Bedrosian on Appeal; Interesting and Potentially Important Opinion on Jurisdiction in FBAR Penalty Cases (12/21/18; 1/10/19)

In Bedrosian v. United States, 912 F.3d 144 (3rd Cir. 2018), CA3 here and GS here, the Court held:  

1. On the threshold issue of the district court's jurisdiction, the Court questioned whether the district court had jurisdiction under the Little Tucker Act, 28 U.S.C. § 1346(a)(2).  That concern was mooted because the court concluded that it was a tax claim under 28 U.S.C. § 1346(a)(1).  Tax claims are, at least facially, subject to the Flora full payment rule.  Bedrosian did not make full payment hoping that the Little Tucker Act avoided that requirement.  So, since this was a tax refund action, according to the Court's concern, Flora required full payment.  But, according to the Court, the district court did have jurisdiction over the Government's counterclaim.  So, the district court had some jurisdiction and, as a result, the Court of Appeals had jurisdiction to consider the merits of the appeal.

2. On the merits, the Court held that, for the FBAR penalty, the Government must satisfy the civil willfulness standard, which includes both knowing and reckless conduct.  The Court thus was consistent with the consensus of the previously decided cases.  The Court said that willfulness, as interpreted, required both a subjective and objective inquiry.

3.  The Court remanded because the Court was not certain that the district court's finding of nonwillfulness considered the objective aspect of willfulness.

I have previously posted on the lower court Bedrosian trajectory (reverse chronological order):

• Big Win for Taxpayer/Filer in FBAR Willful Penalty Case (Federal Tax Crimes Blog 9/21/17; 9/23/17), here. 
• Order on Motion In Limine and Trial Briefs in Case Involving FBAR Willful Penalty (Federal Tax Crimes Blog 9/11/17), here.
• Court Denies Cross Motions for Summary Judgment on FBAR Willful Penalty (Federal Tax Crimes Blog 4/13/17), here.

JAT Comments (added 12/22/18):

Court Denies Cross Motions for Summary Judgment on FBAR Willful Penalty (4/13/17)

In Bedrosian v. United States, 2017 U.S. Dist. LEXIS 56535 (ED PA 2017), here, the Court denied the parties' cross-motions for summary judgment with regard to an FBAR willful penalty assessed against Bedrosian.  The order is relatively short -- 9 pages.  I will just provide (i) the key documents; (ii) a timeline mostly from the Court's Memo (referred to as Court Memo) but with some from the parties' submissions; (iii) a discussion of the issues discussed and decided in the Court Memo; and (iv) some miscellaneous comments at the end.

KEY DOCUMENTS

• Bedrosian Complaint (Dkt 01), here.
• US Answer (Dkt 05), here.
• Bedrosian Reply (Dkt 07), here.
• US Motion for Summary Judgment - Memo (Dkt 22), here.
• US Motion for Summary Judgment - Statement of Facts (Dkt 22-3), here.
• Bedrosian Motion for Summary Judgment - Memo (Dkt 25), here
• Bedrosian Motion for Summary Judgment - Statement of Facts (Dkt 25-1), here.
• Bedrosian Response to US Motion (Dkt 26), here.
• Bedrosian Response to US Motion - Statement of Facts (Dkt 26-1), here.
• US Response to Bedrosian Motion (Dkt 27), here.
• US Reply to Bedrosian Answer to US Motion (Dkt 028), here.
• Court Memo Denying Cross-Motions for Summary Judgment, here.
• Bedrosian Docket Entries (as of 4/14/17), here.

TIMELINE

1.  Bedrosian is sophisticated and successful corporate executive (CEO of generic medication manufacturer).  "In this role, Bedrosian supervises approximately 100 employees, signs contracts and financial statements on behalf of Lannett, researches FDA regulations, and decides company policy with respect to FDA filings."  (Court Memo p. 1.)

2.  Bedrosian has had at least one Swiss account -- with UBS (actually a predecessor that transitioned into UBS before the year at issue) -- since the 1970s.  At the time here relevant (as of 2005 and after), he had two UBS accounts.  "Bedrosian avers that he always considered them one account." (Court Memo p. 2.)  The description in the Government's statement of facts is as follows:  "Each account had subaccounts and contained different assets, but the client numbers for each main account ended in 6167 and 5316."  (US Stmt of Facts par. 15, p. 3.)

3.  "Bedrosian would meet with his UBS banker annually to review his accounts and how well the accounts had performed over the year."  (US Stmt of Facts par. 18, p. 3.)

4.  Bedrosian was advised by a prior accountant some years prior to 2007 that he should be reporting his income from the account(s) but, so Bedrosian alleges, that accountant advised him not to correct and the matter would be worked out upon his death when the "the assets in the Swiss accounts would be repatriated as part of Bedrosian's estate and taxes would be paid on them then."  (Court Memo 2-3.)  That accountant died sometime before Bedrosian assigned the tax return work to a new preparer for the 2007 year.