United States of America v. Gentges

Filing 48

OPINION AND ORDER re: 29 MOTION for Summary Judgment . filed by United States of America. For the reasons stated above, the Government's Motion is granted in part and denied in part. The Clerk of Court is respectfully directed to terminate the pending Motion, (Dkt. No. 29), and remand the case to the IRS for a proper determination of the penalty related to the 4337 Account. SO ORDERED. (Signed by Judge Kenneth M. Karas on 3/31/2021) (jca) Transmission to Docket Assistant Clerk for processing.

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA,
Plaintiff,
v.

No. 18-CV-7910 (KMK)
OPINION & ORDER

HEINZ GENTGES,
Defendant.
Appearances:
Samuel H. Dolinger, Esq.
U.S. Attorney’s Office, SDNY
New York, NY
Counsel for Plaintiff
Michael J. Pisko, Esq.
Pillsbury Winthrop Shaw Pittman LLP
New York, NY
Counsel for Defendant
Richard Sapinski, Esq.
Sills Cummis & Gross, P.C.
Newark, NJ
Counsel for Defendant
KENNETH M. KARAS, United States District Judge:

The United States of America (“Plaintiff” or the “Government”) brings this Action
against Heinz Gentges (“Defendant”) to collect civil penalties assessed against Defendant based
on his failure to disclose two foreign bank accounts in violation of the Bank Secrecy Act, 31
U.S.C. §§ 5314 and 5321. Currently before the Court is the Government’s Motion for Summary
Judgment. (See Not. of Mot. (Dkt. No. 29).) For the reasons discussed below, the Motion is
granted in part and denied in part.

I. Background
A. Factual History
Unless otherwise noted, the following facts are taken from the Parties’ Rule 56.1
Statements and Counterstatements. (See Pl.’s 56.1 Statement in Supp. of Pl.’s Mot. (“Pl.’s
56.1”) (Dkt. No. 32); Def.’s Counter 56.1 Statement in Opp’n to Pl.’s 56.1 (“Def.’s Counter
56.1”) (Dkt. No. 38).) 1

1

Local Civil Rule 56.1(a) requires the moving party to submit a “short and concise
statement, in numbered paragraphs, of the material facts as to which the moving party contends
there is no genuine issue to be tried.” The nonmoving party, in turn, must submit “a
correspondingly numbered paragraph responding to each numbered paragraph in the statement of
the moving party, and if necessary, additional paragraphs containing a separate, short[,] and
concise statement of additional material facts as to which it is contended that there exists a
genuine issue to be tried.” Local Civ. R. 56.1(b). “If the opposing party . . . fails to controvert a
fact set forth in the movant’s Rule 56.1 statement, that fact will be deemed admitted pursuant to
the local rule.” Baity v. Kralik, 51 F. Supp. 3d 414, 418 (S.D.N.Y. 2014); see also T.Y. v. N.Y.C.
Dep’t of Educ., 584 F.3d 412, 418 (2d Cir. 2009) (same).
Where the Parties identify disputed facts but with semantic objections only or by
asserting irrelevant facts, the Court will not consider these purported disputes, which do not
actually challenge the factual substance described in the relevant paragraphs, as creating disputes
of fact. See Baity, 51 F. Supp. 3d at 418 (“Many of [the] [p]laintiff’s purported denials—and a
number of his admissions—improperly interject arguments and/or immaterial facts in response to
facts asserted by [the] [d]efendants, often speaking past [the] [d]efendants’ asserted facts without
specifically controverting those same facts.”); id. (“[A] number of [the] [p]laintiffs’ purported
denials quibble with [the] [d]efendants’ phraseology, but do not address the factual substance
asserted by [the] [d]efendants.”); Pape v. Bd. of Educ. of Wappingers Cent. Sch. Dist., No. 07CV-8828, 2013 WL 3929630, at *1 n.2 (S.D.N.Y. July 30, 2013) (explaining that the plaintiff’s
56.1 statement violated the rule because it “improperly interjects arguments and/or immaterial
facts in response to facts asserted by [the] [d]efendant, without specifically controverting those
facts,” and “[i]n other instances, . . . neither admits nor denies a particular fact, but instead
responds with equivocal statements”); Goldstick v. The Hartford, Inc., No. 00-CV-8577, 2002
WL 1906029, at *1 (S.D.N.Y. Aug. 19, 2002) (noting that the plaintiff’s 56.1 statement “does
not comply with the rule” because “it adds argumentative and often lengthy narrative in almost
every case[,] the object of which is to ‘spin’ the impact of the admissions [the] plaintiff has been
compelled to make”).
Any party’s failure to provide record support for its challenge to another party’s factual
statement could allow the Court to deem the challenged facts undisputed. See Holtz v.
Rockefeller & Co., 258 F.3d 62, 73 (2d Cir. 2001) (explaining that the court is not required to
search the record for genuine issues of material fact that the party opposing summary judgment
failed to bring to the court’s attention); Baity, 51 F. Supp. 3d at 418 (collecting cases holding that
2

1. Defendant’s Failure to File an FBAR for Calendar Year 2007
In 2007, Defendant was a U.S. citizen with financial interests in two foreign bank
accounts—one ending in -4959 (the “4959 Account”), and another ending in -4337 (the “4337
Account”)—at UBS AG (“UBS”) in Switzerland. (Pl.’s 56.1 ¶¶ 1–2.) During 2007, the balance
of both accounts exceeded $10,000. (Id. ¶ 3.) Under 31 U.S.C. § 5314(a) and supporting
regulations, Defendant was therefore required to file Form TD F 90-22.1 (“Report of Foreign
Bank and Financial Accounts”), commonly known as the “FBAR,” for calendar year 2007. See
31 U.S.C. § 5314(a); 31 C.F.R. §§ 103.24, 103.27, amended and recodified at 31 C.F.R.
§ 1010.350 (2011). (See also Pl.’s 56.1 ¶ 4.)
Defendant failed to do so. (Id.) Between December 2013 and August 2016, Defendant’s
representative agreed in writing to extend the period in which the Treasury Secretary could
assess a penalty against Defendant based on his failure to file an FBAR for 2007. (Id. ¶ 51.) On
October 7, 2016, the IRS assessed two penalties based on Defendant’s allegedly willful failure to
comply with the FBAR filing requirements. (Id. ¶ 52.) One penalty, in the amount of $679,365,
was based on the 4959 Account, while the other penalty, for $224,488, was based on the 4337
Account. (Id. ¶ 53.) The IRS examiner’s report set forth the agency’s basis for concluding that
Defendant had willfully failed to disclose his UBS accounts, as well as its determination of the
penalty amounts. (Id. ¶ 54.)

“responses that do not point to any evidence in the record that may create a genuine issue of
material fact do not function as denials, and will be deemed admissions of the stated fact.”
(alteration and quotation marks omitted)). Therefore, where the Court cites to only one of the
Parties’ Rule 56.1 Statements or Counterstatements, that fact is materially undisputed unless
noted otherwise.
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2. Defendant’s Foreign Accounts
a. The 4959 Account
Although Defendant avers that the 4959 Account was not technically “open[ed]” in 2001,
as the Government claims, but had in fact been opened years earlier at a different Swiss bank that
was subsequently acquired by UBS, he nevertheless concedes that he “partially filled out a UBS
form entitled ‘Opening of an Account/Custody Account’ relating to [the 4959 Account]” in
2001. (Def.’s Counter 56.1 ¶¶ 5–6.) Defendant identified himself as the beneficial owner of the
account and listed his address in Hawthorne, New York. (Id. ¶ 7.) It is undisputed that the 4959
Account at UBS was established as a “numbered” account, as opposed to a “named” account,
(See Pl.’s 56.1 ¶ 6; Def.’s Counter 56.1 ¶ 6), even though Defendant testified that he did not
intend to establish such an account, “and did not think of the 4959 Account as a numbered
account,” (Def.’s Counter 56.1 ¶ 6). 2
As part of the documentation provided by UBS, Defendant also signed an instruction to
UBS that stated: “I would like to avoid disclosure of my identity to the US Internal Revenue
Service under the new tax regulations. To this end, I declare that I expressly agree that my
account shall be frozen for all new investments in US securities as from 1 November 2000.”
(See Pl.’s 56.1 ¶ 8; Def.’s Counter 56.1 ¶¶ 8–9.) Although Defendant protests that he was

2

A “numbered” account means that a number, instead of a name, identifies the account
holder in correspondence. See United States v. Horowitz, 978 F.3d 80, 83 (4th Cir. 2020); see
also Norman v. United States, 942 F.3d 1111, 1113 (Fed. Cir. 2019) (explaining that a
“‘numbered account,’ . . . unlike a ‘named account,’ means income and asset statements for the
account list only the account number and not [the account holder’s] name or address”). Along
with “hold mail” service, discussed infra, a numbered account is often recognized as a “service[]
[that] allow[s] U.S. clients to eliminate the paper trail associated with the undeclared assets and
income they h[o]ld [in foreign accounts].” Horowitz, 978 F.3d at 83. Defendant acknowledged
that he was familiar with this practice. (See Decl. of Samuel Dolinger, Esq., in Supp. of Pl.’s
Mot. (“Dolinger Decl.”) Ex. 4 (“Def.’s Dep.”), at 135:4–136:11 (Dkt. Nos. 31, 31-4).)
4

merely signing his name next to a handwritten “X” that indicated where he should sign, and
further asserts “that he did not understand the form to mean that he wanted to conceal his identity
from IRS by avoiding US securities investments,” he does not dispute having signed the
declaration. (See Def.’s Counter 56.1 ¶¶ 8–9.) 3 The form signed by Defendant also
acknowledged that he was “liable to tax in the USA as a US person.” (See Pl.’s 56.1 ¶ 9; Def.’s
Counter 56.1 ¶¶ 8–9.) Defendant professes that he understood this language “as confirming that
he was a US citizen.” (Def.’s Counter 56.1 ¶¶ 8–9.)
It is also undisputed that Defendant had UBS retain his mail related to the 4959 Account
at the bank, for a fee, instead of having it mailed to his address in New York. (Pl.’s 56.1 ¶ 10;
Def.’s Counter 56.1 ¶ 10.) Although Defendant contends that he did not manually select this
option, but rather, “someone else inserted an ‘x’ in a box he left unchecked,” (Def.’s Counter
56.1 ¶ 10), he does not dispute that he retrieved his mail related to the 4959 Account whenever
he visited the bank in Switzerland—including during three visits in 2007—and authorized UBS
to destroy any mail he did not take with him, (id. ¶ 11). And although Defendant disputes how
actively he was involved in managing the 4959 Account, he concedes that he “was involved in

3

The Court pauses to reiterate its observation, supra note 1, that where the Parties
identify disputed facts but with semantic objections only or by asserting irrelevant facts, the
Court will not consider these purported disputes as creating genuine disputes of fact. See Baity,
51 F. Supp. 3d at 418. For example, in response to the Government’s assertion that Defendant
instructed UBS not to disclose his identity to the IRS, Defendant interjects multiple
argumentative paragraphs seemingly designed to obfuscate or mitigate the admission that he did
sign the relevant form. Defendant concludes by arguing that “the form apparently had no actual
purpose or effect,” and that because “it was obviously intended to operate before ‘1 November
2000,’ one questions why UBS would want the form signed in November 2001 (a year later) if it
was actually to be operative.” (Def.’s Counter 56.1 ¶¶ 8–9.) Apart from the fact that Defendant
misreads the form, which operates to freeze investments in US securities “as from 1 November
2000” (emphasis added), Defendant’s argumentation is irrelevant and inappropriate in the 56.1
statement.
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any buy/sell decisions.” (Id. ¶ 12.) Finally, Defendant concedes that UBS often corresponded
with him using an address in Switzerland. (Id. ¶ 13.) 4
In June 2008—the deadline for filing the FBAR for 2007—the balance in the 4959
Account was $1,358,730.01. (Id. ¶ 14.)
b. The 4337 Account
Just as he had done several months earlier with respect to the 4959 Account, in February
2002 Defendant signed various documents provided by UBS with respect to the 4337 Account.
(See Def.’s Counter 56.1 ¶ 15.) As with the 4959 Account, the 4337 Account was also
established as a numbered account. (See id.) Without substantively disputing this point,
Defendant avers that he “was periodically asked to sign many UBS forms and thought of it as
‘routine’ . . . and did not review what he signed in detail or question what it meant” because “he
had dealt with UBS for many years and trusted it was a routine request.” (Id.) Defendant
identified himself as the beneficial owner of the 4337 Account and listed his address in
Hawthorne, New York. (Id. ¶ 16.)
As part of the documentation he completed regarding the 4337 Account, Defendant stated
that he was “liable to tax in the USA as a US person” and agreed that the account would be

4

Defendant has challenged the admissibility of certain records pertaining to the 4959
Account. (See Def.’s [Corrected] Mem. of Law in Opp’n to Pl.’s Mot. (“Def.’s Opp’n”) 22–24
(Dkt. No. 42); Decl. of Richard J. Sapinski, Esq., in Opp’n to Pl.’s Mot. (“Sapinski Opp’n
Decl.”) ¶¶ 15–18 (Dkt. No. 36).) The records in question, bearing the Bates Stamps USA0018
and USA0040–48, can be found within Exhibit B to the Dolinger Declaration filed in support of
Plaintiff’s Motion for Summary Judgment. (See Dolinger Decl. Ex. B (Dkt. No. 31-2); cf.
Sapinski Opp’n Decl. Ex. 14 (Dkt. No. 36-15) (discussing and attaching the challenged records,
a subset of which were included by the Government in Exhibit B to the Dolinger Declaration).)
Because the Court has not relied on the challenged records in resolving this Motion, it need not
reach Defendant’s admissibility argument.

6

“frozen for all new investments in US securities.” (Id. ¶ 17.) 5 Again, without disputing that he
made this representation, Defendant avers “that he understood the form to be simply an
acknowledgement of his US citizen status (which he never denied or sought to conceal) although
he admittedly did not read the form carefully because he believed it was just routine paperwork
UBS needed signed.” (Id.) As with the 4959 Account, Defendant instructed UBS to hold any
mail pertaining to the 4337 Account at the bank and retrieved the mail while visiting the bank in
Switzerland, including on three occasions in 2007. (See id. ¶¶ 18–19.) Without substantively
challenging this proposition, Defendant explains that he “had no problem with UBS holding his
mail because . . . he was frequently in Switzerland for extended periods and could easily retrieve
his mail at any UBS branch while there.” (Id.) 6 At the end of 2007, the balance for the 4337
Account was $448,975. (Id. ¶ 20.)
3. Defendant’s Formation of Trusts
In 2003, Defendant and his wife formed various trusts for estate planning purposes.
(Pl.’s 56.1 ¶ 21; Def.’s Counter 56.1 ¶ 21.) But although they transferred the ownership of their
New York home and all U.S. accounts into these trusts, Defendant did not transfer his UBS

5

As he has done throughout his Counter 56.1 Statement, Defendant objects to this
assertion without offering any substantive basis for the objection. Here, for example, Defendant
contends that “[u]nlike the form relating to [the 4959 Account] signed in November 2001[,] the
form for [the 4337 Account] says nothing about disclosing or not disclosing the signer’s identity
to the IRS.” (Def.’s Counter 56.1 ¶ 17.) Maybe so, but the Government’s assertion in ¶ 17 is not
to the contrary. (See Pl.’s 56.1 ¶ 17.)
6

Defendant also explains that “[u]nlike the similar form completed in November 2001
for [the 4959 Account,] which [Defendant] at least partially completed in his own hand, the form
for [the 4337 Account] is fully typed except for [Defendant’s] signature . . . . Among the typed
entries is an ‘x’ in the box directing UBS to hold the account – related mail.” (Def.’s Counter
56.1 ¶¶ 18–19.) Defendant does not explain—and the Court is unaware—what significance this
distinction might hold, nor is it clear why this would provide a basis to object to the
Government’s assertion. (See id.)
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accounts into these trusts. (See Def.’s Counter 56.1 ¶ 22.) Moreover, Defendant did not disclose
the existence of the UBS accounts to the attorney he consulted in forming the trusts, nor did he
seek any advice about the UBS accounts from this attorney or anyone else. (See id. ¶¶ 23–24.)
Though Defendant does not dispute these assertions, he maintains that he “intended the trusts
only to address his U.S. assets[,]” and that his “failure to tell the attorney who formed the U.S.
trusts about his UBS accounts is understandable since he felt his UBS accounts could pass to [his
son] without any problem upon his death . . . .” (Id. ¶¶ 22–24.)
4. Defendant’s 2007 Income Tax Return
For “decades” before Defendant submitted his 2007 U.S. income tax return, he had used
the same accountant, Richard Surico (“Surico”), to prepare his tax returns. (Pl.’s 56.1 ¶ 27.)
Defendant does not dispute this point. (Def.’s Counter 56.1 ¶¶ 26–27.) He contends, however,
that “[o]ver the entire time Surico did [Defendant’s] returns, their contact was minimal[,]” and,
from 2001 onward, Defendant “never had any actual contact with Surico in person or otherwise,”
but would “either drop[] off the tax information he assembled to Surico’s New York office,”
which would in turn mail the information to Florida (where Surico moved in 2004), or Defendant
would simply mail the information directly to Surico’s Florida address himself. (Id.)
Surico prepared Defendant’s tax return for 2007. (See id.) According to Defendant,
Surico would take the information Defendant provided and input this information into
Computax, a software program, which would in turn “generate[] a draft tax form.” (Id.) Surico
would then review the draft form and mail it to Defendant with instructions on “where to send it,
what to pay, etc. along with a comparison to the prior years.” (Id.) Defendant concedes that he
“had the opportunity to review this tax return after it was prepared” by Surico, (Pl.’s 56.1 ¶ 26),
and that, “for 2007 and other hears [sic], he simply briefly looked at the comparison sheet, and

8

then signed the return and mailed it without any significant substantive review,” (Def.’s Counter
56.1 ¶¶ 26–27).
Defendant also concedes that he never disclosed the existence of his UBS accounts to
Surico, and never sought Surico’s advice regarding the income he received from those accounts.
(See id. ¶¶ 28–29.) Defendant’s explanation for this fact is that he “always viewed the money [in
those accounts, which] he inherited from his German parents[,] as his ‘European heritage[,]’ and
had scrupulously kept it separate from his U.S. assets,” apparently under the belief that this
money “had nothing to do with his U.S. tax obligations” and therefore “was [not] relevant to his
U.S. tax return preparation.” (Id. ¶ 28.) Defendant also states that Surico “never asked
[Defendant] or any of his clients any questions about having foreign accounts or assets in all the
years he prepared his taxes,” (id.), and thus, there was no reason that Defendant “might have
[been] alerted . . . to the need to tell [Surico]” about these assets, (id. ¶ 29).
It is undisputed that Defendant submitted a U.S. income tax return for the year 2007. (Id.
¶ 25.) Part III of Schedule B of this return asked Defendant to state whether he had an interest in
a foreign financial account in 2007. (Pl.’s 56.1 ¶ 30.) Specifically, the instructions for this
section stated that a taxpayer “must complete this part if [he] . . . (b) had a foreign account,” and
required the taxpayer to select “Yes” to question 7(a) if he had an “interest in or a signature or
other authority over a financial account in a foreign country.” (Id. ¶¶ 32–33.) If the taxpayer
selected “Yes” to this question, Schedule B directed the taxpayer to filing requirements for the
FBAR. (Id. ¶ 34.) Defendant does not dispute that his 2007 return incorrectly responded “No”
to question 7(a), thereby indicating that he did not have an interest in any foreign financial
accounts. (See Def.’s Counter 56.1 ¶ 35; see also id. ¶ 36 (conceding that Defendant later
acknowledged this answer was incorrect, because in fact he did have foreign accounts in

9

Switzerland in 2007).) According to Defendant, however, neither he nor Surico manually
entered the answer “No.” (See id. ¶¶ 30–34.) What happened, Defendant explains, is that
“Computax software prepared a return for 2007 which automatically defaulted to a ‘No’ answer
on Schedule B because Surico did not enter anything suggesting the answer was otherwise and
there was no place on the Computax data input sheets for him to make such an entry.” (Id.; see
also id. ¶ 35 (“As Surico never asked [Defendant] about having a foreign account, there was no
data input for that and the Computax program automatically populated a ‘No’ answer on the tax
return it generated in the absence of anything on the data input sheet suggesting a different
answer.”).) Defendant represents that he “did not even see the ‘No’ answer in Schedule B during
in [sic] his unguided review of what Surico sent him.” (Id. ¶¶ 30–34.) Instead, “[h]e trusted
Surico knew what he was doing and just signed what he received.” (Id.)
5. Defendant’s Use of His Foreign Accounts
Between 2001 and 2007, Defendant withdrew approximately $140,000 worth of cash, in
different currencies, from the UBS accounts. (Pl.’s 56.1 ¶ 37.) During this same period,
Defendant withdrew $116,560 from U.S. dollar-denominated sub-accounts within the UBS
accounts, including on a number of dates in 2007. (Id. ¶¶ 38–39.) Similarly, on various dates in
2008, Defendant withdrew approximately $100,000 in cash from these accounts, in different
currencies, including $83,033 from U.S. dollar-denominated sub-accounts. (Id. ¶¶ 40–41.)
Defendant was aware that U.S. regulations required him to declare the transportation of currency
exceeding $10,000 into the United States. (Id. ¶ 42.) Although Defendant does not dispute these
facts, he denies that he withdrew these amounts in order “to secretly bring them back to the
United States.” (See Def.’s Counter 56.1 ¶¶ 37–42.)

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6. Defendant’s Relocation of His Foreign Accounts
Sometime around September 2008, Defendant decided to move his Switzerland accounts
from UBS to another bank. (See Def.’s Counter 56.1 ¶¶ 43–45.) Although there is some
disagreement as to why he made this decision—the Government contends that UBS told
Defendant he had to close his accounts, while Defendant maintains that UBS gave him a choice
to close his accounts or agree to let UBS manage his funds in a different type of account, (see id.
¶ 43)—it is undisputed that Defendant closed his UBS accounts and transferred them to Migros
Bank, another Swiss financial institution, (see id. ¶¶ 44–45). Although Defendant does not
challenge the Government’s assertion that he never considered moving these accounts into the
United States, (see Pl.’s 56.1 ¶ 44), he argues that this decision was “hardly surpris[ing]” given
his “mindset”—that is, his belief that “his parents [sic] inheritances where [sic] his ‘European
heritage,’” (see Def.’s Counter 56.1 ¶¶ 44–45). At the time Defendant transferred his funds to
Migros Bank, he provided instructions that his retained UBS mail be sent to his son’s address in
Lyss, Switzerland. (Pl.’s 56.1 ¶ 46; see Def.’s Counter 56.1 ¶ 46.)
Several years after Defendant had transferred his funds to Migros Bank, this bank advised
him that he had to close his account there because the bank was “not doing business anymore
with American citizen[s].” (Pl.’s 56.1 ¶ 47 (alteration in original).) Defendant then transferred
his funds to another institution, Raiffeisen Bank, which he chose because it was one of a
dwindling number of Swiss banks willing to do business with American customers. (Id. ¶ 48.)
Eventually, Raiffeisen Bank also stopped dealing with American customers, and Defendant
transferred his funds to another Swiss bank, Privatbank Von Graffenried, which required fees
that were “quite a bit more expensive.” (Id. ¶¶ 49–50 (record citation omitted).)

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B. Procedural History
The Government filed its Complaint on August 29, 2018, (see Dkt. No. 1), and Defendant
answered on January 17, 2019, (see Dkt. No. 7). Following an Initial Pretrial Conference on
March 18, 2019, (see Dkt. (minute entry for Mar. 18, 2019)), the Parties adopted a Case
Management and Scheduling Order, (see Dkt. No. 11), which was subsequently revised on July
25, 2019, (see Dkt. No. 18), October 2, 2019, (see Dkt. No. 20), October 30, 2019, (see Dkt. No.
22), and January 15, 2020, (see Dkt. No. 24). The case was referred to Magistrate Judge Paul E.
Davison for general pretrial matters, including discovery. (See Order (Dkt. No. 9).)
On March 12, 2020, the Government filed a Pre-Motion Letter seeking leave to file a
motion for summary judgment. (See Dkt. No. 25.) Pursuant to a briefing schedule set by the
Court, (see Dkt. No. 26), the Government filed the instant Motion and supporting papers on
April 30, 2020, (see Not. of Mot.; Pl.’s Mem. of Law in Supp. of Mot. for Summ. J. (“Pl.’s
Mem.”) (Dkt. No. 30); Dolinger Decl.; Pl.’s 56.1). After the Court set a revised briefing
schedule, (see Dkt. No. 34), Defendant filed his opposition papers on June 30, 2020, (see Def.’s
Mem. of Law in Opp’n to Pl.’s Mot. (Dkt. No. 35); Sapinski Opp’n Decl.; Decl. of Heinz
Gentges in Opp’n to Pl.’s Mot. (“Gentges Opp’n Decl.”) (Dkt. No. 37); Def.’s Counter 56.1).
Reply papers were filed on July 15, 2020. (See Dkt. No. 39.) On July 23, 2020, Defendant
sought leave to file a revised opposition brief to comply with the Court’s 25-page limit for briefs,
(see Dkt. No. 40), the Court granted the request, (see Dkt. No. 41), and Defendant subsequently
filed his revised brief on the same day, (see Def.’s Opp’n). On July 28, 2020, the Government
requested leave to file an amended reply in response to Defendant’s revised opposition brief.
(See Dkt. No. 43.) The Court granted the request, (see Dkt. No. 44), and the Government filed
its revised reply the same day, (see Am. Reply Mem. of Law in Further Supp. of Pl.’s Mot.

12

(“Pl.’s Reply”) (Dkt. No. 45)). On October 27, 2020, the Government filed a letter alerting the
Court to supplemental authority from the Fourth Circuit Court of Appeals. (See Dkt. No. 46.)
II. Discussion
A. Standard of Review
Summary judgment is appropriate where the movant shows that “there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a); see also Psihoyos v. John Wiley & Sons, Inc., 748 F.3d 120, 123–24 (2d Cir.
2014) (same). “In determining whether summary judgment is appropriate,” a court must
“construe the facts in the light most favorable to the non-moving party and . . . resolve all
ambiguities and draw all reasonable inferences against the movant.” Brod v. Omya, Inc., 653
F.3d 156, 164 (2d Cir. 2011) (citation and quotation marks omitted); see also Borough of Upper
Saddle River v. Rockland Cnty. Sewer Dist. No. 1, 16 F. Supp. 3d 294, 314 (S.D.N.Y. 2014)
(same). “It is the movant’s burden to show that no genuine factual dispute exists.” Vt. Teddy
Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 244 (2d Cir. 2004); see also Berry v.
Marchinkowski, 137 F. Supp. 3d 495, 521 (S.D.N.Y. 2015) (same).
“To survive a [summary judgment] motion . . . , [a nonmovant] need[s] to create more
than a ‘metaphysical’ possibility that his allegations were correct; he need[s] to ‘come forward
with specific facts showing that there is a genuine issue for trial,’” Wrobel v. County of Erie, 692
F.3d 22, 30 (2d Cir. 2012) (emphasis omitted) (quoting Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 586–87 (1986)), “and cannot rely on the mere allegations or denials
contained in the pleadings,” Guardian Life Ins. Co. v. Gilmore, 45 F. Supp. 3d 310, 322
(S.D.N.Y. 2014) (citation and quotation marks omitted); see also Wright v. Goord, 554 F.3d 255,
266 (2d Cir. 2009) (“When a motion for summary judgment is properly supported by documents

13

or other evidentiary materials, the party opposing summary judgment may not merely rest on the
allegations or denials of his pleading . . . .”). And, “[w]hen opposing parties tell two different
stories, one of which is blatantly contradicted by the record, so that no reasonable jury could
believe it, a court should not adopt that version of the facts for purposes of ruling on a motion for
summary judgment.” Scott v. Harris, 550 U.S. 372, 380 (2007).
“On a motion for summary judgment, a fact is material if it might affect the outcome of
the suit under the governing law.” Royal Crown Day Care LLC v. Dep’t of Health & Mental
Hygiene, 746 F.3d 538, 544 (2d Cir. 2014) (citation and quotation marks omitted). At this stage,
“[t]he role of the court is not to resolve disputed issues of fact but to assess whether there are any
factual issues to be tried.” Brod, 653 F.3d at 164 (citation omitted). Thus, a court’s goal should
be “to isolate and dispose of factually unsupported claims.” Geneva Pharm. Tech. Corp. v. Barr
Labs. Inc., 386 F.3d 485, 495 (2d Cir. 2004) (quoting Celotex Corp. v. Catrett, 477 U.S. 317,
323–24 (1986)). However, a district court should consider only evidence that would be
admissible at trial. See Nora Beverages, Inc. v. Perrier Grp. of Am., Inc., 164 F.3d 736, 746 (2d
Cir. 1998). “[W]here a party relies on affidavits . . . to establish facts, the statements ‘must be
made on personal knowledge, set out facts that would be admissible in evidence, and show that
the affiant . . . is competent to testify on the matters stated.’” DiStiso v. Cook, 691 F.3d 226, 230
(2d Cir. 2012) (quoting Fed. R. Civ. P. 56(c)(4)).
B. Analysis
Under 31 U.S.C. § 5314(a), part of the Bank Secrecy Act of 1970, the Treasury Secretary
“shall require” U.S. residents or citizens “to keep records, file reports, or keep records and file
reports,” when they “make[] a transaction or maintain[] a relation for any person with a foreign

14

financial agency.” 31 U.S.C. § 5314(a). During the relevant time period in this case, the
implementing regulation for this statute provided that:
[e]ach person subject to the jurisdiction of the United States . . . having a financial
interest in, or signature or other authority over, a bank, securities[,] or other
financial account in a foreign country shall report such relationship to the
Commissioner of the Internal Revenue for each year in which such relationship
exists, and shall provide such information as shall be specified in a reporting form
prescribed by the Secretary to be filed by such persons.
31 C.F.R. § 103.24, amended and recodified at 31 C.F.R. § 1010.350 (2011). As noted, a
taxpayer subject to this requirement was required to submit Form TD F 90-22.1, the “FBAR,”
(see Pl.’s 56.1 ¶ 4), by “June 30 of each calendar year with respect to foreign financial accounts
exceeding $10,000 maintained during the previous calendar year,” see id. § 103.27(c), amended
and recodified at 31 C.F.R. § 1010.350 (2011). 7 Under 31 U.S.C. § 5321, the Treasury
Secretary may impose a civil penalty of up to $10,000 based on a taxpayer’s non-willful failure
to comply with the FBAR reporting requirement. See 31 U.S.C. § 5321(a)(5)(B)(i). If, however,
a person “willfully violat[es], or willfully caus[es] any violation of,” this requirement, the
Secretary may impose a maximum penalty of either $100,000 or an amount equal to 50 percent
of the assets in the unreported account, whichever is greater. See id. § 5321(a)(5)(C)(i); see also
United States v. Bernstein, –– F. Supp. 3d ––, 2020 WL 5517315, at *4 (E.D.N.Y. Sept. 14,
2020) (discussing the regulatory scheme under 31 U.S.C. § 5314).
Defendant does not dispute that he failed to timely file an FBAR for calendar year 2007,
and therefore violated the reporting requirement under 31 U.S.C. § 5314(a) and its implementing
regulations. The only questions presented by the Government’s Motion are (1) whether

7

“The regulations relating to the FBAR were formerly published at 31 C.F.R. §§ 103.24
and 103.27, but were recodified in a new chapter effective March 1, 2011.” United States v.
Williams, 489 F. App’x 655, 656 n.1 (4th Cir. 2012) (unpublished decision).
15

Defendant’s violation was willful, and (2) whether the IRS appropriately calculated the penalty
assessed against Defendant. The Court will consider each question in turn.
1. Whether Defendant Willfully Failed to File the FBAR
The term “willful” is not defined in the relevant statute or regulations, see Bernstein,
2020 WL 5517315, at *4, and the Second Circuit has not yet addressed this standard under the
civil penalty provision of the FBAR statute. However, the Circuit Courts for the Third, Fourth,
and Federal Circuits have all considered this standard and are in agreement regarding its
meaning. According to these courts, “willfulness” under § 5321 includes not only knowing
violations of the statute, but reckless ones as well. See Horowitz, 978 F.3d at 88 (“[W]e
conclude that, for the purpose of applying § 5321(a)(5)’s civil penalty, a ‘willful violation’ of the
FBAR reporting requirement includes both knowing and reckless violations, . . . [and] [w]e thus
. . . continue to agree with the other courts of appeals that have considered the issue to date
. . . .”); Norman, 942 F.3d at 1115 (“[W]e hold . . . that willfulness in the context of
§ 5321(a)(5)(C) includes recklessness.”); Bedrosian v. United States, 912 F.3d 144, 152 (3d Cir.
2018) (holding that “a defendant has willfully violated 31 U.S.C. § 5314 when he either
knowingly or recklessly fails to file [an] FBAR” (alteration and record citation omitted)).
Numerous district courts around the country—including, most recently, the Eastern
District of New York—have adopted the same interpretation of this standard. See Bernstein,
2020 WL 5517315, at *5–7 (adopting Bedrosian’s treatment of the “willfulness” standard under
the civil penalty provision of the FBAR statute); United States v. Garrity, 304 F. Supp. 3d 267,
273–74 (D. Conn. 2018) (gathering authority in support of the court’s “conclu[sion] that the
Government may prove the element of willfulness in [the context of a civil FBAR penalty] with
evidence that [the defendant] acted recklessly”); United States v. Kelley-Hunter, 281 F. Supp. 3d

16

121, 124 (D.D.C. 2017) (observing that, for purposes of establishing willfulness in the context of
a civil FBAR penalty, “willful blindness or reckless disregard satisfies the required mental
state”); United States v. Katwyk, No. 17-CV-3314, 2017 WL 6021420, at *4 (C.D. Cal. Oct. 23,
2017) (“A reckless disregard to statutory duty may be sufficient to satisfy willfulness [for
purposes of collecting a civil FBAR penalty].”); United States v. McBride, 908 F. Supp. 2d 1186,
1204 (D. Utah 2012) (holding, in the context of a civil FBAR penalty, that willfulness “covers
not only knowing violations of a standard, but reckless ones as well” (citation and quotation
marks omitted)). Notably, Defendant does not contest this interpretation of the willfulness
standard, conceding that “in the civil FBAR penalty context, willfulness includes both knowing
and reckless conduct.” (Def.’s Opp’n 13.)
Given this overwhelming weight of authority, the Court now holds that, for purposes of
the civil penalties provision in § 5321(a)(5)(C)(i), a willful violation of the FBAR reporting
requirement includes both knowing and reckless violations of the statute. Although “‘willfully’
is a word of many meanings whose construction is often dependent on the context in which it
appears,” the Supreme Court has observed that “where willfulness is a statutory condition of
civil liability, . . . it . . . cover[s] 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) (citation and some quotation marks
omitted); see also Horowitz, 978 F.3d at 88 (noting Safeco’s “clear articulation of the distinct
meanings that attach to the term ‘willfully’ in the civil and criminal contexts”); Bedrosian, 912
F.3d at 152 (invoking Safeco and observing that “[t]hough ‘willfulness’ may have many
meanings, general consensus among courts is that, in the civil context, the term ‘often denotes
that which is intentional, or knowing, or voluntary, as distinguished from accidental, and that it is
employed to characterize conduct marked by careless disregard whether or not one has the right

17

so to act” (citation omitted)). Although the Second Circuit has not addressed the meaning of
“willfulness” in the context of §§ 5314 and 5321 specifically, it has recognized, in an analogous
context, that “an individual’s bad purpose or evil motive in failing to collect and pay the taxes
properly plays no part in the civil definition of willfulness.” Lefcourt v. United States, 125 F.3d
79, 83 (2d Cir. 1997) (citation, alteration, and quotation marks omitted) (distinguishing
“willfulness” in the context of civil versus criminal actions to collect tax penalties); see also
Bernstein, 2020 WL 5517315, at *6 (relying on Lefcourt’s distinction between civil and criminal
definitions of “willfulness” in concluding that willful violations of the FBAR requirement
encompass recklessness).
“In the civil context, ‘recklessness’ encompasses an objective standard—specifically, ‘the
civil law generally calls a person reckless who acts or (if the person has a duty to act) fails to act
in the face of an unjustifiably high risk of harm that is either known or so obvious that it should
be known.” Horowitz, 978 F.3d at 89 (alteration omitted) (quoting Farmer v. Brennan, 511 U.S.
825, 836 (1994)); see also Bedrosian, 912 F.3d at 153 (observing same standard). “The civil law
uses it for the same purpose that the criminal law sometimes uses ‘willful blindness,’ that is, to
prevent an actor from denying the patently obvious.” Bernstein, 2020 WL 5517315, at *7 (citing
Viacom Int’l, Inc. v. YouTube, Inc., 676 F.3d 19, 35 (2d Cir. 2012)). Thus, “willful blindness or
reckless disregard satisfies the required mental state” for purposes of a willful violation of the
FBAR reporting statute. Kelly-Hunter, 281 F. Supp. 3d at 124. “At the same time,” however,
“civil recklessness requires proof of something more than mere negligence: ‘It is the high risk of

18

harm, objectively assessed, that is the essence of recklessness at common law.’” Horowitz, 978
F.3d at 89 (alteration omitted) (quoting Safeco, 551 U.S. at 69).
Here, the Government argues that “the record includes numerous undisputed indications
of [Defendant’s] willfulness,” namely:
(a) his submission of a federal tax return in which he falsely stated that he had no
foreign accounts in 2007; (b) his failure to consult with his accountant and trust
adviser concerning disclosure requirements or tax consequences of the UBS
accounts—or even to reveal the existence of the accounts to them; (c) his
interactions with UBS, including signing an instruction preventing UBS from
investing in U.S. securities on his behalf in order to ‘avoid disclosure of [his]
identity to the US Internal Revenue Service,’ using a numbered bank account,
instructing the bank to hold his mail in Switzerland rather than mailing it to him in
New York, and moving his money sequentially to three other Swiss banks as each
stopped dealing with U.S.-citizen customers; and (d) his largely unexplained
withdrawals of more than . . . one hundred thousand dollars in cash from his U.S.
dollar-denominated UBS accounts.
(Pl.’s Mem. 2.) The Court will consider these factors only to the extent necessary to determine
whether the Government has established Defendant’s liability on summary judgment.
a. Defendant’s 2007 Income Tax Return
Here, Defendant concedes that his 2007 tax return erroneously stated that he did not have
a financial interest in any foreign bank accounts. (See Def.’s Counter 56.1 ¶ 36.) But, as noted,
Defendant argues that neither he nor Surico manually made this representation, which was the
result of a quirk in the software used by Surico. (See Def.’s Opp’n 13 (explaining that “[t]he
‘No’ answer was a computerized default because [Defendant’s] preparer did not provide
anything on the input sheet from which the software company generated the physical tax
return”).) This may be true, but there still is no dispute that Defendant received his finalized
2007 tax return from Surico and had an opportunity to review it before signing and submitting it
to the IRS. As Defendant admits, however, “for 2007 and other hears [sic], he simply briefly

19

looked at the comparison sheet [provided by Surico], and then signed the return and mailed it
without any significant substantive review.” (Def.’s Counter 56.1 ¶¶ 26–27 (emphasis added).)
This admission dooms Defendant’s argument on summary judgment. Under similar
facts, most courts have held that where, as here, a defendant provides false information regarding
foreign bank accounts by failing to review carefully his income tax return, that defendant has
shown reckless disregard toward, and thus has willfully violated, the FBAR reporting obligation.
In Williams, for example, although the defendant had signed his tax return and declared
under penalty of perjury that he had reviewed its contents and found them to be “true, accurate,
and complete,” he later testified that he had “never paid any attention to any of the written
words” in his return, including Question 7(a). See 489 F. App’x at 659. The Fourth Circuit
concluded that the defendant had therefore “made a conscious effort to avoid learning about
reporting requirements”—conduct that “constitute[d] willful blindness to the FBAR
requirement.” See id. at 659 (citation and quotation marks omitted). Although Williams was an
unpublished decision, the Fourth Circuit explicitly “adhere[d] to [Williams’s] interpretation of
§ 5321(a)(5)(C)[’s willfulness standard]” eight years later in Horowitz, where it concluded that a
defendant’s failure to review his tax returns with “care sufficient . . . to discover [his]
misrepresentation of foreign bank accounts, . . . was again an aspect of [his] recklessness.” See
978 F.3d at 90 (affirming district court’s conclusion, on summary judgment, that the defendants
recklessly disregarded the FBAR filing requirement and were subject to enhanced civil penalties
for a willful violation under § 5321). Similar facts were presented in Norman v. United States,
where the defendant argued that “she could not have willfully violated the FBAR requirement
because she did not read her 2007 tax return.” 942 F.3d at 1116. The Court of Appeals for the
Federal Circuit disagreed, observing that “[t]he fact that [the defendant] did not read her 2007 tax

20

return supports that she acted recklessly toward the existence of reporting requirements.” Id. at
1117.
A number of lower courts have taken this same approach. In United States v. Rum, No.
17-CV-826, 2019 WL 3943250 (M.D. Fla. Aug. 2, 2019), for example, the court concluded on a
motion for summary judgment that the defendant’s “pattern of signing his tax returns without
reviewing them, along with falsely answering ‘no’ to question 7(a)[,] suffices to support a
finding of willfulness to report under the FBAR,” id. at *8, report and recommendation adopted,
2019 WL 5188325 (M.D. Fla. Sept. 26, 2019), appeal docketed, No. 19-14464 (11th Cir. Nov. 7,
2019). Likewise, in Kimble v. United States, 141 Fed. Cl. 373 (Fed. Cl. 2018), the court held—
again on summary judgment—that a taxpayer had “exhibited a ‘reckless disregard’ of the legal
duty . . . to report foreign bank accounts” where she “answered ‘No’ to Question 7(a) on her
2007 income tax return” without reviewing the return for accuracy, id. at 385–86, appeal
docketed, No. 19-1590 (Fed. Cir. Feb. 26, 2019); see also McBride, 908 F. Supp. 2d at 1212–13
(observing that “even if [the defendant] were not charged with knowledge of the contents of a tax
return by virtue of having signed it, the fact that [he] signed a federal income tax return without
having an understanding as to its contents, while simultaneously engaging in transactions with
foreign entities designed to avoid or defer tax, constitutes evidence of either willful blindness or
recklessness”). Similarly, a district court in the Third Circuit recently concluded that a defendant
who submitted inaccurate information on an FBAR after failing to review the form carefully had
willfully violated the FBAR statute “because he recklessly disregarded the risk that his FBAR
was inaccurate.” Bedrosian v. United States, No. 15-CV-5853, 2020 WL 7129303, at *4–5 (E.D.
Pa. Dec. 4, 2020) (“Bedrosian II”) (noting that, “based on Third and Fourth Circuit precedent,
claiming to not have reviewed [a] form does not negate recklessness”).

21

Following the weight of authority from appellate and district courts around the country,
the Court concludes that Defendant recklessly disregarded the FBAR reporting obligation by
failing to carefully review his 2007 income tax return and erroneously representing that he had
no financial interest in foreign accounts. Although Defendant acknowledges that courts have
granted summary judgment based “primarily . . . on the Taxpayers’ failure to read their returns
and thus, . . . [willfully] ignoring [their FBAR filing obligations],” he argues that cases such as
Kimble and Rum erroneously granted summary judgment “because they essentially decided the
disputed issue of willfulness by weighing the evidence and making credibility determinations”
that should appropriately be resolved at trial. (Def.’s Opp’n 16.) Without directly addressing the
persuasive appellate authority from the Fourth Circuit (Williams) or the Federal Circuit
(Norman), Defendant urges the Court to follow a handful of district court cases that have gone
the other way. But for the reasons that follow, the Court finds each of these cases factually
distinguishable or analytically flawed.
In one such case, United States v. Clemons, No. 18-CV-258, 2019 WL 7482218 (M.D.
Fla. Oct. 9, 2019), the defendant had “answered yes to question 7(a) on Schedule B” of his 2008,
2009, and 2010 tax returns, and had identified the countries in which his accounts were held. See
id. at *8. He also maintained that the foreign account in question “was opened with money for
which he had already paid U.S. taxes,” and that he had initially opened the account because he
planned to move to Europe. Id. at *7. His reason for not filing an FBAR was that he was
“unaware of [this] obligation . . . because he was not prompted by TurboTax to do so.” Id.
Under these circumstances, the court concluded that questions of fact precluded summary
judgment. See id. at *8. Although Clemons does share some factual similarities with the instant
case—for example, the defendant in Clemons also testified that he did not recall asking UBS to

22

give him a “numbered” account, did not instruct UBS to retain his mail, id. at *2, and “promptly
filed his FBARs” once an IRS agent “brought [it] to his attention,” id. at *7—there is a factual
divergence on the most critical issue. Whereas the taxpayer in Clemons reviewed his tax return
and correctly answered the questions in Schedule B, Defendant—by his own admission—
“signed the return and mailed it without any significant substantive review,” (Def.’s Counter
56.1 ¶¶ 26–27). Thus, in Clemons, the defendant’s failure to file FBARS could reasonably be
attributed to mere negligence: Though he reviewed his tax form and correctly responded
regarding his foreign bank accounts, he evidently overlooked the FBAR filing because TurboTax
did not prompt him to complete one. See 2019 WL 7482218, at *7. The clear possibility that a
§ 5314 violation was merely negligent should—and, in Clemons, did—preclude summary
judgment on the issue of willfulness. See Horowitz, 978 F.3d at 89 (noting that “civil
recklessness requires proof of something more than mere negligence”). Here, by contrast,
Defendant admits to an act—signing a tax return under penalty of perjury without carefully
reviewing its contents—that courts have repeatedly treated as evidence of recklessness or willful
blindness toward the FBAR reporting obligation. Clemons, then, is consistent with the foregoing
authority.
The second case cited by Defendant is United States v. Flume, No. 16-CV-73, 2018 WL
4378161 (S.D. Tex. Aug. 22, 2018). There, as here, the defendant relied on his tax specialist to
prepare his income tax return and then signed the document without carefully reviewing its
contents. See id. at *6. The court denied summary judgment, concluding there was a “genuine
dispute as to [the defendant’s] willfulness in failing to file timely FBARs reporting his UBS
account.” Id. at *9. In reaching this conclusion, the court expressly “decline[d] to follow the
holdings of Williams or McBride,” id. at *7, in which courts had charged the defendants with

23

constructive knowledge of information in the tax returns they had signed, see Williams, 489 F.
App’x at 659 (observing that a taxpayer is charged with constructive knowledge of the contents
in a tax return he signs, and concluding that the defendant’s signature on such a return was
“prima facie evidence that he knew the contents of the return,” and that Question 7(a)’s
directions to consult the instructions for filing an FBAR “put [the defendant] on inquiry notice of
the FBAR requirement”); McBride, 908 F. Supp. 2d at 1206 (recognizing the same principle).
The Flume court identified three reasons for rejecting the “constructive-knowledge theory,” none
of which, in this Court’s view, is persuasive.
First, the Flume court said this theory “ignores the distinction Congress drew between
willful and non-willful violations of [§] 5314,” and that, “[i]f every taxpayer, merely by signing a
tax return, is presumed to know of the need to file an FBAR, it is difficult to conceive of how a
violation could be non[-]willful.” Flume, 2018 WL 4378161, at *7 (citation and quotation marks
omitted). But although the constructive-knowledge doctrine undoubtedly expands the range of
conduct that may be held to constitute a willful violation, it does not eliminate the distinction
between willful and non-willful violations altogether, as Flume suggests. Just a year after
Flume, the Clemons case presented an example of conduct that could be considered merely
negligent, and therefore non-willful, as discussed supra. Indeed, after the court denied summary
judgment in Clemons, the jury ultimately found that two of the defendant’s FBAR violations
were non-willful. United States v. Clemons, No. 18-CV-258, 2020 WL 7407549, at *2 (M.D.
Fla. Apr. 15, 2020). Another example of a non-willful violation is a situation in which “a
taxpayer did not know about, and had no reason to know about, her overseas account.” Norman,
942 F.3d at 1115 (rejecting the same argument raised by the Flume court, and concluding that an
“interpretation of willfulness [that includes recklessness] does not render superfluous the

24

portions of § 5321 relating to non-willful conduct”). Clearly, then, it is not too “difficult to
conceive of how a violation could be non[-]willful.” See Flume, 2018 WL 4378161, at *7.
Second, the court in Flume claimed that it “would be exceeding its summary-judgment
authority if it presumed that [the defendant] ‘examined’ his returns, and thus knew about the
FBAR requirements by 2008, merely because he signed the returns under penalties of perjury.”
Id. In light of the defendant’s subsequent testimony that he did not know about the FBAR
requirements until 2010, the court observed that it “is the factfinder’s role, not the [c]ourt’s at
summary judgment, to decide which of the two sworn statements carries more weight.” Id. In
this Court’s view, that was a dodge. Concluding as a matter of law that a defendant had
constructive knowledge of a particular requirement in 2008—despite his own, self-serving
testimony that he did not learn about this requirement until 2010—does not require a credibility
determination by the factfinder. It is well established that a taxpayer who signs his tax return
without reading it is nevertheless “charged with constructive knowledge of [its] contents.”
Hayman v. Comm’r, 992 F.2d 1256, 1262 (2d Cir. 1993) (concluding that a defendant who
asserts an innocent-spouse defense to tax evasion cannot claim ignorance regarding the contents
of the tax returns she signed); accord Greer v. Comm’r, 595 F.3d 338, 347 n.4 (6th Cir. 2010)
(“A taxpayer who signs a tax return will not be heard to claim innocence for not having actually
read the return, as he or she is charged with constructive knowledge of its contents.”); United
States v. Doherty, 233 F.3d 1275, 1282 n.10 (11th Cir. 2000) (observing that a defendant who
“signed [a] fraudulent tax form . . . may be charged with knowledge of its contents”); Park v.
Comm’r, 25 F.3d 1289, 1299 (5th Cir. 1994) (“Although [the appellant] signed the return without
reviewing it, by signing the return she undertook responsibility for it which she cannot escape by
simply ignoring its contents.”). On summary judgment, courts may—and regularly do—impute

25

constructive knowledge to defendants based on documents those defendants have signed. See,
e.g., United States v. Horowitz, 361 F. Supp. 3d 511, 529 (D. Md. 2019) (concluding on
summary judgment that defendants willfully violated the FBAR reporting requirement because
their signatures on their tax returns were “prima facie evidence that they knew the contents of the
return, including the foreign accounts question and the cross-reference to filing requirements,
which put them on inquiry notice of the FBAR requirements” (citation, alteration, and quotation
marks omitted)), aff’d, 978 F.3d 80 (4th Cir. 2020); Rum, 2019 WL 3943250, at *8 (concluding
on summary judgment that a defendant willfully violated the FBAR reporting requirement
because, by signing his 2007 tax return, he was “charg[ed] . . . with constructive knowledge of
the FBAR requirement”); Kimble, 141 Fed. Cl. at 385–86 (concluding on summary judgment
that a defendant willfully violated the FBAR reporting requirement where he had answered “no”
to Question 7(a) on his 2007 income tax return, and observing that a taxpayer is “put on inquiry
notice of the FBAR requirement when she sign[s] her tax return” (citation omitted)). There was
no reason to avoid this same determination in Flume, despite the court’s statement to the
contrary.
Third, the Flume court argued that the constructive-knowledge theory “is rooted in faulty
policy arguments.” 2018 WL 4378161, at *7. The government had argued that by disregarding
the constructive-knowledge doctrine, the court would “encourage taxpayers to sign tax returns
without reading them in the hope of avoiding any negative consequences from inaccurate
reporting.” Id. (record citation omitted). The court rejected this argument, noting that “a
taxpayer who tried to escape liability in this way might be found willful on a recklessness
theory[,]” and thus, “there is no policy need to treat constructive knowledge as a substitute for
actual knowledge.” Id. Assuming this conclusion is true, it still suggests the court could have

26

found the defendant reckless or willfully blind toward his FBAR reporting obligation. Again,
however, the court declined to make this determination. See id. at *8–9.
In explaining why factual questions precluded such a determination, the Flume court
relied exclusively on Bedrosian v. United States, No. 15-CV-5853, 2017 WL 4946433 (E.D. Pa.
Sept. 20, 2017) (“Bedrosian I”), in which a Pennsylvania district court held, after trial, that the
defendant had not willfully violated the FBAR requirement by submitting an inaccurate version
of the FBAR itself, which he had failed to closely examine, see id. at *6–7. Invoking Bedrosian
I for the proposition that “recklessness is a high bar,” the Flume court reasoned that because the
defendant “had a tax-return preparer, it was arguably not reckless for him to . . . [ignore] the
FBAR instructions,” and that it was “not so obvious that he took an unjustifiably high risk in
doing so.” Flume, 2018 WL 4378161, at *8–9.
Four months after Flume was decided, however, the Third Circuit concluded that
Bedrosian I had not used the proper standard to evaluate the defendant’s conduct. See
Bedrosian, 912 F.3d at 153. The Third Circuit explained, for example, that Bedrosian I’s
analysis “impl[ied] [that] the ultimate determination of non-willfulness was based on findings
related to [the defendant’s] subjective motivations and the overall ‘egregiousness’ of his conduct,
which are not required to establish willfulness in this context.” Id. Moreover, the Third Circuit
was left with “the impression [that the district court] did not consider whether [the defendant’s]
conduct satisfies the objective recklessness standard articulated in similar contexts.” Id. The
court therefore remanded the case for further consideration. See id.
On remand, the district court concluded that the defendant’s “actions were willful
because he recklessly disregarded the risk that his FBAR was inaccurate.” Bedrosian II, 2020
WL 7129303, at *4. Relying principally on the Fourth Circuit’s decision in Horowitz, the district

27

court observed: “even if the [defendants in Horowitz] did not review their taxes, they signed
them and were thus representing their answers to the government under penalty of perjury. [The
defendant] also claims to not have reviewed his FBAR closely, but he like the [defendants in
Horowitz] signed the form.” Id. at *5. The objective recklessness standard, the court concluded,
“suggest[s] that . . . a taxpayer is responsible for errors that would have been apparent had [he]
reviewed such forms and checks closely[,]” and, under Third and Fourth Circuit authority,
“claiming to not have reviewed [a] form does not negate recklessness.” Id.
Thus, quite apart from Flume’s questionable treatment of the constructive-knowledge
doctrine, its exclusive reliance on Bedrosian I’s faulty application of the civil recklessness
standard further undermines any persuasive authority this decision might have offered. The
Court therefore declines to follow Flume.
Though Defendant relies primarily on Flume and Clemons, (see Def.’s Opp’n 16–21), he
also cites United States v. de Forrest, 463 F. Supp. 3d 1150 (D. Nev. 2020), another case in
which the defendant had signed her tax return without carefully reviewing its contents, see id. at
1158. (See Def.’s Opp’n 16.) The tax return erroneously omitted the defendant’s interest in a
foreign bank account, and the defendant failed to file the required FBAR. See 463 F. Supp. 3d at
1158. Despite this fact, the court concluded that the “[d]efendant’s purported recklessness and
willful blindness [were] grounded in genuinely disputed material facts,” and thus declined to
hold as a matter of law that the defendant’s FBAR violation was willful. Id. at 1160. While the
record in de Forrest contained a number of factual disputes, particularly regarding whether and
when the defendant’s tax preparer advised her of the FBAR requirement, see id. at 1159–60, the
court failed to distinguish—or, for that matter, even address—the considerable case authority
holding that a taxpayer’s submission of an erroneous tax return he or she signed is per se

28

evidence of reckless disregard toward the FBAR obligation. Although the government brought
this authority to the court’s attention, the court did not discuss the relevant cases or explain why
it chose not to follow this line of cases. See id. at 1158. Instead, the court concluded that
“genuine disputes of material fact do exist.” See id. at 1159. In short, this Court is not
persuaded that de Forrest adequately considered the weight of persuasive authority and is
therefore disinclined to follow its lead.
As noted, Defendant recklessly disregarded the FBAR reporting obligation by failing to
review his 2007 tax return and inaccurately representing that he had no foreign accounts.
Because a “willful violation” of the FBAR statute “includes both knowing and reckless
violations,” Horowitz, 978 F.3d at 88, the Court concludes that Defendant willfully violated the
FBAR reporting obligation. Though the analysis could end here, the Court will also consider
several additional factors that support granting summary judgment to the Government.
b. Other Indicia of Defendant’s Recklessness
Although Defendant “trusted” and had “years of dealing” with the same tax preparer,
(Def.’s Counter 56.1 ¶¶ 26–27), he never disclosed the existence of his foreign accounts or
sought his tax preparer’s advice regarding these accounts, (id. ¶¶ 28–29). Facing similar facts,
courts have repeatedly held that such an omission constitutes evidence of recklessness or willful
blindness toward the FBAR reporting obligation. See United States v. Ott, 441 F. Supp. 3d 521,
530 (E.D. Mich. 2020) (finding that the defendant’s “failure to discuss his foreign investments
with his long-time accountant . . . indicate[d] ‘a conscious effort to avoid learning about
reporting requirements’” (citation omitted)); Horowitz, 361 F. Supp. 3d at 529 (finding that the
defendants’ failure to discuss the tax liabilities on their foreign accounts with “the accountants
they [had] entrusted with their taxes for years . . . easily show[ed] ‘a conscious effort to avoid

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learning about reporting requirements’” (citation omitted)); United States v. Bohanec, 263 F.
Supp. 3d 881, 890 (C.D. Cal. 2016) (holding that the defendants “were at least reckless, if not
willfully blind, in their conduct with respect to their Swiss UBS account and their reporting
obligations regarding the account[]” based on the fact that they “never told anyone other than
their children of the existence of the UBS account, including the tax preparers [they] hired to
help them file tax returns”); McBride, 908 F. Supp. 2d at 1212 (concluding that the defendant’s
“failure to disclose all relevant information [regarding his financial interest in foreign accounts]
to [his accountant] [was] evidence of his willfulness, or at least his reckless disregard, of the
potential consequences of failing to comply with the FBAR requirements”).
To explain why he never discussed his foreign accounts with his tax preparer, Defendant
invokes his long-held belief that this money was his “European heritage” and “had no relevance
to his U.S. tax reporting.” (Def.’s Counter 56.1 ¶ 29; see also id. ¶¶ 28, 47–50.) But a
defendant’s subjective belief does not negate a finding of recklessness or willful blindness,
particularly where, as here, a defendant could easily have determined whether his belief was
accurate by speaking with a longtime tax preparer. In Ott, for example, the defendant—who was
“not a tax expert with any financial or legal training in tax accounting”—erroneously believed he
did not have to recognize gain on a foreign financial account until it was liquidated, a view that
was based on advice he had received from a tax preparer decades earlier. 441 F. Supp. 3d at 530.
According to the court, the defendant’s “lack of experience in tax accounting suggests that he
knew, or should have known, that relying solely on advice he received as a young adult, without
consulting his accountant, was reckless conduct in disregard of potential reporting
requirements.” Id. “Therefore,” the court concluded, “[the defendant’s] claim that he relied on
his own beliefs as to his legal reporting obligations, without verifying those beliefs with his long-

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time tax preparer, supports a finding of recklessness here.” Id. at 531. Similarly, in Horowitz,
the defendants believed they did not have to pay taxes on their foreign accounts based on
conversations they had held with friends. 361 F. Supp. 3d at 529. Granting summary judgment
for the government, the court observed that the defendants’ “friends’ credentials [were] not
before the [c]ourt, nor [was] there any information from which [the court] could assess whether it
was reasonable for [the defendants] to have accepted what their friends told them as legally
correct.” Id. In any event, the defendants’ “failure to have the same conversation with the
accountants they entrusted with their taxes for years . . . easily show[ed] ‘a conscious effort to
avoid learning about [FBAR] reporting requirements.’” Id. (citation omitted); see also Horowitz,
978 F.3d at 89 (“[The defendants] were reckless in failing to discuss the same question with their
accountant at any point over the next 20 years.”).
Here, as in Ott and Horowitz, Defendant tries to defeat a finding of recklessness by
invoking a purportedly honestly held but erroneous belief regarding his foreign accounts. But
like the defendants in these other cases, Defendant, who possesses no financial or tax expertise
himself, made no effort to consult his longtime tax preparer to determine whether his belief was
correct. If anything, the case for recklessness is stronger here than in Ott or Horowitz. Whereas
the defendants in those cases at least attributed their erroneous beliefs to faulty advice they had
received from others, here, Defendant points only to his own vague notion that the UBS accounts
were his “European heritage,” and therefore stood beyond the reach of U.S. tax laws. (See Def.’s
Counter 56.1 ¶ 29.) In the many years he worked with Surico, Defendant easily could have
verified whether this notion was correct. His failure to do so suggests “a conscious effort to
avoid learning about [FBAR] reporting requirements[,]” or, at the very least, “reckless conduct in

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disregard of potential reporting requirements.” See Ott, 441 F. Supp. 3d at 530 (citation
omitted).
Also significant is the fact that both of Defendant’s foreign accounts were set up as
numbered accounts with “hold mail” service. (See Pl.’s 56.1 ¶¶ 6, 10; Def.’s Counter 56.1 ¶¶ 6,
10, 15, 18–19.) Although he, like one of the defendants in Horowitz, essentially “denie[s]
[having] fill[ed] in the boxes on the agreement with the bank that elected the use of a numbered
account and the hold mail service, he surely became aware of their effect as he thereafter
communicated with the bank and received no mail from it.” 978 F.3d at 90. “This conduct
further evinces more than mere negligence.” Id.
Finally, as was also true in Horowitz, Defendant’s “Swiss bank accounts were by no
means small or insignificant and thus susceptible to being overlooked by [Defendant].” Id. Just
as the foreign accounts in Horowitz served as the defendants’ “nest-egg retirement account,” id.,
Defendant viewed his accounts as his “European heritage” that he hoped to pass on to his son,
(see Def.’s Counter 56.1 ¶¶ 23–24, 28). Accordingly, Defendant made frequent visits to
Switzerland—including three trips in 2007—during which he made withdrawals from the
accounts and retrieved his mail from UBS. (See id. ¶¶ 11, 18–19, 37–42.) Cf. Horowitz, 978
F.3d at 90 (noting that the defendants “tended to [their] next egg, traveling twice to Switzerland
specifically to look after it”).
Between Defendant’s false submission on his 2007 tax return and the additional factors
discussed above, the Court finds undisputed evidence to conclude that Defendant recklessly
disregarded the FBAR reporting obligation. The factors relied upon by the Court today are the
same as those which supported a grant of summary judgment in Horowitz. See 978 F.3d at 89–
90. There, as here, “the record indisputably establishes not only that [Defendant] clearly ought

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to have known that [he] [was] failing to satisfy [his] obligation to disclose [his] Swiss accounts,
but also that [he] [was] in a position to find out for certain very easily.” Id. at 90 (citation and
quotation marks omitted). Yet, Defendant “neither made a simply inquiry to [his] accountant nor
gave even the minimal effort necessary to render meaningful [his] sworn declaration that [his]
tax return[] [was] accurate.” Id. Having recklessly failed to file an FBAR for 2007, Defendant is
subject to enhanced penalties for a willful violation under § 5321.
2. Whether IRS Appropriately Calculated Defendant’s Penalty
As noted, the IRS assessed two penalties against Defendant—one penalty for $679,365
based on the 4959 Account, and another penalty for $224,488 based on the 4337 Account. (Pl.’s
56.1 ¶¶ 52–53.) Defendant argues that the IRS improperly calculated the penalty assessed with
respect to the 4337 Account. (Def.’s Counter 56.1 ¶ 53; Def.’s Opp’n 24.)
Under 31 U.S.C. § 5321, the maximum civil penalty assessed against a defendant who
willfully violates the FBAR filing requirement “shall be increased” to either (i) $100,000 or (ii)
50 percent of the “balance in the [defendant’s foreign] account at the time of the violation[,]”
whichever amount is greater. See 31 U.S.C. § 5321(a)(5)(C)(i), (D)(ii). Under the Internal
Revenue Manual, “[t]he date of a violation for failure to timely file an FBAR is the end of the
day on June 30th of the year following the calendar year for which the accounts are being
reported[,]” and thus, “[t]he balance in the account at the close of June 30th is the amount to use
in calculating the filing violation.” IRM 4.26.16.6.5. Accordingly, to calculate the penalty
amount for the 4959 Account, the IRS took 50 percent of the balance in that account as of June
30, 2008. (Dolinger Decl. Ex. I (“FBAR Penalty Lead Sheet”), at unnumbered 1 (Dkt. No. 319).) However, because the IRS did not have the 4337 Account’s balance information as of June
30, 2008, it decided to calculate the penalty based on the account’s balance as of December 31,

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2007, which was $448,975. (See id.) The question is whether that was a permissible exercise of
agency discretion.
Courts have reviewed IRS penalty calculations for abuse of discretion under the
“arbitrary and capricious” standard of the Administrative Procedure Act (“APA”). See 5 U.S.C.
§ 706(2)(A); Jones v. United States, No. 19-CV-4950, 2020 WL 2803353, at *8 (C.D. Cal. May
11, 2020) (applying the APA’s “arbitrary and capricious” standard to review the IRS’s penalty
assessment for an FBAR violation); United States v. Schwarzbaum, — F. Supp. 3d —, 2020 WL
1316232, at *12 (S.D. Fla. Mar. 20, 2020) (same); Rum, 2019 WL 3943250, at *9 (same); United
States v. Williams, No. 09-CV-437, 2014 WL 3746497, at *1 (E.D. Va. June 26, 2014) (same).
This standard of review “is narrow and particularly deferential[,]” Gully v. Nat’l Credit Union
Admin. Bd., 341 F.3d 155, 163 (2d Cir. 2003) (citation and quotation marks omitted), and the
reviewing court “may not itself weigh the evidence or substitute its judgment for that of the
agency[,]” Davila v. Lang, 343 F. Supp. 3d 254, 275 (S.D.N.Y. 2018). Despite the narrow scope
of review, however, “the agency must examine the relevant data and articulate a satisfactory
explanation for its action including a ‘rational connection between the facts found and the choice
made.’” Motor Vehicle Mfrs. Assoc. of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29,
43 (1983) (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)).
Emphasizing the highly deferential standard of review, the Government has cited two
cases in which the reviewing court upheld the IRS’s penalty calculation. (See Pl.’s Mem. 23
(citing Rum, 2019 WL 3943250, at *9; Williams, 2014 WL 3746497, at *1).) Both, however, are
factually distinguishable. Whereas the instant challenge concerns the IRS’s alleged departure
from cut-and-dry instructions in its own internal guidelines, the cases cited by the Government
involve the agency’s substantive exercise of discretion in matters where it is given significant

34

latitude to enforce federal law. In Rum, the IRS had assessed the statutory maximum penalty
based on a defendant’s willful FBAR violation. See 2019 WL 3943250, at *9. Although the
Internal Revenue Manual provides that a statutory maximum penalty may be reduced if the
taxpayer meets four mitigation factors, the IRS concluded that its proposed civil tax fraud
penalty against the defendant precluded mitigation. See id. at *3, *4, *9. The court thus framed
its inquiry as “whether the IRS had a rational basis for assessing the civil fraud penalty[,]” so as
to preclude mitigation of the statutory maximum FBAR penalty. See id. at *9. Examining
multiple “badges of fraud” the agency had considered, the court concluded the IRS did have a
rational basis for imposing the maximum statutory penalty. See id. at *10–11. In Williams, the
question was whether the IRS had abused its discretion by assessing two $100,000 maximum
penalties in light of the defendant’s willful FBAR violation. See 2014 WL 3746497, at *2.
These penalties, the court observed, “were within the range authorized by Congress in 31 U.S.C.
§ 5321(a)(5)(C) for willful violations.” Id. Having reviewed the record, the court found
“sufficient evidence . . . to demonstrate that the $200,000 penalty was the product of reasoned
decision-making and consideration of the appropriate factors[,]” including, for example, “the
nature of the violation and the amounts involved[,]” as well as “the cooperation of the taxpayer
during the examination[.]” Id. (alterations omitted).
The more persuasive authority comes from a recent pair of cases in which the IRS was
accused of using the wrong data when determining the defendant’s penalty. In Schwarzbaum,
for example, the IRS calculated the defendant’s FBAR penalty using “the highest aggregate
balance in each account for each year, [rather than] the balance in the account as of June 30 of
each year.” See 2020 WL 1316232, at *13. Having found that “the IRS used the incorrect base
amounts to calculate the FBAR penalties[,]” the court concluded that these penalties were

35

arbitrary and capricious. See id. In Jones, the IRS assessed two penalties against the defendant
for alleged FBAR violations in 2011 and 2012. See 2020 WL 2803353, at *3. To calculate the
penalties, the IRS started with the defendant’s account balance as of June 30, 2013 ($3,043,880),
took 50 percent of that amount ($1,521,940), and then prorated this penalty between 2011
($751,685) and 2012 ($770,255). See id. 8 If the government had properly calculated the 2011
penalty using the June 30, 2012 account balance ($2,970,499)—which was lower than the
balance a year later—then the 50 percent statutory maximum penalty would have been
$1,485,249.50. Id. at *3. The government’s actual 2011 penalty, however, was half that amount.
See id. at *8. Because “the IRS’[s] penalty was based on inappropriate data that should not have
been considered in assessing the penalty[,]” the court held that the agency’s calculation was
“arbitrary and capricious.” See id.
This case falls more closely in the Jones-Schwarzbaum line of cases than it does in the
Rum-Williams line of cases. Here, as in Jones and Schwarzbaum, the IRS failed to use the June
30 account balance when calculating the FBAR penalty for the preceding year, thereby departing
from its own internal guidelines. “It is a fundamental principle of administrative law[,]”
however, “that an agency is bound to adhere to its own regulations.” Fuller v. Winter, 538 F.
Supp. 2d 179, 186 (D.D.C. 2008); see also Service v. Dulles, 354 U.S. 363, 388 (1957) (stating
that an agency may not “proceed without regard” to the “substantive and procedural standards” it
has “impose[d] upon [itself]”); Salazar v. King, 822 F.3d 61, 76 (2d Cir. 2016) (“[W]here the
rights of individuals are affected, it is incumbent upon agencies to follow their own procedures.”
(citation omitted)); Frizelle v. Slater, 111 F.3d 172, 177 (D.C. Cir. 1997) (observing that

8

The government subsequently conceded that the defendant was not liable for the 2012
FBAR penalty. Jones, 2020 WL 2803353, at *4.
36

agencies are “bound to follow [their] own regulations”); Nat. Res. Def. Couns. v. EPA, 438 F.
Supp. 3d 220, 229 (S.D.N.Y. 2020) (same). The Government argues that the “IRS reasonably
relied upon the best information available for the 4337 Account—the December 2007 balance of
$448,975—because a June 2008 balance was unavailable.” (Pl.’s Reply 10.) But in light of the
Internal Revenue Manual’s clear instruction to use the June 30 account balance, the agency’s
decision to use the December 2007 balance was an arbitrary expedient. The Court therefore
denies the Government’s Motion with respect to the penalty calculation for the 4337 Account,
and it will therefore “remand [this issue] to the [IRS] for additional investigation or explanation.”
See Fla. Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985) (“If the record before the
agency does not support the agency action, [or] if the agency has not considered all relevant
factors, . . . the proper course, except in rare circumstances, is to remand to the agency for
additional investigation or explanation.”). However, the Court grants summary judgment with
respect to the penalty calculation for the 4959 Account.
III. Conclusion
For the reasons stated above, the Government’s Motion is granted in part and denied in
part. The Clerk of Court is respectfully directed to terminate the pending Motion, (Dkt. No. 29),
and remand the case to the IRS for a proper determination of the penalty related to the 4337
Account.
SO ORDERED.
Dated:

March 31, 2021
White Plains, New York
KENNETH M. KARAS
United States District Judge

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