Saturday, July 23, 2022

3rd Circuit Affirms Bedrosian FBAR Will Penalty Liability Based on His Counsel's Judicial Admissions as to Amount (7/23/22)

In Bedrosian v. United States, ___ F.4th ___,2022 U.S. App. LEXIS 20260 (3rd Cir. 7/22/22), CA3 here, and GS [to come], the Court sustained the district court’s application of the FBAR willful penalty. Given the history which I cover in earlier blogs, the holding on the issue of Bedrosian’s willfulness is not surprising. See Bedrosian on Remand -- Held Bedrosian Acted Recklessly and thus Subject to FBAR Civil Willful Penalty (Federal Tax Crimes Blog 12/6/20), here; and Bedrosian on Appeal; Interesting and Potentially Important Opinion on Jurisdiction in FBAR Penalty Cases (Federal Tax Crimes Blog 12/21/18; 1/10/19), here. The earlier Third Circuit opinion is Bedrosian v. United States, Dep't of Treasury, IRS, 912 F.3d 144 (3d Cir. 2018), 3rd Cir. here and GS here.

The one interesting aspect of the appeal is that the Court, although finding the Government’s proof was deficient as to the amount in the accounts subject to the penalty (thus precluding calculation of the penalty), Bedrosian through counsel made “judicial admissions” as to the amount that the Court of Appeals could invoke to supply the missing proof. The Court said (Slip Op. pp. 18-19, cleaned up): 

Still, even though the District Court did not address this argument, we may affirm on any basis supported by the record, even if it departs from the District Court’s rationale. And while arguably some of the statements Bedrosian made in the District Court proceedings are not judicial admissions, the statement made in opening argument acknowledged the true state of the facts. The concession that “there was about 2 million U.S. dollars” in the undisclosed account makes the IRS’s $975,789.17 penalty below the statutory maximum (50% of the account balance). We therefore affirm the District Court’s judgment on this alternative ground.

 JAT Comments:

1. The Court said early on (Slip Op. 3) that, if Bedrosian’s “omission [failure to report the two Swiss bank accounts] was accidental, the IRS could fine Bedrosian up to $10,000.”  By “accidental,” the court certainly meant nonwillful, referring to the nonwillful penalty. The Court’s spare statement, probably dicta in any event, leaves hanging the current issue of whether the nonwillful penalty is $10,000 per form or per account. The Supreme Court will decide this issue in United States v. Bittner, 19 F.4th 734 (5th Cir. 2021), cert. granted 142 S. Ct. 2833 (2021).  See Supreme Court Grants Cert in Bittner v U.S. On FBAR Nonwillful Penalty Per Form or Per Account Issue (Federal Tax Crimes Blog 6/21/22; 6/22/22), here.

2. The Court said (Slip Op. 6) that the IRS has discretionary authority to assess the willful penalty at below the statutory maximum (50% of the high amounts in the accounts), citing 31 U.S.C. § 5321(a)(5). That discretionary authority, the Court said (Slip Op. 11-12) may only be set aside “if it was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” the APA standard in 5 USC § 706(2)(A).  (Internal quotations and citation omitted.)  Readers will recall that some courts have set aside the IRS application of mitigation rules to impose a less than maximum willful penalty because it believed they were arbitrary. See 11th Cir. Remands For IRS To Re-Determine FBAR Penalties After Affirming Original Calculation Was Arbitrary And Capricious (Federal Tax Crimes Blog 1/26/22), here, discussing United States v. Schwarzbaum, 24 F. 4th 1355 (11th Cir. 1/25/22), CA11 here and GS here. (That 11th Circuit opinion has spawned a lot of commotion in the district court upon remand, so those interested in such commotion may find my discussion by using the search feature in the blog.)

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