Individual Argues Court Erred in FBAR Penalty Decision

United States of America,
Plaintiff-Appellee, Cross-Appellant
v.
Alexandru Bittner,
Defendant-Appellant, Cross-Appellee

IN THE
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

On Appeal from
United States District Court for the Eastern District of Texas
4:19-CV-415

BRIEF OF APPELLANT ALEXANDRU BITTNER

SUBMITTED BY:
Farley P. Katz
Rachael Rubenstein
Clark Hill PLC
2301 Broadway Street
San Antonio, TX 78215
Attorneys for Defendant-Appellant,
Cross-Appellee Alexandru Bittner

CERTIFICATE OF INTERESTED PERSONS

The undersigned counsel of record certifies that the following listed persons and entities as described in the fourth sentence of 5^th CIR Rule 28.2.1 have an interest in the outcome of this case. These representations are made in order that the judges of this court may evaluate possible disqualification or recusal.

Appellees:	Counsel for Appellees:
United States of America	Paul Allulis of U.S. Department of Justice Tax Division, Washington, DC

Appellant:	Counsel for Appellants:
Alexandru Bittner	Farley P. Katz & Rachael Rubenstein of Clark Hill PLC, San Antonio, TX

Other Interested Parties:	Counsel for Interested Parties:
Sherry Bittner, spouse of Appellant	Farley P. Katz & Rachael Rubenstein of Clark Hill PLC, San Antonio, TX

Farley P. Katz
Attorney of record for Alexandru Bittner

STATEMENT REGARDING ORAL ARGUMENT

Appellant, Alexandru Bittner, believes that oral argument may be helpful to the Court as the case involves technical bank information reporting issues and details of Mr. Bittner's life in Romania. Further, the position of the IRS advanced here that an individual who non-willfully fails to file information forms he did not know existed — should automatically be penalized up to $2,720,000 — is an unconscionably harsh position that would adversely affect numerous other individuals in similar circumstances.

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TABLE OF CONTENTS

CERTIFICATE OF INTERESTED PERSONS

STATEMENT REGARDING ORAL ARGUMENT

TABLE OF CONTENTS

TABLE OF AUTHORITIES

JURISDICTIONAL STATEMENT

STATEMENT OF THE ISSUE

STATEMENT OF THE CASE

SUMMARY OF THE ARGUMENT

ARGUMENT AND AUTHORITIES

CONCLUSION

CERTIFICATE OF SERVICE

CERTIFICATE OF COMPLIANCE

TABLE OF AUTHORITIES

CASES

Congdon v. United States, 09-CV-289, 2011 WL 3880524 (E.D. Tex. Aug. 11, 2011), report and recommendation adopted, 4:09-CV-289, 2011 WL 3880564 (E.D. Tex. Aug. 31, 2011)

Davidson v. Stanadyne, Inc., 718 F.2d 1334 (5th Cir. 1983)

Jarnagin v. United States, 134 Fed. Cl. 368 (2017)

Matthews v. Ashland Chemical, Inc., 703 F.2d 921 (5th Cir. 1983)

Moore v. United States, No. C13-2063RAJ, 2015 WL 1510007 (W.D. Wa. Apr. 1, 2015)

Rogers v. Bromac Title Services, L.L.C., 755 F.3d 347, 350 (5th Cir. 2014)

United States v. Agrawal, No. 18-C-0504, 2019 WL 6702114 (E.D. Wa. Dec. 9, 2019)

United States v. Moore, No. C13-2063RAJ, 2015 WL 1510007 (W.D. Wa. Apr. 1, 2015)

United States v. Ott, No. 19-cv-12174, 2019 WL 3714491 (E.D. Mich. Aug. 7, 2019)

STATUTES

26 U.S.C. § 6038

26 U.S.C. § 6038(a)

26 U.S.C. § 6038(b)(1)

26 U.S.C. § 6038(b)(2)

26 U.S.C. § 6038(c)(4)(B)

26 U.S.C. § 6038A

26 U.S.C. § 6038A(d)

26 U.S.C. § 6038A(d)(3)

26 U.S.C. § 6038D

26 U.S.C. § 6038D(d)

26 U.S.C. § 6038D(g)

28 U.S.C. § 1291

28 U.S.C. § 1331

28 U.S.C. § 1345

28 U.S.C. § 1355

31 U.S.C. § 5314(a)

31 U.S.C. § 5321(a)(5)(B)(i)

31 U.S.C. §5321(a)(5)(B)(ii)

31 U.S.C. § 5321(a)(5)(B)(ii)(II)

31 U.S.C. § 5321(a)(5), amended by Pub. L. No. 108-357 (2004)

Pub. L. No. 91-508 (1970)

Pub. L. No. 108-357 (2004)

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

OTHER AUTHORITIES

I.R.M. 4.26.16.2

I.R.M. 4.26.16.2.1(2)

I.R.M. 4.26.16.2.2(4)

I.R.M. 4.26.16.6.4.1

I.R.S News Release Fact Sheet 2011-13 (December 2011)

I.R.S. News Release IR-2012-65 (June 26, 2012)

I.R.S. News Release IR-2014-73 (June 18, 2014)

Secretary of the Treasury, A Report to Congress in Accordance with § 361(b) of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act), (Apr. 26, 2002)

RULES

5th Cir. R. 25.2.1

5th CIR. R. 32.1

FED. R. APP. P. 4(a)(1)(B)

FED. R. APP. P. 32(a)(5)

FED. R. APP. P. 32(a)(6)

FED. R. APP. P. 32(a)(7)(B)

FED. R. APP. P. 32(f)

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

REGULATIONS

26 C.F.R. § 1.6038-3(k)(4)

26 C.F.R. § 1.6038A-4(b)(2)(iii)

26 C.F.R. § 1.6038D-8(e)(3)

31 C.F.R. § 1010.306(c)

31 C.F.R. § 1010.350(a)

31 C.F.R. § 1010.350(g)(1)

31 C.F.R. § 1010.350(a)(e)(2)(ii)

31 C.F.R. §§ 1010.710 et seq.

31 C.F.R. § 1010.810(g)

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JURISDICTIONAL STATEMENT

The district court had subject matter jurisdiction over this case pursuant to 28 U.S.C. §§ 1331, 1345 and 1355 because the action arose under a federal statute for the recovery of a penalty and the United States was the plaintiff.

This Court has jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. The final judgment that is the subject of this appeal disposed of all issues and was entered on July 22, 2020. The Notice of Appeal was filed on September 4, 2020, within 60 days of the judgment. This appeal, therefore, is timely under Fed. R. App. P. 4(a)(1)(B).

STATEMENT OF THE ISSUE

Whether the district court erred in determining that there was no genuine issue of material fact as to whether Alexandru Bittner had reasonable cause for failing to timely file Reports of Foreign Bank and Financial Accounts (“FBARs”) for the years 2007-2010.

STATEMENT OF THE CASE

This case arose out of Mr. Bittner's failure to timely file annual FBARs for the years 2007-2011. ROA.15-37. In 2017, approximately four years after Mr. Bittner voluntary filed correct FBARs for the years at issue, the IRS assessed non-willful delinquency penalties against him of $10,000 for each foreign bank account in which he had a financial interest, totaling $2,720,000. ROA.15-37, 256-57. In 2019, the Government sued Mr. Bittner to reduce its FBAR penalty assessments to judgment. ROA.15-37. Mr. Bittner contested his liability for those penalties.¹ ROA.105-125. He moved for partial summary judgment on grounds that the statute authorizing the penalty imposed a maximum penalty of $10,000 per annual FBAR form, or $50,000 in total, and not the vastly greater penalty of $10,000 per account, totaling $2,720,000. ROA.224-254. The Government cross moved for partial summary judgment on that same issue. ROA.297-328. It also moved for summary judgment on the years 2007-2010 on the ground that, as a matter of law, Mr. Bittner lacked reasonable cause for his late filings.² Id.

The district court held that the statute imposing non-willful penalties for late filing of FBARs imposes a maximum penalty of $10,000 per annual form. ROA.1558-1586. Accordingly, the court granted Mr. Bittner's motion for partial summary judgment on that issue and denied the Government's cross motion. Id. As to the 2007-2010 FBARs, the court granted the Government's motion, finding that there is no genuine issue of material fact as to whether Mr. Bittner had reasonable cause. Id. Under those rulings, Mr. Bittner is liable for a $10,000 penalty for each late filed FBAR for 2007-2010, but Mr. Bittner's legal and factual defenses to the 2011 penalty were not resolved. Id. In order to have a final, appealable order, Mr. Bittner withdrew and waived his reasonable cause defense regarding the 2011 FBAR penalty assessed against him. ROA.1644. Accordingly, on July 31, 2020, the court entered a final judgment determining that Mr. Bittner was liable for non-willful FBAR penalties in the amount of $10,000 per form for 2007-2011, totaling $50,000. ROA.1656-1658.

On September 4, 2020, Mr. Bittner appealed the holding that he lacked reasonable cause for the 2007-2010 forms as a matter of law, and on September 17, 2020, the Government cross-appealed the holding that the statute limits the maximum penalty to $10,000 per annual form, instead of per bank account. ROA.1659-1660, 1662-1663.

I. MATERIAL FACTS

The relevant facts regarding Mr. Bittner are found primarily in the First Amended Answer (ROA.105-125); his Statement of Reasonable Cause (ROA.441-444); Declaration of Alexandru Bittner (ROA.255-257), Corrected FBAR Forms (ROA.335-339); Mr. Bittner's deposition testimony (ROA.703-742, 993-1061, 1310-1333); deposition testimony from the IRS Examining Agent, Ahn Reach (ROA. 258-264, 1064-1101); the IRS Notice of Deficiency concerning proposed additional income taxes (ROA.1102-1104), a Tax Court Decision Document in Docket No. 19894-17, Alexandru J. Bittner & Sherry Bittner v. Commissioner of Internal Revenue (ROA 1105-1107); and Stipulations of Settled Issues from that case (ROA 1122-1126). Based on those documents the following facts are not in dispute or are assumed true for the purposes of the Government's motion:

A. Background

Mr. Bittner was born in Romania in 1957 where he lived until 1982 during communist control. ROA.255, 441, 707. Mr. Bittner did not speak English growing up in Romania and learned it as his third language, after Romanian and French. ROA.706-707. Mr. Bittner attended a high school in Romania that emphasized technical education, and after his second year he opted into mathematics for his curriculum track. ROA.441, 705-706. At the Politehnica University of Bucharest, Mr. Bittner studied mechanical and chemical engineering. ROA.441, 998-999. He also served in the Romanian army, as required by Romanian law. ROA 255, 441, 706. Mr. Bittner obtained a master's degree in chemical engineering in 1981. ROA.441, 706. He has never taken any educational courses in accounting, law, or taxation. ROA.116, 998-999.

In early 1982, Mr. Bittner immigrated to the United States with the assistance of the Hebrew National Aid Society to escape the communist regime and discrimination against Jews. ROA.255, 441, 706. Mr. Bittner became a naturalized citizen in 1987 at the age of 30. ROA.255, 441, 709. His first job in the U.S. was a dishwasher. ROA.255, 441, 706-707. After a year or so in the United States, he became a plumber's apprentice. ROA.255, 441, 706-707. Later, he obtained a master plumbing certificate. ROA.255, 441, 708. Mr. Bittner then worked as a plumber with various employers until he moved back to Romania. ROA.255, 441, 708. He also fixed up and sold a few houses. ROA.708-709. In 1984, while in the United States, Mr. Bittner met and married Sherry, who was a naturalized citizen from China, with a high-school education. ROA.441.

In 1990, the Romanian Revolution occurred and the fall of communism in Romania. ROA.255, 441, 708. After living in the United States for eight years (only three as a naturalized citizen), Mr. Bittner returned to Romania believing there would be an opportunity for a better life in his home country. ROA.255, 441, 708. His wife joined him in Romania in 1991, where they resided until late 2011. ROA.255, 441, 709. When Mr. Bittner moved back to Romania, he registered with the United States embassy and updated the embassy whenever his residential address changed. ROA.441, 710-711. During the two decades Mr. Bittner lived in Romania, he returned to the United States only three to four times for brief visits. ROA.255, 441, 737-738.

During the years he resided in Romania, Mr. Bittner became a successful businessman and investor, acquiring interests in numerous companies. ROA. 441. He made and lost significant amounts of money. Id. He complied with Romanian tax laws. Id.

Like many other dual citizens who reside outside of the United States, Mr. Bittner was unaware that he was taxed by the United States on income he earned in Romania, where he paid tax, or that he was required to file United States income tax returns reporting world-wide income.³ ROA.255-256, 441-442, 1057. Accordingly, while residing in Romania, he did not file United States tax returns reporting non-U.S. source income. ROA.116, 255-256, 441-442. However, after Mr. Bittner returned to Romania, he acquired a minority interest in a restaurant in Los Angeles owned by his sister and brother-in-law, operated as an S-Corporation. ROA.255, 1001-1002, 1047-1048. When he lived in Romania and had income from the Los Angeles restaurant, 1997 through 2000, his sister prepared 1040s for him reporting small amounts of United States source income from the restaurant (gross income ranging from $2,318 to $62,724), which he signed and sent back to her for filing. ROA. 255, 645-654, 1050-1052, 1115. When living in Romania, Mr. Bittner did not understand that he was required to report to the United States or pay United States income tax on income earned in Romania. ROA.255, 441-442, 1050-1052.

Further, while living in Romania, Mr. Bittner had no idea of any obligation to file information reporting forms to the U.S. government about his interests in bank accounts at non-U.S. financial institutions. ROA.255-256, 441-442, 732, 741. In fact, he had never even heard of FBAR Forms until after he returned to the United States in 2011. ROA.255-256, 441-442, 732, 741.

B. Return to the United States in 2011 and Preparation of Tax Returns and FBARs

In 2011, after living for over two decades in Romania, Mr. and Mrs. Bittner moved back to the United States to live in Plano, Texas, where their daughter lived. ROA.255, 442, 1627. Soon after Mr. Bittner returned to the United States, he discovered that he had been required to file tax returns reporting income earned abroad. ROA.256, 442, 729-730. As a result, he searched for an accountant who had experience with United States citizens living and earning money abroad. ROA.256, 442, 729-730. This search led him to hire Mr. Jeff Beckley (“Beckley”), a CPA in Plano, Texas, whose website stated that he had expertise to advise individuals in situations such as Mr. Bittner's, in order to regain compliance with United States law. ROA.256, 442, 730, 1332-1333.

Mr. Bittner told Beckley that he had lived in Romania and had foreign income, bank accounts, and business interests and provided Beckley with all the information and documents he requested. ROA.256, 442, 731, 741. Beckley prepared income tax returns, Forms 1040, for the years 1990-2011. ROA.256, 442. Beckley also told Mr. Bittner that he needed to file FBARs reporting certain foreign bank accounts. ROA.256, 741. That was the first time Mr. Bittner had ever heard of such forms. ROA.255-256, 441-442, 732, 741. Beckley prepared those forms for 1996-2011. ROA.256. Mr. Bittner signed the Form 1040s and FBARs, and Beckley filed them on his behalf. ROA.256, 442. As Mr. Bittner explained in his own words:

Q. When you came back from Romania, you went to Mr. Beckley and you wanted him to file returns and get you straight.

A. Do whatever he needs to do. Tell me whatever I have to pay, if I have to pay something, and file the paperwork, whatever he has to do because I don't know how to do, and I hate to do this. To get me straight, to get me like I used to be when I was in the states and like I thought I am when I was in Romania: In good standing, a good United States citizen.

Q. Did you do that because the IRS was after you? Had the IRS contacted you?

A. In Romania?

Q. Yeah.

A. No, nobody contacted —

Q. Or in the U.S.

A. No.

ROA.1332-1333.

Q. When you lived in Romania, did you have any awareness of whether you were supposed to file returns in the U.S.?

A. No. I was feeling very happy and very feeling good about myself that I was doing everything like I am supposed to.

Q. Did you know you were supposed to report U.S. I'm sorry. Did you know that you were supposed to file returns reporting your worldwide income in the U.S.?

A. No.

Q. When did you first hear about the form FBAR?

A. From Beckley towards the end of his filing because at the beginning he only asked me questions and filled the returns, regular tax returns. He came with FBAR the last two weeks: Ha, FBAR, FBAR. Like now that I remember, his posture at that time, he's like he just found out in the last two weeks with me dealing with him about the FBAR, and then he told me to file on I understood. He didn't say file only one. I understood that I have to file the biggest account, personal account that I had for that year on one bank. Not every single bank that I had in Romania. And, actually, he did not say anything about other bank. The way he — the way I got it from him — not the way he explained to me — is what I understood is that the business produced money in Romania. The business for Romania paid me money in my own account. On which account I had the most money in Romania coming from businesses or from transaction. So this is the bank, the account for this year, the biggest bank account transaction for the account in Romania. So I didn't put the foreign banks' account because I didn't do business with the foreign banks. I didn't receive income.

Q. Did Mr. Beckley ever tell you that you might have to file FBARs for companies you had an ownership interest in?

A. No.

Q. Did you supply everything to Mr. Beckley that he asked you to supply?

A. Yes.

Q. Did you withhold anything from him intentionally?

A. Not — not — whatever he asked, he got usually in 24 hours.

ROA.1331.

Unknown to Mr. Bittner at the time, Beckley made numerous errors in preparing the tax returns and FBARs. ROA.256, 442. Beckley mistakenly determined that under the United States/Romania Tax Treaty (the “Treaty”), Mr. Bittner's income in Romania was taxable only by Romania, not the United States. ROA.256, 442. Accordingly, Beckley reported Mr. Bittner's world-wide income, but backed the amount of Romanian income out of the returns, attaching a statement that the income was not taxable in the United States under the Treaty. ROA.256, 442.

In addition, even though Mr. Bittner provided Beckley with a schedule of all personal bank accounts he had in Romania, Beckley prepared FBARs disclosing only the bank account with highest balance each year. ROA.256, 741. Beckley did not tell Mr. Bittner that he also needed to report accounts owned by corporations if he owned more than 50 percent of the corporations' stock. ROA.256. Also, Beckley did not inform him that he was required to file Forms 5471, reporting interests in foreign corporations despite Mr. Bittner providing information to him about his ownership in foreign companies. ROA.442. As it turned out, Beckley made these grossly negligent errors because he was not competent to provide the services he advertised. ROA.256.

C. IRS Assessment of Additional Taxes and Penalties, Amended Returns, Forms 5471s and Corrected FBARs

The IRS disallowed the claimed Treaty exclusions on the tax returns as supposed “mathematical errors,” and assessed and billed Mr. Bittner $6,042,878 in taxes, penalties and interest. ROA.256-257. He then engaged tax counsel and a new CPA firm. Id. On September 12, 2013, Mr. Bittner filed amended tax returns for the years 2006-2011, which took nearly nine months to prepare because of their complexity. ROA.256-257, 442-444. Primarily because of foreign tax credits and capital losses, those tax returns showed total tax due of $625, which Mr. Bittner paid at that time. ROA.256-257.

In September of 2013, Mr. Bittner filed corrected FBARs for the years 2006-2011 prepared by the new CPA. ROA.257, 335-339, 445. On each form, the box was checked that Mr. Bittner had financial interests in 25 or more foreign accounts. ROA.257, 335-339, 445. As Mr. Bittner was just an investor, he did not have signatory authority over any of the corporate accounts. ROA.257. Although the FBAR forms instructed that Mr. Bittner only state the number of accounts for which he had a financial interest in and that he should not provide specific bank account information unless asked,⁴ he also attached a schedule disclosing all foreign bank account information and balances on advice of his counsel. ROA.257, 446-481. Many of the bank accounts disclosed had balances well below $10,000, including some with as little as $1. ROA.257, 446-481.

Also, in September of 2013, Mr. Bittner filed numerous Forms 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, for the years at issue. ROA.1071-1072. He requested penalty relief for those late forms based on reasonable cause. ROA.441-444. No relief was granted, and in 2017 he was assessed 5471 penalties totaling $5,890,000. ROA1602.⁵

On June 23, 2017, the IRS issued Mr. Bittner a notice of deficiency for the years 2002-2004 and 2006-2011. ROA.257, 1102-1104. For the years here in issue, 2007-2011, the IRS asserted Mr. Bittner owed income taxes totaling $3,521,833. ROA.1103-1104. In response, Mr. Bittner filed a petition in the United States Tax Court, disputing his liability for those taxes. ROA.257. An agreed decision was entered in that case on November 12, 2019. ROA.257, 1105-1107. With respect to the years in issue for which the IRS assessed FBAR penalties (2007-2011), the agreed decision found Mr. Bittner owed no income tax for the years 2008, 2009 and 2010. ROA.257, 1105-1107. For the years 2007 and 2011, he owed $46,385.88 and $127,000, respectively. ROA.257, 1105-1107, about 4.9 percent of the total amount of taxes the government originally claimed. Mr. Bittner paid those amounts in full. ROA.257, 1105-1107.

D. Assessment of FBAR Penalties

On June 8, 2017, the IRS assessed FBAR penalties against Mr. Bittner totaling $2,720,000, computed on a per account basis for Mr. Bittner's non-willful failure to timely file FBARs for 2007-2011. ROA.1-36, 555-559. In calculating the penalty assessments, the IRS examining agent relied solely upon bank account information and corrected FBARs voluntarily supplied by Mr. Bittner. ROA.261-263, 1072-1073, 1076-1077. As discussed above, Mr. Bittner should have filed five FBAR forms, one for each year 2007-2011, disclosing simply his name, address and total number of foreign accounts he (or a corporation of which he owned over 50 percent) owned, in each year. Instead of imposing a $10,000 penalty for each of the five FBAR forms that were late, the IRS assessed a penalty of $10,000 times the number of accounts identified on his 2013 corrected FBARs, for a total of $2,720,000, plus interest. ROA.34-35.

E. The District Court's Ruling

On June 29, 2020, the district court issued a Memorandum Opinion and Order (“Op.”). ROA.1558-1586. The statute in question, 31 U.S.C. § 5321(a)(5)(B)(i) authorizes “a civil penalty” on any person who violates the statute requiring the filing of an FBAR. If a violation is non-willful (i.e., innocent or negligent), “the amount of any civil penalty imposed . . . shall not exceed $10,000.” ROA.1562, Op. at 5. The court ruled that a non-willful violation of the statute “constitute[s] a single violation within the meaning [of the statute] and carr[ies] a maximum annual $10,000 civil monetary penalty, irrespective of the number of foreign financial accounts maintained.” ROA.1575, Op. at 18.

Under the statute, however, “[n]o penalty shall be imposed if . . . the violation was due to reasonable cause . . .”⁶ ROA.1562, Op. at 5. The court held that “[r]easonable cause is based on all the facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise be assessed.” ROA.1583, Op. at 26. It noted, as an example, that “[r]easonable cause is generally granted when the taxpayer exercises ordinary business care and prudence. . . .” Id. In his motion briefing, Mr. Bittner explained that he was born in Romania; came to the U.S. as a young man; lived here for eight years — three as a naturalized citizen; returned to Romania where he resided for over 20 years with nominal U.S. contact; that he registered with the US embassy in Romania and complied with Romanian tax laws; that he had no education in and little experience with U.S. tax laws, and that he had never heard of FBARs, let alone understood that he was required to file them with respect to bank accounts that were ordinary personal and business accounts. ROA.226-229, 963-978, 1302-1308. The court's brief three-paragraph description of the facts in its opinion (pages 1-2) is mostly correct, although incomplete.⁷ ROA.1558-1559, Op. at 1-2. Despite these unusual circumstances and the fact that Mr. Bittner never heard about the existence of FBARs until he returned to the United States in 2011, the court ruled that Mr. Bittner failed to take affirmative steps to learn about his FBAR filing obligations and consequently, as a matter of law, lacked reasonable cause. Op. at 25-29, ROA.1582-1586. The court accordingly held Mr. Bittner was liable for $10,000 penalties for the years 2007-2010. Id.

SUMMARY OF THE ARGUMENT

Under the statute, an individual who is late in filing an FBAR form but is non-willfull (i.e., acted innocently or negligently), is subject to “a civil penalty” the amount of which “shall not exceed $10,000.” 31 U.S.C. § 5321(a)(5)(B)(i). The statute also provides that “[n]o penalty shall be imposed if . . . the violation was due to reasonable cause . . .” 31 U.S.C. § 5321(a)(5)(B)(i)(ii).

The district court rejected the government's argument that the statute authorizes a $10,000 penalty for each foreign bank account and held that a non-willful late filing “constitute[s] a single violation within the meaning [of the statute] and carr[ies] a maximum annual $10,000 civil monetary penalty, irrespective of the number of foreign financial accounts maintained.” ROA.1575, Op. at 18. The court also held that “[r]easonable cause is based on all the facts and circumstances in each situation” and “is generally granted when the taxpayer exercises ordinary business care and prudence. . . .” ROA.1583, Op. at 26. (internal quotes omitted).

The court concluded that “Mr. Bittner's main argument for why he qualifies under the reasonable cause exception essentially boils down to 'I didn't know I had to file an FBAR,'” and, since “ignorance of the law is no excuse,” it held that Mr. Bittner did not have reasonable cause as a matter of law. ROA.1583-1584, Op. at 26-27. The court dismissed the facts Mr. Bittner pointed to that explained his ignorance because “he 'did not take affirmative steps [when he lived in Romania] to learn about' his FBAR reporting obligations.” ROA.1585, Op. at 28.

The lower court erred in ruling on the government's motion because summary judgment is not appropriate to resolve this deeply factual inquiry. In any event, the court's application of the reasonable cause standard was wrong.

As the court itself stated in an earlier opinion involving a similar issue, “reasonable cause may be established if the taxpayer shows ignorance of the law in conjunction with other facts and circumstances.” ROA.1584, Op. at 27. (internal citations omitted and emphasis supplied). Mr. Bittner's argument and evidence is not simply that he “didn't know about FBARs.” There are compelling and unique facts — not present in other cases cited by the court — that explain why Mr. Bittner did not know about FBARs and why his ignorance was not unreasonable. For example, he lived in the U.S. for a short period as a young man; left the U.S. in 1990 to return to his country of origin, Romania; had minimal contact with the U.S. for over 20 years, spoke English as a third language; had no training in tax or accounting; and complied with Romanian tax laws. ROA.255-256, 441, 706-707, 709.

Finally, it makes no sense to conclude that penalty relief is unavailable as a matter of law because Mr. Bittner failed to ask questions he had no reason to ask.

The court's holding that there are no genuine disputes over material facts involving reasonable cause thus is incorrect and the government's motion for partial summary judgment should have been denied.

ARGUMENT AND AUTHORITIES

I. STANDARD OF REVIEW

A district court's grant of summary judgment is reviewed de novo, “applying the same standard on appeal as that applied below.” Rogers v. Bromac Title Services, L.L.C., 755 F.3d 347, 350 (5th Cir. 2014). “Summary judgment is proper 'if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.'” Id. (citing Fed. R. Civ. P. 56(a)). “A genuine dispute as to a material fact exists if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. (internal citations and quotations omitted). The “court construes all facts and inferences in the light most favorable to the nonmoving party.” Id. (internal citations and quotations omitted).

II. THE DISTRICT COURT ERRED IN GRANTING SUMMARY JUDGMENT ON THE EXISTENCE OF REASONABLE CAUSE.

A. Introduction to FBARs and Penalties

1. Overview — Statutory Requirement

The Bank Secrecy Act (“the BSA”) was enacted by Congress in 1970. Pub. L. 91-508, 84 Stat. 1114 and amendments, codified at 31 U.S.C. §§ 5311–5325. The BSA and its regulations, promulgated by the Department of Treasury, require individuals to report annually certain foreign bank accounts on a Report of Foreign Bank and Financial Accounts — commonly known as an “FBAR.” See 31 U.S.C. § 5314(a); 31 C.F.R. § 1010.350(a). The FBAR form was designated TD F 90-22.1 (now FinCEN Form 114). ROA.265-291. The FBAR rules require citizens and residents who have a “financial interest” in, or signature or other authority over, one or more bank accounts in a foreign country with an aggregate balance exceeding $10,000 (at any point in the year) to file an annual FBAR form. ROA.274.

An individual is treated as having a “financial interest” in any bank account held by a corporation if he owns more than 50 percent of the stock of that corporation. 31 C.F.R. § 1010.350(a)(e)(2)(ii); ROA.274, 281.

In general, the FBAR forms require specific information about each reportable foreign account, including the name and address of the financial institution, the account number, and the highest dollar balance during the year. ROA.277-284. However, a special rule modifies those general information reporting obligations where a person has “a financial interest in 25 or more accounts.” 31 C.F.R. § 1010.350(a). In that event, the filer must only identify himself and the number of reportable accounts, but not report any details regarding the bank accounts, which information shall only be provided upon specific request by the Secretary:

(1) Financial interest in 25 or more foreign financial accounts. A United States person having a financial interest in 25 or more foreign financial accounts need only provide the number of financial accounts and certain other basic information on the report, but will be required to provide detailed information concerning each account when so requested by the Secretary or his delegate.

31 C.F.R. § 1010.350(g)(1).

Form TD F 90-22.1 thus asks whether the filer has “a financial interest in 25 or more financial accounts.” ROA.268-269, 277. If the answer is “yes,” the instructions provide that the box should be checked, but the filer should “not complete Part II or Part III” of the form, in which parts the detailed information over the bank accounts is ordinarily provided, but should instead “retain records of this information”:

ROA.268-269, 275.

2. Penalties for Late Filed FBARs

Before 2004 only willful failures to file an FBAR were penalized. The penalty was the greater of $25,000 or half the amount in the account, but not more than $100,000. 31 U.S.C. § 5321(a)(5), prior to amendment by Pub. L. No. 108-357 (2004). There was no penalty for a non-willful failure to file, whether innocent or negligent. In 2004, Congress increased the willful penalty to the greater of $100,000 or 50 percent of the balance in the reportable account(s) at the time of the violation, with no cap. See American Jobs Creation Act of 2004, Pub. L. No. 108-357, § 821(a), 118 Stat. 1418 (2004). In addition, Congress added, for the first time, a penalty for non-willful violations and provided that “the amount of any civil penalty imposed under subparagraph (A) [non-willful violations] shall not exceed $10,000.” Id. (emphasis added).

3. Reasonable Cause Exception

Even if an individual has non-willfully failed to timely file an FBAR, however, Section 5321(a)(5)(B)(ii) provides there is an “reasonable cause exception” under which “[n]o penalty shall be imposed” if the delinquency was “due to reasonable cause” and if the balance in the account has been correctly reported:⁸

4. “Reasonable Cause” Relief is Based on all the Facts and Circumstances, No Single Factor is Determinative

The term “reasonable cause” is not defined in the BSA or in Treasury regulations issued under that statute. The term, however, appears many times in the Internal Revenue Code (Title 26 U.S.C. or the “Code”) and the IRS's Internal Revenue Manual (“IRM”) in connection with certain Title 26 provisions that are similar to the Title 31 FBAR filing requirement. For example, 26 U.S.C. § 6038(a) requires US persons to file information forms (IRS Form 5471) on certain foreign entities they have interests in. Like the FBAR provisions, there is a $10,000 annual penalty for failure to comply, although that may increase if non-compliance continues after the taxpayer is given notice. 26 U.S.C. § 6038(b)(1) & (2). The penalty does not apply, however, to delays in complying for which the taxpayer had “reasonable cause” and the relevant regulations provide that “reasonable cause” shall be “determined . . . under all the facts and circumstances.” 26 U.S.C. § 6038(c)(4)(B); 26 C.F.R. § 1.6038-3(k)(4). Similarly, Code section 6038A requires domestic corporations which are owned 25 percent or more by foreign persons to file information returns (IRS Form 5472). See 26 U.S.C. § 6038A. There is a penalty of $25,000 per year which may increase if non-compliance continues after notice. 26 U.S.C. § 6038A(d). No penalty is imposed, however, if the non-compliance was due to “reasonable cause.” 26 U.S.C. § 6038A(d)(3). The regulations provide that “[t]he determination of whether a taxpayer acted with reasonable cause and in good faith is made on a case-by-case basis, taking into account all pertinent facts and circumstances.” 26 C.F.R. § 1.6038A-4(b)(2)(iii).

Code section 6038D similarly requires taxpayers to disclose certain “specific foreign financial assets,” which is done on IRS Form 8938. 26 U.S.C. § 6038D. Failure to timely provide the required information is subject to a $10,000 penalty which may increase if non-compliance continues after the taxpayer is given notice. 26 U.S.C. § 6038D(d). No penalty is imposed, however, if the failure to comply was due to “reasonable cause and not due to willful neglect.” 26 U.S.C. § 6038D(g). Like all these provisions, the regulations provide that: “The determination of whether a failure to disclose a specified foreign financial asset on Form 8938 was due to reasonable cause and not due to willful neglect is made on a case-by-case basis, taking into account all pertinent facts and circumstances.” 26 C.F.R. § 1.6038D-8(e)(3).

The Treasury has delegated “the authority to administer civil compliance” of FBARs to the Financial Crimes Enforcement Network (“FinCEN”), which has in turn re-delegated that authority to the IRS, including the authority to “[i]ssue administrative rulings under subpart G of Chapter X” (31 C.F.R. §§ 1010.710 et seq., “Administrative Rulings”) and to “[t]ake any other action reasonably necessary for the enforcement of these and related provisions . . .” 31 C.F.R. § 1010.810(g), IRM 4.26.16.2, 4.26.16.2.1(2), 4.26.16.2.2(4) (Nov. 6, 2015).

Consistent with this authority, the IRS has issued guidance that “reasonable cause” for not timely filing an FBAR is based on all the relevant facts and circumstances, and it has provided examples of facts that indicate an individual may or may not have reasonable cause. See FS-2011-13, ROA.1108-1112. This standard is the same as the reasonable cause standard for the similar Internal Revenue Code provisions for filing reports on foreign entities and assets discussed above. See supra, p.25-26.

IRS Fact Sheet 2011-13 describes the specific factors that weigh for and against a finding of reasonable cause for failure to timely file an FBAR:

Factors that might weigh in favor of a determination that an FBAR violation was due to reasonable cause include reliance upon the advice of a professional tax advisor who was informed of the existence of the foreign financial account, that the unreported account was established for a legitimate purpose and there were no indications of efforts taken to intentionally conceal the reporting of income or assets, and that there was no tax deficiency (or there was a tax deficiency but the amount was de minimis) related to the unreported foreign account, among others. Factors that might weigh against a determination that an FBAR violation was due to reasonable cause include whether the taxpayer's background and education indicate that he should have known of the FBAR reporting requirements, whether there was a tax deficiency related to the unreported foreign account, and whether the taxpayer failed to disclose the existence of the account to the person preparing his tax return.

FS 2011-13 at 4-5, ROA.1111-1112.

This guidance confirms that an individual is not automatically liable for penalties because he did not know of the existence of FBARs or that he was required to file them. The existence of reasonable cause depends on all the facts and circumstances, and no single factor is determinative. FS 2011-13 at 2-5, ROA.1109-1112.

Application of the “reasonable cause” analysis for late filed FBARs involves different considerations than in the context of failure-to-file penalties assessed for tax returns. Unlike income tax returns, an FBAR is strictly an information reporting form; it does not compute any taxes or amounts owed to the government. It is filed with an agency named “the Financial Crimes Enforcement Network,” not with IRS. Historically, many individuals were unaware of their obligations to file FBARs. In 2002, the Treasury Department issued a report on FBARs (the “Treasury FBAR Report”), finding low rates of compliance and analyzing potential reasons.⁹ The report noted that the “primary notification to a person that it may need to file an FBAR form . . . is the guidance provided in the IRS Form 1040, U.S. Individual Income Tax Return and accompanying instructions” and acknowledged that “there appear to be a number of taxpayers who fail to file because of lack of knowledge or confusion about the filing requirements.” Treasury FBAR Report, at 6. In particular, IRS has recognized that it is common for dual citizens living abroad for many years not to be aware of their obligation to file tax returns and FBARs:

The IRS is aware that some taxpayers who are dual citizens of the United States and a foreign county may have failed to timely United States federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), despite being required to do so. Some of those taxpayers are now aware of their filing obligations and seek to come into compliance with the law.

FS-2011-13 at pg. 1, ROA.1108.

In 2012, recognizing the reality that many citizens and residents have been unaware of the requirement to file FBARs, the IRS announced Streamlined Filing Compliance Procedures specifically designed for nonresident taxpayers who non-willfully failed to report foreign financial assets and pay all tax due with respect to those assets. IR-2012-65; ROA.1518-1519. In 2014, IRS announced expanded Procedures to help both taxpayers residing overseas and those residing in the United States. IR-2014-73; ROA.1523-1525. The updated rules created two different “sub-programs” — one for U.S. residents and one for nonresidents. ROA.1526-1529. Mr. Bitter would have been treated as a nonresident and would have been governed by the Streamlined Foreign Offshore Procedures (“SFOP”). ROA.1530-1534. Under the SFOP, an eligible taxpayer was not subject to any penalties, including FBAR penalties, provided the taxpayer submitted delinquent FBARs for the proceeding 6 years, certain other tax/information returns, paid any taxes owed, and certified in a statement that the failure resulted from non-willful conduct. ROA.1530-1534. During the examination, Mr. Bittner formally requested relief in accordance with the SFOP. ROA.1226-1229, 1462. Mr. Bittner, however, never received a response to his request, nor did he ever receive an explanation as to why he never received a response to his request. ROA.1437.

Even outside the Streamlined Filing Compliance Procedures, the IRS has adopted positions that implicitly recognize that non-willful failures to file FBARs timely are common and should not be harshly punished. Thus, the Internal Revenue Manual, which prescribes procedures for FBAR examinations, adopts the default rule that “in most cases” involving non-willful FBAR penalties, only one penalty per year will be imposed “regardless of the number of unreported foreign accounts.” IRM 4.26.16.6.4.1 — Penalty for Nonwillful Violations — Calculation (11-06-2015); ROA.120-121. The penalty is limited to $10,000 per year, but examiners are advised to “still use the mitigation guidelines and their discretion in each case to determine whether a lesser penalty is appropriate.” Id.

The lower court previously dealt with the similar question of whether an individual had reasonable cause for not timely filing correct Forms 5471, an information reporting form for ownership in certain foreign corporations. See Congdon v. United States, 09-CV-289, 2011 WL 3880524 (E.D. Tex. Aug. 11, 2011), report and recommendation adopted, 4:09-CV-289, 2011 WL 3880564 (E.D. Tex. Aug. 31, 2011). There, the court applied a facts and circumstances test, with no fact controlling, and made clear that an individual may have “reasonable cause” if he “had ignorance of the law” if that was “in conjunction with other facts and circumstances:”

[R]easonable cause may be established if the taxpayer shows ignorance of the law in conjunction with other facts and circumstances. Some factors to be considered include the following: the taxpayer's education, if the taxpayer has been previously subject to the tax, if the taxpayer has been penalized before, if there were recent changes in the tax forms or law which a taxpayer could not reasonably be expected to know, and the level of complexity of a tax or compliance issue. Generally, the most important factor in determining whether the taxpayer has reasonable cause and acted in good faith is the extent of the taxpayer's effort to report the proper tax liability. Failure to file because of an erroneous belief that no return is required to be filed is not reasonable cause. However, a taxpayer's sophistication with respect to tax laws, at the time the return was filed, is relevant in determining whether the taxpayer acted with reasonable cause.

Id. at *3.

B. Summary judgment is not appropriate to determine reasonable cause.

Summary judgment is ordinarily not an appropriate method of resolution of issues that depend on all the relevant facts and circumstances such as whether an individual acted with reasonable cause. See Davidson v. Stanadyne, Inc., 718 F.2d 1334, 1339 (5th Cir. 1983) (“Where . . . the decision of a question of law by the Court depends upon an inquiry into the surrounding facts and circumstances, the Court should refuse to grant a motion for a summary judgment until the facts and circumstances have been sufficiently developed to enable the Court to be reasonably certain that it is making a correct determination of the question of law”)(internal citation omitted); see also Matthews v. Ashland Chemical, Inc., 703 F.2d 921, 925–26 (5th Cir. 1983).

Accordingly, the court below should not have ruled on the motion for summary judgment on reasonable cause but should have permitted the defendant to introduce the evidence bearing on that issue. Since the relevant factors include matters subjective to Mr. Bittner such as his desire to comply with the law, the level of his understanding and sophistication, whether he acted in good faith and his intent, he should have been permitted to testify and have the jury make findings regarding his sophistication, credibility, sincerity and openness and make a reasonable cause finding based on all the facts and circumstances.

The court cited several cases involving non-willful FBAR penalties where summary judgments were granted that certain individuals did not have reasonable cause. ROA.1582-1586, Op. at 25-29. Significantly, the facts in those cases are very different from Mr. Bittner's. They all involved persons who lived or grew up in the United States but who had bank accounts in foreign countries. None involved dual citizens who lived abroad for over 20 years and had routine bank accounts in their country of residence. All involved persons who signed tax returns that explicitly included a check-the-box question whether they had foreign bank accounts, which put them on notice of the issue. In fact, those persons concealed from their United States return preparers that they had foreign accounts, and those who prepared their own returns falsely checked the box that they had “no” foreign bank accounts or left it blank. In all but one, the persons had set up bank accounts in countries where they did not live. All involved exclusively personal accounts, although one involved a corporation that owned only one account. None involved legitimate operating accounts held by foreign corporations actively engaged in businesses.

Jarnagin v. United States, 134 Fed. Cl. 368 (2017), involved a couple raised and educated in the United States who moved to Canada but continued to own and operate United States businesses, and Mrs. Jarnagin continued to live partly in the United States. Their income tax returns were prepared by accountants in the United States, but they did not tell the accountants that they had bank accounts in Canada and the returns they signed and filed stated “no” to the question whether they had foreign bank accounts. Moore v. United States, No. C13-2063RAJ, 2015 WL 1510007 (W.D. Wa. Apr. 1, 2015), involved an individual who had set up a Bahamas corporation which ultimately held a Swiss bank account. He did not answer the question whether he had a foreign bank account on one return and lied to his return prepare about that in another year. United States v. Ott, No. 19-cv-12174, 2019 WL 3714491 (E.D. Mich. Aug. 7, 2019), involved a United States couple who had accounts in Canada. They hired an advisor to prepare their tax returns but did not inform the advisor they had foreign bank accounts. Although it is not discussed, they apparently checked “no” to the foreign bank account question on the returns or did not answer the question. United States v. Agrawal, No. 18-C-0504, 2019 WL 6702114 (E.D. Wa. Dec. 9, 2019), involved a naturalized citizen educated in the United States who opened Swiss bank accounts where he deposited nearly $1 million. Mr. Agrawal falsely told his return preparers that he did not have any foreign bank accounts and in later years prepared the returns himself but did not answer the foreign bank account question.

In contrast with these cases, Mr. Bittner was not a native speaker of English and lived in the United States only for eight years as a young man and refugee, working as a dishwasher and plumber. ROA.255, 441, 706-707, 709. He returned to his native country at age 33 where he lived for over 20 years and had minimal contact with the United States. ROA.255, 441, 708, 737-738. While residing in Romania, he complied with Romanian tax laws, but had no awareness that he should have reported his Romanian income or his personal foreign bank accounts or indeed that FBARs even existed. ROA.255-256, 441-442, 732, 741, 1057. He certainly had no possible reason to suspect that he was required to report bank accounts held by companies he had an interest in. ROA.256, 741. He never denied he had foreign accounts and, upon discovering his error, he promptly took steps to rectify it. ROA.730-732, 1332-1333.

C. The summary judgment evidence shows that Mr. Bittner set forth substantial facts indicating there was a genuine issue for trial regarding whether he had reasonable cause for his untimely FBARs.

Assuming arguendo that it was appropriate to resolve this deeply factual question at the summary judgment stage, there are genuine disputes as to material facts. Thus, it was improper for the court to grant summary judgment on the issue of reasonable cause.

Applying the FS 2011-13 factors to the instant facts, Mr. Bittner had reasonable cause for filing his FBARs late. All the unreported accounts were “established for a legitimate purpose . . .,” i.e., his personal and business needs in Romania (and for apartments in Brussels) and the operating accounts of companies he invested in. ROA.175-717, 722, 741. He paid his taxes in Romania, and he took no actions “to intentionally conceal the reporting of income or assets” from either the Romanian Government or the IRS.¹⁰ ROA.731. To the contrary, he voluntarily disclosed all his income, sales, investments and bank accounts to the IRS before it had any awareness of those. ROA.1076-1077. Significantly, “there was no tax deficiency” — i.e., he owed no income tax for most of the years here in issue — 2008, 2009 and 2010. ROA.1105-1106. And the tax deficiencies for the other two years ($46,386 for 2007 and $127,000 for 2011) were not “related to [an] unreported foreign account,”¹¹ and are modest in any event. Id.

Under FS-2011-13 and the opinion in Congdon, these factors would amply support a finding that Mr. Bittner had reasonable cause. Additional factors support such a finding. Like many other citizens who live abroad, Mr. Bittner had simply no awareness that FBAR forms even existed. He lived in Romania for 20 years, spoke little English, had minimum contacts with the U.S., had little knowledge of U.S. tax rules, and no knowledge of bank reporting regulations. ROA.255-256, 441-442, 706-707, 732, 741. The IRS recognizes that individuals are not deemed to know about FBARs; it has stated that the “primary notification to a person that it may need to file an FBAR form” is “the guidance provided in the IRS Form 1040, U.S. Individual Income Tax Return and accompanying instructions.”¹² But since Mr. Bittner honestly and in good faith, albeit incorrectly, believed he was not required to file US tax returns reporting his Romanian income, he never saw those instructions. ROA.441-442, 741. Once he learned of the existence of the forms and that he should have filed them, however, he took immediate steps to have them prepared and filed, consistent with his desire to be compliant with U.S. laws. ROA.255-257, 441-444, 730-731, 1332-1333.

Given this evidence, the Government's motion for summary judgment should have been denied.

D. The district court erred in its reasonable cause analysis.

The court below erred in holding there were not any genuine issues of material fact as to the existence of reasonable cause. The court looked to its earlier opinion in Congdon v. United States, discussed above,¹³ which involved a taxpayer who had failed to timely file complete IRS Forms 5471 (reporting information about foreign corporations), where the court held that reasonable cause requires an analysis of all the facts and circumstances.

The court however, misunderstood the test for reasonable cause in several respects. First, the court stated that reasonable cause “allows the IRS to provide relief from [the] penalty,” as if this were within the discretion of the IRS. ROA.1583, Op. at 26. In fact, this is not left to the discretion of the IRS. Under the statute itself “[n]o penalty shall be imposed . . . with respect to any violation if . . . such violation was due to reasonable cause . . .” 31 U.S.C. §5321(a)(5)(B)(ii) (emphasis supplied).

Second, the court equated the definition of reasonable cause with “ordinary business care and prudence,” stating that “to demonstrate reasonable cause [Mr. Bittner] must show that he exercised ordinary business care and prudence.” ROA.1583, Op. at 26. (emphasis supplied). In fact, while the exercise of “ordinary business care and prudence” may be an important factor under application of the test, it is not controlling. Indeed, as the court itself noted, relief from penalty is “generally granted when the taxpayer exercises ordinary business care and prudence . . .” ROA.1583, Op. at 26. (emphasis supplied). While the exercise of ordinary business care and prudence thus may be a safe harbor against imposition of the penalty, it is not dispositive.¹⁴

In any event, the court erroneously held that, as a matter of law, Mr. Bittner failed to exercise “ordinary business care and prudence.” ROA.1586, Op. at 29. “Ordinary business care and prudence” necessarily depends on the particular circumstances of each situation. For example, the purpose and nature of the form that is in issue is critical. The level of business care and prudence one should exercise with respect to an income tax return, a form virtually everyone is familiar with, is quite different from obscure information forms such as Form 5471 or FBARs, which many, perhaps most, persons have never heard of. The circumstances also matter greatly — a taxpayer who lives and works in the United States and has a U.S. return preparer is entirely different from a person, like Mr. Bittner, who lived abroad for over 20 years, complied with Romanian tax law, and had negligible contact with the United States. ROA.255, 441, 737-738.

In his deposition, the government repeatedly asked Mr. Bittner whether he had asked anyone if he needed to file reports on his banks outside the United States. He answered that he had no idea that there were such things to even ask about. For example, the government asked:

Q. And when you were in Romania . . . did you ever talk to anyone, any attorneys, accountants or anyone about any kind of — filing any type of banking reports, foreign bank account reports?

A. I didn't know about foreign bank accounts until Beckley told me.

ROA.732.

The government also inquired why Mr. Bittner should not be penalized $2.72 million for not filing FBARs:

Q. Explain to me —

A. Sure.

Q. — why — provide me all the reasons why you shouldn't be held liable for the penalties that are asserted against you in this case regarding the FBARs.

A. My words.

Q. Yeah. I want to know the facts. I want to know why you shouldn't be held liable for that.

A. Those are not facts. They're just my thoughts which I develop right now as you ask me. I didn't do any harm to United States by not reporting something. I was an idiot. You know when you are an idiot, that's not — that's not something that you are supposed to let — be let go. I didn't know the law. That's not supposed to be let go. I jaywalk. Okay, I made a mistake. Okay, give me a ticket. Okay? See, it's different. I don't say let me go. Give me a ticket. What these people want to do, they want to hang me. Hey, I jaywalk. Yeah, you jaywalk. So give me a ticket. No, no, we gonna hang you.

That is not right. I made a mistake; give me a ticket. Educate me, something that I will remember in the future not to do the same thing and that I will talk with all my friends: Hey, don't jaywalk; you're gonna get a ticket.

But not hanging me. Why? Because I don't want to start but — I don't want to start that because — but I have a lot of because documented. Anyway, doesn't matter.

Q. So I heard you said no harm to the Government. I just want to make sure I got this. And then you said — these are your words — that you're an idiot.

A. Yes. I — I didn't know, I didn't care to learn about the law, I didn't think to think about something that I didn't think [of].

ROA.738-739.

In response to questioning by his counsel, Mr. Bittner elaborated on his state of mind while he lived in Romania:

A. All the accountants in Romania have to know the Romanian tax law.

Q. Okay.

A. And none of the accountants in Romania know the Romanian taxes — the tax law

Q. Okay. And did you ask Mr. Strungaru when he was working for you about any kind of U.S. tax law, the U.S. tax obligations?

A. No.

Q. Why not?

A. Why should I?

Q. Okay. You didn't think it was important?

A. He's a Romanian.

Q. Okay. What about when you were living in Romania, did you ask any — did you go seek any kind of tax professionals or help there regarding what may your tax obligations be in the United States when you were in Romania?

A. Would you — I didn't catch it.

Q. Okay.

A. Little bit slower.

Q. I'm sorry, I probably asked that a little fast. So when you were living in Romania —

A. Yes.

Q. when you were back from 1990 to 2011, did you talk to anyone or ask anyone about federal taxes, U.S federal taxes?

A. Why? We're in Romania —

ROA.1034-1035.

In Congdon, the court stated that “reasonable cause may be established if the taxpayer shows ignorance of the law in conjunction with other facts and circumstances.” Congdon, 2011 WL 3880524, at *3 (emphasis added). Despite the fact that Mr. Bittner pointed to numerous facts indicative of reasonable cause, which should have been interpreted in a light most favorable to him, the court stated that “Mr. Bittner's main argument for why he qualifies under the reasonable cause exception essentially boils down to 'I didn't know I had to file an FBAR.'” ROA.1583, Op. at 26. And, since “ignorance of the law is no excuse,” the court held that Mr. Bittner did not have reasonable cause as a matter of law. ROA.1583-1586, Op. at 26-29. The court dismissed factors that Mr. Bittner cited because when he lived in Romania, he did not ask anyone whether he had to file FBAR forms — “he admitted that he 'did not take affirmative steps to learn about' his FBAR reporting obligations.” ROA.1585, Op. at 28.¹⁵

With due respect, this reasoning does not make sense. Mr. Bittner's argument is not simply that “he didn't know about FBARs.” ROA.962-991, ROA.1334-1342, Op. at 26. He presented compelling evidence and unique facts — not present in other cases cited by the court — that explain why he did not know about FBARs and why his ignorance was not unreasonable. Yet, the IRS and the lower court maintain that, even though he had no knowledge of FBARs or bank reporting obligations, he should have asked someone in Romania whether there were forms he had to file in the U.S. regarding his Romanian accounts. And for failing to ask about forms he did not know exist — how would he know to do that? — the IRS seeks to penalize him $50,000 or, if this Court permits, up to $2,720,000.¹⁶ Surely, this is wrong.

Mr. Bittner did not ask anyone about FBARs in Romania not because he was cavalier, but because he had no reason to do so. Given the unique facts and circumstances of this case, and given that the IRS routinely treats other individuals who do not know of FBARs as having reasonable cause, it was improper for the court to deny Mr. Bittner the basic opportunity to have the evidence heard by the jury.

CONCLUSION

For the foregoing reasons, this Court should reverse the district court's grant of summary judgment that Mr. Bittner lacked reasonable cause for the years 2007-2010 as a matter of law and remand the case for trial on that issue.

Respectfully submitted,

FARLEY P. KATZ
Texas Bar No. 11108790
FarleyPKatz@gmail.com

RACHAEL RUBENSTEIN
Texas Bar No. 24073919
RRubenstein@ClarkHill.com

CLARK HILL PLC
2301 Broadway Street
San Antonio, TX 78215
Telephone:(210) 250.6006
Facsimile:(210) 258.2714

Attorneys for Defendant-Appellant, Cross-Appellee Alexandru Bittner