UNITED STATES OF AMERICA v. Kronowitz

Filing 49

FINDINGS OF FACT AND CONCLUSIONS OF LAW Signed by Judge Beth Bloom on 6/3/2021. See attached document for full details. (pcs)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 19-cv-62648-BLOOM/Valle
UNITED STATES OF AMERICA,
Plaintiff,
v.
KENNETH G. KRONOWITZ,
Defendant.
_____________________________/
FINDINGS OF FACT AND CONCLUSIONS OF LAW
THIS CAUSE is before the Court following a two-day bench trial held on February 23
and February 24, 2021. ECF Nos. [45], [46]. The Court has carefully considered the testimony of
Tracy Falkowitz, Sybil Kronowitz, and Kenneth Kronowitz, and other evidence presented at trial,
ECF Nos. [48-1] – [48-9], the record in the case, and the applicable law. Set forth below are the
Court’s relevant findings of fact and conclusions of law.
I.

INTRODUCTION
This case involves an attempt by the United States of America (“Government”) to collect

outstanding civil penalties against Defendant Kenneth G. Kronowitz (“Defendant” or
“Kronowitz”) for his willful failure to report his financial interest in foreign bank accounts, as
required by 31 U.S.C. § 3514 for the years 2005-2010. See generally, ECF No. [1] (“Complaint”).
Specifically, the Government alleges that Kronowitz failed to properly report his financial interest
in the following accounts:
Account Name
Republic 0880

Account Owner
KG and SM
Kronowitz

Location
Cayman
Islands

Date Opened
Open as of 2005

Date Closed
Open as of
2014

Case No. 19-cv-62648-BLOOM/Valle
Republic 4300

Capistrano Ltd.

UBS 7227
Basler (“BKB”)
693

Cramo Foundation
Cramo Foundation

Cayman
Islands
Switzerland
Switzerland

2001
October 10, 2005
2008

Open as of
2014
2009
2010

ECF No. [1] ¶ 11. In the Complaint, the Government asserts six counts seeking to reduce to
judgment the previously assessed Report of Foreign Bank and Financial Accounts (“FBAR”)
penalties for each applicable year, pursuant to 31 U.S.C. § 5321(a)(5), as well as interest and late
payment penalties and associated fees. The IRS assessed penalties against Kronowitz for 2005
through 2010 in the amount of $663,771.00.1
II.

FINDINGS OF FACT
A. Kronowitz’s background, education, and business
Kronowitz was born in 1937 in Chicago, Illinois. He graduated high school at Miami Beach

Senior High School, and then obtained a bachelor’s degree in accounting from the University of
Miami in 1961. While in college he met his wife, Sybil Kronowitz, with whom he has three
children. After graduating from college, Kronowitz worked for an accounting firm for two years
and then began his own accounting practice, with his wife as secretary and data entry person. Since
then he was always been a sole practitioner. His clients in general were individuals and small local
businesses.
Kronowitz initially obtained his certified public accountant (“CPA”) certification by
passing several exams and fulfilling a two-year work requirement at an accounting firm. In order
to maintain his CPA certification, he was required to participate every two years in eighty (80)
hours of continuing professional education (“CPE”). During the course of his career, he took CPE

1

As of October 18, 2019, the total owed, including interest and assessed penalty fees was $753,680.37.
ECF No. [1] ¶ 30.

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Case No. 19-cv-62648-BLOOM/Valle
courses such as Tax Shelter Seminar, Foreign Taxation, Offshore Trusts, and Asset
Protection/Est[ate] Pl[an]ning. He does not recall the FBAR being specifically mentioned in any
CPE class. He does recall attending a course given by a University of Miami lecturer during which
the movement of assets offshore for protection of those assets was discussed. Kronowitz now
maintains his CPA license on an honorary basis and is an honorary member of the American
Institute of Certified Public Accountants and the Florida Institute of Certified Public Accountants.
Kronowitz was a professional tax preparer and has been preparing tax returns since 1961
or 1962. For the majority of his career, he prepared between thirty (30) and forty (40) tax returns
per year. He began to wind down his practice in 2008 because of his declining health. Nevertheless,
as recently as 2020, he was preparing tax returns for others for money. Indeed, for tax years 2019
and 2020, he prepared approximately ten (10) to fifteen (15) federal income tax returns each year.
In his tax preparation practice, he prepared 1040s (personal returns) and 1120s (corporate returns)
for subchapter S corporations. He also prepared his own tax returns.
B. Investments with Eli Levy, Caymans Islands accounts
Eli Levy, a real estate developer, was a client of Kronowitz’s beginning in the 1970s.
Kronowitz did Levy’s Florida business returns but did not handle his personal returns or anything
in other countries. However, Levy did give Kronowitz the opportunity to buy one or two percent
of a couple of projects in different countries as a reward for good service. Kronowitz knew he was
investing in properties in different countries.
Kronowitz invested with Levy mostly in the 1970s. He would meet with Levy in person
and give him a check for the investment. In return, Levy did not give him any statement or
confirmation of the investment because the documents were in foreign languages. In addition,
according to Kronowitz, Levy told him that if he thought Levy was trying to “screw” him, then he

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should not invest with Levy. Nevertheless, Kronowitz invested with Levy because he had a good
feeling about Levy. Kronowitz never signed anything for Levy (other than the checks he gave
Levy). Kronowitz’s only record of his investments with Levy was a yellow legal pad on which he
kept notes on the basis of the investments. Kronowitz does not have the yellow legal pad anymore.
Based upon Kronowitz’s attendance at the CPE course in which he remembers being
advised that professionals should move assets offshore for protection, and a rumor that a former
client, Irwin Mogerman, was going to sue him for fraud related to his work for Mogerman’s
company Grand Prix Race-o-Rama, Kronowitz opened two bank accounts in the Cayman Islands
in 2001 (“Cayman Accounts”). Kronowitz had signature authority and was the financial
beneficiary of the Cayman Accounts. His purpose in opening the Cayman Accounts was to keep
funds out of reach from potential creditors.
C. Cramo Foundation, Consista, and the 1210 Trust
In 1999, Kronowitz’s signature and former office address appeared on a document titled
“Management and Administration Agreement,” (the “Agreement”), ECF No. [48-8], regarding the
management of an entity called Cramo Stiftung/Foundation (“Cramo”). The Agreement is between
Kronowitz and an entity named Consista Treuunternehmen (“Consista”), a company in
Liechtenstein, and empowers Consista to manage Cramo on behalf of Kronowitz. The Agreement
is also signed by an individual named Beat Kranz, on behalf of Consista, and as director of Cramo.
Kronowitz is designated as the beneficial owner of Cramo’s assets, and if he is deceased, his wife
is the secondary beneficiary. Kronowitz testified that he does not know what Cramo Stiftung or
Cramo Foundation is, and he never met Beat Kranz. Kronowitz testified that he may have spoken
to Kranz once or twice on a phone call. Kronowitz gave his personal information to Levy, including
his wife and children’s names and birth dates, and believes that Levy must have given that

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Case No. 19-cv-62648-BLOOM/Valle
information to Consista. Although Kronowitz does not remember signing any documents for Levy
or for Consista, his signature appears on the Agreement. ECF No. [48-8] at 3.
On October 10, 2005, Cramo opened an account at United Bank of Switzerland (“UBS”),
for which Kronowitz was listed as the beneficial owner on the account opening paperwork.
Kronowitz was the beneficiary of the account held at UBS by Cramo from 2005 to 2009.
By 2008, Kronowitz’s investments with Levy had generated significant gains. In order to
protect and manage the gains, Kronowitz created the 1210 Trust (“Trust”). In 2008, someone
associated with Levy contacted Kronowitz and told him to contact Consista to direct where
Kronowitz wanted the proceeds from his investments with Levy sent. In response, Kronowitz
contacted Consista and instructed them to send the proceeds to one of his Cayman Accounts. He
called the Caymans bank to verify that the wire transfers from Consista were completed. The
Trust’s assets in its bank account were comprised solely of transfers from Kronowitz’s Cayman
Accounts. Nevertheless, the Trust did not own the Cayman Accounts. Kronowitz used the
information on the yellow legal pad to report the gains from his investments with Levy on his
Trust’s tax returns.
On March 27, 2009, the funds held by Cramo at UBS were transferred to an account at
Basler Kantonalbank (“BKB”), which was opened for Kronowitz’s benefit. Kronowitz was
identified as the beneficial owner of the account. All correspondence from the BKB account were
directed to Consista.
On August 11, 2009, Kronowitz sent correspondence to an individual with initials “R.Z.”
and directed R.Z. to transfer $300,000.00 “to my account. You have the information on file.” ECF
No. [41] at 14, ¶ 56; see also ECF No. [48-9].

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Case No. 19-cv-62648-BLOOM/Valle
Finally, on December 6, 2010, Kronowitz e-mailed Consista and instructed them to
“liquidate my account and forward all moneys as you did before to my account in the [C]aymans.”
Id. ¶ 57. On December 29, 2010, Cramo wired $318,067.53 to the Cayman Accounts.
D. Reporting income from foreign sources
Kronowitz prepared his own tax returns for tax years 2005, 2006, 2007, 2008, 2009, and
2010. Schedule B is an attachment to the individual federal income tax return (Form 1040) that is
used for reporting interest and dividend income, as well as any financial interest in, or signature
authority over, financial accounts located in foreign countries. See ECF No. [41] at 9, ¶ 17.
Kronowitz was required to file a Schedule B in conjunction with his 2005 through 2010 individual
income tax returns; however, Kronowitz did not disclose his financial interest in foreign accounts
in a Schedule B or in an FBAR for his 2005 through 2010 individual tax returns. In fact, on the
Schedule B form filed with his 2008 tax return, in response to the question asking “[a]t any time
during 2008, did you have an interest in or signature or other authority over a financial account in
a foreign country, such as a bank account, securities account or other financial account?”
Kronowitz marked “no.” Id. at 10, ¶ 21. Furthermore, there were no Schedule B forms attached to
the 2005, 2006, 2009, or 2010 individual tax returns.2 Kronowitz testified that he has probably
seen hundreds of Schedule Bs over the course of his career, but admitted that he probably did not
read the instructions to Schedule B because he is an accountant and not an attorney. In addition,
he stated that he was more concerned with taking care of his clients and providing for his family.
Kronowitz also prepared the tax returns for the Trust for tax years 2008, 2009, and 2010.
He marked “no” in response to the question asking, “[a]t any time during [the] calendar year [ ],

2

While not specifically addressed at trial, the Court noted at the summary judgment stage that Kronowitz
testified at his deposition that he also marked “no” for the question regarding foreign accounts on Schedule
B filed with his 2007 tax return. See ECF No. [37] at 7; ECF No. [25-2] at 24, p. 91.

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Case No. 19-cv-62648-BLOOM/Valle
did the estate or trust have an interest in or a signature or other authority over a bank, securities,
or other financial account in a foreign country?” On the 2008 Trust tax return, Kronowitz disclosed
$370,700.00 in gains from investments from Brazil, Panama, and Israel. On the 2009 Trust tax
return, Kronowitz disclosed $281,725.00 in gains from investments in the Cayman Islands and
Brazil. On the 2010 Trust tax return, Kronowitz disclosed $296,218.00 in gains from investments
in foreign countries. However, beyond writing the names of certain of the Levy investments on
the 2008, 2009, and 2010 Trust tax returns, Kronowitz did not otherwise disclose his interest in
any foreign accounts or assets. See ECF No. [48-6].
Although required to do so, Kronowitz admits that he did not timely file FBARs for tax
years 2005 through 2010. In preparing tax returns, Kronowitz was aware of the question asking
about interests in foreign accounts, but he did not do any research, nor did he look up form number
TDF90-22.1 (the FBAR) referenced in the returns. He testified that he had not heard of the FBAR
and that he had no knowledge that he was a beneficiary of the UBS and BKB accounts, until he
hired an attorney to represent him before the IRS during an audit in 2011. Kronowitz believed that
if he reported the income from a foreign source on the Trust tax returns, he had complied with his
tax obligations. He never asked anybody about this assumption—he thinks he heard it at a seminar
or read it somewhere. He did not see a difference in reporting the income on the Trust return or on
his individual return as long as the amounts were reported and the taxes paid.
According to Kronowitz’s testimony at trial, he now knows this was a mistake.
E. IRS examination and penalty assessment
Following an examination, the Internal Revenue Service (“IRS”) determined that
Kronowitz failed to file FBARs disclosing his interest in foreign accounts during 2005 through

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Case No. 19-cv-62648-BLOOM/Valle
2010, and that the violations were willful. On November 1, 2017, the following penalties were
assessed:
Calendar Year
2005
2006
2007
2008
2009
2010

FBAR Penalty
$141,667.00
$140,066.00
$145,063.00
$76,781.00
$82,504.00
$77,960.00
Total Penalties Assessed: $663,771.00

Kronowitz was provided notice of the FBAR penalty assessments, which remain unpaid, and he
does not contest the amounts upon which the penalties are based. In addition to the amount of the
assessments, interest and failure to pay penalties have accrued. As of October 18, 2019, the date
the Government filed the Complaint in this case, the total owed, including interest and assessed
penalty fees was $753,680.37.
III.

CONCLUSIONS OF LAW
In 1970, Congress enacted the Currency and Foreign Transactions Reporting Act, referred

to as the Bank Secrecy Act (BSA), 31 U.S.C. §§ 5311, et seq. See Pub. L. No. 91-508, 84 Stat.
1114 (1970). The primary purpose of the BSA is to require the making of certain reports that “have
a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.” Id. § 202.
To effectuate this purpose, the BSA directs the Secretary of the Department of Treasury to
promulgate regulations requiring the reporting of information from United States persons who
have relationships, or conduct transactions, with foreign financial agencies. See id. § 241(a)
(codified at 31 U.S.C. § 5314). As relevant here, the regulations require “each United States person
having a financial interest in, or signature or other authority over, a bank, securities, or other
financial account in a foreign country” to file a FBAR. See 31 C.F.R. § 1010.350(a). The FBAR

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Case No. 19-cv-62648-BLOOM/Valle
is required “with respect to foreign financial accounts exceeding $10,000 maintained during the
previous calendar year.” See 31 C.F.R. § 1010.306(c).
The authority to assess and collect civil penalties for FBAR requirement non-compliance
rests with the IRS. See Delegation of Enforcement Authority Regarding the Foreign Bank Account
Report Requirements, 68 Fed. Reg. 26489 (May 16, 2003). The BSA did not originally contain a
civil penalty provision for failing to comply with the FBAR requirements, see Pub. L. No. 91-508,
84 Stat. 1114 (1970), but Congress added one in 1986. See Money Laundering Control Act of
1986, Pub. L. No. 99-570, Subtitle H, 100 Stat. 3207, § 1357 (October 27, 1986). FBAR penalties
may be either willful or non-willful. See 31 U.S.C. § 5321(a)(5).
In this case, the Government assessed a willful penalty, in addition to late payment
penalties and accrued interest. In order to be subject to a willful FBAR penalty, the following
elements are required: (1) the person must be a U.S. citizen; (2) the person must have or had an
interest in, or authority over a foreign financial account; (3) the account had a balance exceeding
$10,000.00 at some point during the reporting period; and (4) the person must have willfully failed
to disclose the account and file a FBAR. 31 U.S.C. § 5314; 31 C.F.R. § 1010.350(a). The Court
reviews the evidence de novo. U.S. v. Williams, No. 09-437, 2010 WL 3473311, at *1 (E.D. Va.
Sep. 1, 2010), rev’d on other grounds, 489 F. App’x 655 (4th Cir. 2012) (quoting Eren v. Comm’r,
180 F.3d 594, 597-598 (4th Cir. 1999)).
The statutes and regulations at issue in this case do not define the term willful; however,
the BSA identifies the applicable penalty as a “civil money penalty.” 31 U.S.C. § 5321(a)(5)(A).
“[W]here willfulness is a statutory condition of civil liability, we have generally taken it to cover
not only knowing violations of a standard, but reckless ones as well.” Safeco Ins. Co. of Am. v.
Burr, 551 U.S. 47, 57 (2007). “While the term recklessness is not self-defining, the common law

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has generally understood it in the sphere of civil liability as conduct violating an objective
standard: action entailing an unjustifiably high risk of harm that is either known or so obvious that
it should be known.” Id. at 68 (quoting Farmer v. Brennan, 511 U.S. 825, 836, 114 S. Ct. 1970,
128 L. Ed 2d 811 (1994)) (internal quotations omitted). In the FBAR context, the United States
Court of Appeals for the Eleventh Circuit recently held that “willfulness in the § 5321 includes
reckless disregard of a known or obvious risk.” United States v. Rum, --- F.3d ----, 2021 WL
1589153, at *6 (11th Cir. Apr. 23, 2021).
As such, “when imposing a civil penalty for an FBAR violation, willfulness based on
recklessness is established if the defendant (1) clearly ought to have known that (2) there was a
grave risk that an accurate FBAR was not being filed and if (3) he was in a position to find out for
certain very easily.” Id. (citing United States v. Horowitz, 978 F.3d 80, 89 (4th Cir. 2020)
(quotations and citation omitted)).
IV.

DISCUSSION
At the outset, the Court notes that Kronowitz does not dispute the first three elements

necessary for the imposition of a willful FBAR penalty. He is a U.S. citizen, he had an interest or
authority over foreign financial accounts, and those accounts had balances exceeding $10,000.00
at some point during the relevant reporting periods. Kronowitz also does not dispute that he had
an obligation to file FBARs for tax years 2005-2010, or that he failed to timely do so. As such, the
only issue remaining is whether Kronowitz’s violations were willful.
A. Evidence of recklessness
In this case, the evidence presented at trial demonstrates that Kronowitz’s FBAR violations
were willful, in that he recklessly failed to report his interest in his foreign accounts. Kronowitz
has been a professional tax return preparer for nearly sixty years, who until recently, prepared

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Case No. 19-cv-62648-BLOOM/Valle
thirty (30) to forty (40) tax returns per year on behalf of individuals and corporations. He admitted
to seeing hundreds of Schedule Bs, and being familiar with the purpose of Schedule B and its
requirements, but testified that he probably did not read the instructions because he was more
concerned with providing for his family and taking care of his clients. Indeed, he testified that “my
purpose in life at the time was to get clients, bill them, and collect the money, not spending the
whole year reading[.]” Furthermore, Kronowitz affirmatively answered “no” to questions
regarding interests in foreign accounts on both his individual tax returns and on the Trust tax
returns he prepared. He simply and incorrectly assumed that reporting the gains from his Levy
investments would be sufficient to satisfy tax reporting obligations. When asked why he chose to
report the gains on the Trust return as opposed to reporting the gains on his personal return, he
responded that
that’s where the money went, that’s where the money came out to pay the taxes.
Okay. From the 1210 Trust. I didn’t see any big difference one way or the other.
As long as they were reported and the taxes were paid.
He testified further that he now recognizes that to have been a mistake; however, additional
evidence belies Kronowitz’s assertion that his conduct in this case arose a result of a simple
mistake.
Beginning with his investments with Levy, Kronowitz displayed a surprisingly laissezfaire attitude—he simply gave Levy his money and did not ask any questions, even when he was
given no receipt or acknowledgment for the funds he invested. He also failed to ask any questions
about how his funds would be held for him, or how he might access them if needed. Therefore, the
Court does not assign much weight to the fact that Kronowitz did not know that he was the
beneficiary of two Swiss bank accounts containing the proceeds from his Levy investments. He
did not know because he never asked how Levy would handle his investments or the proceeds they

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might potentially generate. Moreover, even when he learned that his investments had generated
significant gains, he still asked no questions and simply directed the transfer of funds to his
Cayman Accounts. Similarly, in reporting the gains on those investments, he simply assumed that
putting them on the Trust tax return would be sufficient—he neither did any research, nor did he
ask anyone with more expertise if his assumption was correct. In addition, despite preparing
hundreds of tax returns and his familiarity with the forms, which contain instructions and questions
pertaining specifically to interests in foreign accounts, he never inquired whether his foreign
accounts might trigger any additional obligations on his part.
Moreover, the manner in which Kronowitz handled the gains from his Levy investments
does not support a finding that he was simply mistaken, as opposed to reckless under the
circumstances. Once Kronowitz learned that his investments with Levy had generated significant
gains, he gave instructions for the funds to be transferred first to the Caymans, and then to the
Trust, rather than directly to the Trust’s bank account in the United States. In addition, he
admittedly opened the Cayman Accounts to keep assets out of reach of potential creditors, like
Mogerman, based upon advice he heard during a CPE course; but without conducting any followup to determine the potential tax effects of maintaining offshore accounts. See ECF No. [41] at 11,
¶ 27 (“The purpose of opening these [Cayman Accounts] was that if Kronowitz was to be sued for
malpractice, such funds could not be reached by the potential creditor.”). Kronowitz testified at
trial that in connection with the advice he heard regarding moving assets offshore, “[t]hat’s when
I opened the account in the Caymans and put some money over there. I didn’t have a lot, but I put
some.” And while Kronowitz insists that there was no intent to defraud the IRS, no fraudulent
intent is required for a finding of willfulness in the FBAR context.

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B. Affirmative defenses
In response to the Government’s claims, Kronowitz asserted four affirmative defenses. See
ECF No. [9]. Prior to trial, Kronowitz withdrew his defenses based on timeliness (Affirmative
Defense No. 1) and the statute of limitations (Affirmative Defense No. 4), see ECF No. [18]. In
response to the Government’s Motion for Summary Judgment, he conceded that the amount of the
FBAR penalty is not capped (Affirmative Defense No. 3), see ECF No. [28] at 1 n.1. As such, the
only remaining defense is that his failure to file FBARs for tax years 2005 through 2010 was not
willful or reckless (Affirmative Defense No. 2).
In support of the defense that his failure to file FBARs was not willful or reckless,
Kronowitz introduced evidence at trial. That evidence consisted of the testimony of his daughter,
Tracy Falkowitz, and his wife, Sybil Kronowitz, that he has experienced significant declines in his
health and memory in recent years. However, the evidence does not establish that Kronowitz’s
declining health affected his behavior during the relevant time period, such that it would support
a finding that his violations were not reckless. Although the Court is sympathetic to Kronowitz’s
recent lapses in memory and additional health complications, there was no medical evidence
presented at trial to establish that Kronowitz’s cognitive abilities were compromised during the
relevant tax years.3 Rather, the evidence demonstrates that his actions related to the handling of
his accounts and the gains from his investments with Levy were purposeful and deliberate.
V.

CONCLUSION
Based upon Kronowitz’s background and experiences as a CPA and tax preparer, and the

totality of his actions in this case, the Court finds that he clearly ought to have known that there

The parties stipulated that “[a] medical professional had not determined whether Kronowitz had, or
whether he did not have, a medical or physical impairment, during the period of June 30, 2006 through June
30, 2010.” ECF No. [41] at 9, ¶ 16.
3

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was a grave risk that he was failing to comply with the FBAR requirements with respect to his
foreign accounts. Furthermore, he was in a position to find out for certain very easily, had he taken
the time to either conduct independent research, or consult with another person more
knowledgeable on tax law as to whether any additional reporting requirements might apply to him.
Accordingly, the Court finds that Kronowitz’s FBAR violations for tax years 2006, 2007,
2008, 2009, and 2010 were willful, and that the Government is entitled to recover willful FBAR
penalties for those years. As such, the Government is directed to submit to the Court an updated
calculation of damages including all fees and interest applicable, on or before June 15, 2021. The
Court will enter judgment in favor of the Government by separate order.
DONE AND ORDERED in Chambers at Miami, Florida, on June 3, 2021.

_________________________________
BETH BLOOM
UNITED STATES DISTRICT JUDGE
Copies to:
Counsel of Record

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