Government Moves for FBAR Willful Penalty Judgment in Schwarzbaum (9/15/22)

In United States v. Schwarzbaum (S.D. Fla. No. 9:18–CV–81147–BLOOM–REINHART Motion dated 9/15/22), , here, the Government moved “for entry of a second amended judgment” for the willful FBAR penalty.  Readers of this blog will recall that the Schwarzbaum case created much commotion because the Eleventh Circuit held that the IRS calculation of the FBAR willful penalty.  See United States v. Schwarzbaum, 24 F. 4th 1355 (11th Cir. 1/25/22), CA11 here and GS here.  I discuss the Eleventh Circuit opinion in 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.  The Circuit Court opinion reversing and remanding for the district court to remand to the IRS to recalculate the penalty led to much thrashing around in the district court as Schwarzbaum’s counsel jockeyed the APA remand into foreclosing the FBAR penalty on statute of limitations grounds.  I won’t get further into that but those wanting to go further on that issue might start with District Court Retains Jurisdiction While Arbitrary and Capricious FBAR Willful Penalty Amount is Remanded to IRS for Recalculation (5/18/22), here.

In the motion, the Government advises that, upon the IRS recalculation of the penalty using the statutory June 30 balances in the account that the Eleventh Circuit said was the proper referent (rather than spreading a maximum amount over willful years based on high amount in the accounts) produced a higher penalty than the Government sought in the complaint.  Therefore, the Government asks for judgment only in the amount sought in the complaint, $4,185,271, plus penalties and interest.

The Government's exercise of judgment to ask for the lower amount sought in the complaint may be a strategy to deflect the statute of limitations issue that Schwarzbaum’s counsel have so much noised about.

As expected, the Government motion advised the Court that Schwarzbaum’s counsel opposes the motion.

As I have said elsewhere, the IRS’s allocation methodology should always produce a willful FBAR penalty that never exceeds the maximum that it could asset would seem to me not to be arbitrary and capricious in exercising the authority in the statute to impose a less than maximum penalty.  But what do I know?

The Government's motion attaches documents including how it calculated the maximum that it could assert, but the Motion summarizes the calculation as follows:

I. The IRS recalculated the penalties using the account balances on the appropriate dates of violation.

The IRS recalculated the penalty for Schwarzbaum’s willful failure to report his foreign bank accounts for 2007 – 2009 and determined the correct penalty amounts for each year are:

Year Amount

2007 $4,707,801

2008 $4,521,930

2009 $4,291,597

The IRS’s calculation is explained in two documents: Exhibit 1 – The FBAR Penalty Remand Lead Sheet describes how the IRS calculated the penalty in accordance with this Court’s and the Eleventh Circuit’s mandates; Exhibit 2 – The Penalty Calculator for Remand shows the calculation of the maximum statutory penalty along with appropriate Euro and Swiss Franc to U.S. dollar conversion rates and calculations of the aggregate balances in the bank accounts.

The IRS started by calculating the maximum penalty allowed under 31 U.S.C. § 5321(a)(5)(C), which is the greater of $100,000 or 50% of the balance of the account on June 30 following each calendar year where a willful violation was found. When the balance of the account on June 30 was not known, the IRS calculated the penalty at $100,000. Ex. 1 at 1–3 and Ex. 2. The IRS then applied the mitigation guidelines found in the Internal Revenue Manual. Ex. 1 at 4–8.

The IRS submitted this calculation through its normal review procedures, and it was approved in writing by the proper officials. Ex. 3 – FBAR Penalty Approval Form. 

Those wanting to follow further district court developments on a free access site (not PACER) may do so by viewing the docket entries on CourtListener here.