Friday, January 10, 2020

Court Enters Default Judgment in FBAR Willful Penalty Collection Suit (1/10/20)

In United States v. Lanz, 2019 U.S. Dist. LEXIS 222922 (D. N.J. 2019), CL here, the district court entered default judgment against the defendant, Lanz, in an FBAR willful penalty collection suit.  The judgment is for "$544,731.73 for the penalties assessed against him under 31 U.S.C. § 5321(a)(5), accrued interest on such penalties, late payment penalties, and further statutory additions thereon as allowed by law from August 19, 2015, to the date of payment."

The key excerpts are:
Third, the Court finds that the Complaint states a sufficient cause of action. Plaintiff alleges that Defendant violated the reporting requirements of 31 U.S.C. § 5314, as implemented under 31 C.F.R. § 1010.350 and 31 C.F.R. § 1010.306(c), for calendar years 2006, 2007, and 2008. (Compl. ¶ 20). As Plaintiff explains, "[a]ll citizens and residents of the United States who have a financial interest in, or signatory or other authority over, any foreign financial account that had a maximum value greater than $10,000 during the calendar year are required to file an annual report disclosing the existence of each account." (Compl. ¶ 5 (citing 31 U.S.C. § 5314 & 31 C.F.R. § 1010.350)). That annual report—known as a Report of Foreign Bank and Financial Accounts ("FBAR")—is due no later than June 30th of the year following the calendar year. (Id. ¶ 6 (citing 31 C.F.R. § 1010.306(c)). Plaintiff alleges that Defendant was subject to these reporting requirements because Defendant was a U.S. citizen who held a foreign bank account, and the aggregate amount in that account exceeded $10,000 in U.S. currency during 2006, 2007, and 2008. (Compl. ¶¶ 9-12). Plaintiff further alleges that Plaintiff failed to (i) report the income generated in the Account on his federal income tax returns; (ii) [*7]  file an FBAR as required for 2006, 2007, and 2008; and (iii) report having an interest in a foreign bank account on Schedule B of his income tax returns for at least 2006 and 2008. (Id. ¶¶ 13-15). Based on these allegations, the Court finds that Plaintiff has sufficiently stated a cause of action for failure to comply with the reporting requirements of 31 U.S.C. § 5314. 
Moreover, the Court finds that the Complaint provides sufficient basis for the Court to determine that Defendant's failure to report was willful. Willfulness covers both knowing and reckless violations, and "may be proven through inference from conduct meant to conceal or mislead sources of income or other financial information." United States v. Williams, 489 F. App'x 655, 658 (4th Cir. 2012). Here, Plaintiff alleges several facts suggesting that Defendant acted willfully: (i) Defendant took steps to hide his ownership of the Account by telling UBS AG to hold all correspondence relating to the Account (Compl. ¶ 9); (ii) Defendant falsely told the IRS twice that he did not own a foreign bank account, and signed an affidavit stating that he did not have a foreign bank account during 2008 (id. ¶ 17); and (iii) Defendant eventually transferred the Account that he held in his name to another bank and [*8]  put the Account in the name of another person (id. ¶¶ 10-11). These actions suggest that Defendant acted willfully in failing to report his ownership and interest in the Account. See United States v. Brandt, No. 17-80671, 2018 U.S. Dist. LEXIS 226286, 2018 WL 1121466, at *4 (S.D. Fla. Jan. 24, 2018) (finding a willful reporting violation under similar circumstances).

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