Monday, July 23, 2018

District Court Grants Government Summary Judgment for FBAR Willfulness Civil Penalty (7/23/18)

In United States v. Markus, 2018 U.S. Dist. LEXIS 118871 (D. N.J. 7/17/18) (unpublished), here, the district court granted summary judgment for the Government on willful FBAR penalties.  The docket entries are here.

In summary, Markus was a combat engineer for the U.S. Army in Iraq and then, after leaving the Army, worked for the U.S. Corps of Engineers deployed in Iraq.  He accepted bribes and kickbacks for confidential information for an oil pipeline.  He deposited the proceeds in bank accounts in Egypt and Jordan.  He filed no FBAR at all for 2007 and 2009 and filed an incomplete FBAR for 2008.  He was convicted for the bribery and kickback claims and for failure to file an FBAR for 2009.

The IRS assessed the following FBAR willful civil penalties:

   Account    Account    Penalty
Year Bank Account     Number    Balance    Assessed       %
2007 Banque Misr -2393 $299,250 $100,000 33.4%
2007 Housing Bank I -70220 $744,854 $372,427 50.0%
2007 Housing Bank II -201 $90,000 $45,000 50.0%
2008 Banque Misr -2393 $364,950 $100,000 27.4%
2009 Banque Misr -2393 $400,000 $218,225 54.6%
2009 Housing Bank III -80220 $680,000 $6,362 0.9%
$842,014

The Government filed suit within 2 years of assessment.  Markus represents himself in the case. 

The Court held that the assessments and the civil suit were made and instituted, respectively, within the applicable the statutes of limitations and that Markus' prior criminal conviction not involving FBARs (years 2007 and 2008) did not give rise to collateral estoppel.  The court then turned to the merits of the willful penalty assessment.

First, the Court cites the FBAR willful penalty as being the greater of $100,000 or 50% of the balance in the account at the time of the violation.  The Court does not say anything about the issue in Colliot and Wadhan that capped the FBAR willful penalty to $100,000.  See District Court Caps IRS Authority to Assess Willful FBAR Penalty at $100,000 (Federal Tax Crimes Blog 5/19/18) (on Colliot), here; and Another District Court Limits IRS Authority for FBAR Willful Penalty to $100,000 (7/18/18) (on Wadhan), here.

Second, as to willfulness, the Court says the legal test is:
We next evaluate the willfulness requirement. Section 5321 authorizes a penalty for willful violations of the reporting requirement but fails to define the term "willful." 31 U.S.C. § 5321. Those cases that have taken up the issue have concluded that the term includes all conduct that is voluntary, but not conduct that is merely accidental or unconscious. See McBride, 908 F. Supp. 2d at 1205; Bedrosian, 2017 U.S. Dist. LEXIS 154625, 2017 WL 4946433, at *4. This comports with the Supreme Court's instruction that the "standard civil usage . . . counsels reading the phrase 'willfully fails to comply'" as including within its scope recklessness. Safeco Ins. Co. of America v. Burr, 551 U.S. 47, 57, 127 S. Ct. 2201, 167 L. Ed. 2d 1045 (2007).
Note that the Court does not say anything about the basic definition of willfulness -- intent to violate a known legal duty.

Then the Court applies that test to the summary judgment facts:
Markus does not refute the allegations of willfulness and we see no other way to interpret the record. In 2007, Markus did not file an FBAR. At his plea allocution, he confessed he engaged in a criminal scheme to receive illegal bribe and kickback payments. While he did not confess to willfully failing to file an FBAR for this year, his involvement in a much larger scheme to defraud the United States puts to rest any doubt—and Markus does not refute any of this—that he willfully failed to file an FBAR for 2007. In 2008, Markus did file an FBAR. But he omitted the Banque Misr account from that filing. His tax preparer, Dennis Tomsky, has presented unrefuted evidence that Markus never disclosed the existence of the Egyptian account to him. And as Markus filed an FBAR for his Jordanian accounts, the only available inference from these facts is that he was aware of the reporting requirement for his Banque Misr account but decided not to report it. Finally, Markus pleaded guilty to willfully failing to file an FBAR for 2009 and does not dispute it now. Thus, for each year in question, the Court finds that the willfulness requirement is satisfied.
That's the Court's support for the finding of willfulness.  I think the Court is stretching the facts to grant summary judgment for 2007 and 2008.  For example, the Court says that the facts it recites supports only "one available inference * * * that he was aware of the reporting requirement for his Banque Misr account but decided not to report it."  On the facts recited, however, I don't think that is the express knowledge he finds (not relying on recklesness) is the only available inference.  Moreover, that Markus was involved in accepting bribes and kickbacks and thus had an incentive to conceal does that meant that he knew of the FBAR filing legal duty and intending to violate the duty or, even, that he was reckless in not doing so.  I just don't see on the facts the Court recites that a finding of willfulness is justified.

In any event, Markus is proceeding pro se, so whether that issue will be fully fleshed out is unknown.

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