees' actions are internal and not communicated outside of the Government. Thus, the Government “is not bound by their own internal documents or self-imposed due dates.” Allnutt, 523 F.3d at 414. Consequently, this Court has held that the IRS was not bound by an erroneous date listed in an internal IRS document as the date a taxpayer's return was filed where it was later corrected by another employee. See id.

Here, once the penalties were assessed — which they indisputably were on June 13, 2014 — Treasury Department employees did not have authority to reverse or reduce the penalties without DOJ's approval. The Bank Secrecy Act provides that the head of an executive agency “may compromise a claim of the Government of not more than $100,000 (excluding interest) or such higher amount as the Attorney General may from time to time prescribe that has not been referred to another executive or legislative agency for further collection action.” 31 U.S.C. § 3711(a)(2). The regulations then explicitly provide that “when the principal balance of a debt . . . exceeds $100,000 or any higher amount authorized by the Attorney General, the authority to accept the compromise rests with the Department of Justice.” 31 C.F.R. § 902.1(b). Thus, in such instances, the IRM advised: “Post-assessed FBAR cases in excess of $100,000 cannot be compromised by [IRS] Appeals without approval of [DOJ]. Once assessed, the penalty becomes a claim of the U.S. Government.” IRM 8.11.6.1(6), 2013 WL 8003415 (Oct. 28, 2013) (citations omitted).

Accordingly, the absence of DOJ approval is fatal to any claim that the Government has compromised a claim exceeding $100,000. United States v. Bloom, 112 F.3d 200, 206 (5th Cir. 1997). Indeed, under an analogous statute (I.R.C. § 7122(a)) that precludes the IRS from compromising tax liabilities after it refers a case to DOJ, the courts have rejected arguments that the IRS could completely abate or waive liabilities without DOJ approval. United States v. Wingfield, 822 F.2d 1466, 1476 n.8 (10th Cir. 1987) (holding that IRS attorneys had no power to “waive a claim of the United States” because only the Attorney General or his delegate could “compromise” a case); United States v. Jackson, 511 F. App'x 200, 203 (3d Cir. 2013) (concluding that IRS abatements “were void because they were made without authorization from the DOJ”).

The Horowitzes contend that Nancy Beasley, a Treasury Department employee, did not need DOJ approval to reverse their penalties because she was undoing a premature assessment rather than “compromising” the penalties. (Br. 51-54.) But the premise of their argument is wrong. The IRS did not mistakenly assess the penalties in June 2014. Rather, it saw that the limitations period for assessing the 2007 year was fast approaching and, because the IRS had not yet received the Horowitzes' consent to extend the limitations period, it went ahead and assessed the penalties. As it turned out, the Horowitzes' consents were en route to the IRS, so the assessments may not have been necessary at that time, but there was nothing accidental or erroneous about them. Thus, Beasley's deletion of the date field was not akin to correcting a mistake.¹³ Indeed, Beasley's supervisor (Calamas) certified the assessments, and the IRS sent notice and demand for payment to the Horowitzes. (JA878-87.) Even as between Beasley and her supervisor, Beasley would not have authority to reverse the assessment.

Moreover, the IRS took all steps necessary to make the June 2014 assessments official, and they thus became a claim of the United States. Semantics aside, the assessments could not lawfully be reversed, reduced, compromised or undone in any way without DOJ approval. The Horowitzes' construction is illogical as it would allow a few uncommunicated key strokes from a Treasury Department employee to concede 100% of a claim of the United States (which is Government property) without DOJ approval, while a “compromise” involving a 1% concession of the claim would still require DOJ approval.¹⁴ This would defeat the entire purpose of the statute.

Furthermore, as the District Court also noted, it would make no sense for Beasley to be able to reverse an assessment on her own when her manager's approval was required to make the assessment in the first place (JA1228), as documented on the Penalty Assessment Certifications (JA878-81). There is no suggestion anywhere in the record that DOJ (or even Beasley's manager) ever approved a reversal of the assessments.

Finally, there was no prejudice to the Horowitzes as they did not learn of the Appeals officers' actions until discovery in this case. On the contrary, the assigned Appeals officer, Rodrigo, told the Horowitzes that DOJ would have to approve any concession of the penalties and that the 2-year clock was running. (JA1933-34.) Thus, the Government bound itself to the June 2014 assessment date. In fact, as the record shows, Rodrigo terminated the Horowitzes' case in 2016 without processing a settlement proposal because she did not have enough time to do so in light of the imminent filing deadline. (See JA1948-49.) The District Court was correct to reject the Horowitzes' argument that the penalty assessments are time-barred, and there are no material facts in dispute warranting a trial on this issue.¹⁵

CONCLUSION

The judgment of the District Court should be affirmed.