An individual contesting willful failure to file foreign bank account report penalties, who has so far unsuccessfully sought judicial review beyond the administrative record, is continuing to find fault with the record on appeal.
In September 2019 the U.S. District Court for the Middle District of Florida confirmed and adopted a magistrate judge’s report and recommendation that Said Rum demonstrated a pattern of failure to report income and a conscious effort to avoid knowledge of FBAR requirements. Rum filed his notice of appeal to the Eleventh Circuit in November 2019.
In his appellant brief, filed on February 24, Rum argued that the district court applied the wrong standard of review over the amount of the penalty since IRS fact-finding was insufficient. Review should have been de novo instead of arbitrary and capricious, he argued. Rum acknowledged that courts differ when it comes to determining what constitutes inadequate fact-finding and that the Eleventh Circuit has not yet laid out a test.
“Regardless of the test this court uses, the district court erred in not holding the agency action unlawful,” the brief states. “The administrative record is tainted by deprivations of due process.”
Rum opened a numbered Swiss bank account with UBS AG in 1998 with $1.1 million, which had a value of approximately $1.4 million in 2008 and against which the government sought civil penalties in the maximum amount of 50 percent of the account value. Rum repeatedly argued to the IRS that the account didn’t exist and provided inconsistent explanations for his actions, according to the magistrate, who recommended that the government’s motion for summary judgment be granted.
Rum has thus far failed to get judicial review beyond the administrative record, although he argued that the IRS demonstrated bad faith by not following its own procedures in determining its FBAR penalty. He had previously attempted to point to an earlier stipulated Tax Court judgment that held he was not subject to civil fraud penalties, an argument he raised again on appeal.
Rum argued in his brief that the IRS did not adequately explain why it applied the willful penalty or set the penalties at 50 percent of account value, and he faulted the IRS for not citing the mitigation guidelines on its Form 886-a. The brief asserts that Rum was denied a fair opportunity to contest the penalty or argue that he qualified for mitigation. His IRS appeals hearing instead centered on an improper deal offered to him by a revenue agent, in which she would have given him a reduced FBAR penalty if he agreed to a civil fraud penalty, the brief argues.
“The IRS did not conduct a thorough and fair investigation. Rather, the IRS was trying to entrap Mr. Rum so that it could assess willful FBAR penalties and civil fraud penalties. In doing so, the IRS violated its own fact-finding policies and procedures,” the brief states.
The brief also faults the IRS for its “clear disregard” of its procedures set in place in the Internal Revenue Manual. It enumerates multiple instances when procedures were ignored for Rum, including merging the FBAR penalty exam and tax return exam, bargaining over penalties, and a revenue agent improperly maintaining that she had no discretion over the penalty amount when her manager ordered her to change a penalty from non-willful to willful and charge the maximum.
Upon de novo review of the penalty, the brief argues that the court should hold that the IRS did not exercise any discretion, authority that is delegated to the examining agent under the IRM.
“This case was one of the first FBAR cases for the IRS; the examiners, managers, and appeals officers were ‘learning by doing,’” the brief states, citing an earlier deposition.
In United States v. Rum, No. 19-14464 (11th Cir.), Rum is represented by Venar R. Ayar of Ayar Law.