United States v. Green (FBAR Series)

United States v. Green, U.S. District Court, S.D. Florida | April 27, 2020 | Moore, J. | No. 1:19-cv-24026-KMM

Short Summary: The United States sought to recover unpaid financial penalties imposed upon taxpayer based on her failure to file forms indicating her interest in foreign bank and financial accounts for 2010 and 2011. Taxpayer passed away and her son and daughter filed a motion to dismiss for failure to state a claim.

Key Issue: First, whether penalties for failure to file an FBAR report survived taxpayer’s death. Second, whether taxpayer willfully failed to disclose her interest in a foreign account of file an FBAR report.

Primary Holdings:

Penalties for failure to file a Foreign Bank and Financial accounts (FBAR) report survived taxpayer’s death
Evidence supported finding that taxpayer willfully failed to disclose her interest in foreign account or file a FBAR report.

Key Points of Law:

In the absence of an expression of contrary intent, the survival of a federal cause of action is a question of federal common law. It is well-settled in federal common law that while remedial actions survive the death of the plaintiff, penal actions do not. in deciding whether a statute is penal or remedial, a court must examine three factors: (1) whether the purpose of the statute was to redress individual wrongs or more general wrongs to the public; (2) whether recovery under the statute runs to the harmed individual or to the public; and (3) whether the recovery authorized by the statute is wholly disproportionate to the harm suffered.
Because the government itself has suffered a monetary harm as the result of defendant’s conduct, the FBAR penalty has a remedial purpose because it allows the government to recover for such harm, and the FBAR penalty is not wholly disproportionate to the harm the government has suffered, the FBAR penalty is primarily remedial with incidental penal effects. Therefore, FBAR penalties survive a violator’s death.
“Willfulness” standard for FBAR report violation does not require actual knowledge of the duty to report interest in a foreign financial account, but mere reckless or careless disregard of that statutory duty. “Reckless” is understood 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.
Willfulness in the context of violations of the Foreign Bank and Financial Accounts (FBAR) reporting requirements may be proven through inference from conduct meant to conceal or mislead sources of income or other financial information, and it can be inferred from a conscious effort to avoid learning about reporting requirements.

Insight:

In addition to the key points of law listed above, the court provided an in-depth analysis of how to determine whether a penalty is remedial or penal as related to the survivorship of a penalty.[1] The court in Hudson held that an important distinction is whether the penalty scheme was so punitive so as to transform a civil remedy into a criminal penalty.[2] If that is the case, the scheme is penal and will not survive the debtor.[3] Additionally, The court in Kennedy held that other factors should weigh into the assessment of the scheme such as whether the sanction involves an affirmative disability or restraint, whether the scheme has been historically regarded as a punishment, and whether there is a scienter requirement.[4] In applying these more nuanced tests to the case, the court mentioned that FBAR penalties have been traditionally referred to as “civil penalties,” which the court said is indicative of Congressional intent even though Congress has not specifically spoken to whether FBAR sanctions should survive the death of a violator.[5]

Another important dimension of this opinion is the factual account that led the court to find that Marie Green’s conduct satisfied the willfulness requirement of the FBAR penalty statute.[6] Discussed above, the court gives a detailed explanation of the definitions of “willfulness” and recklessness in this context.[7] After, the court lists the evidence that led to their conclusion that Green had acted willfully in failing to file FBAR reports for her foreign accounts, which may act as a helpful guide for the kind of conduct that indicates the willful blindness or concealment which will lead a court to find that an FBAR violation was willful.[8] First, Green failed to pay income taxes on $1.4 million she received in her foreign accounts.[9] Also, the court reported that Green had a “long history” of using foreign accounts in other names, requesting that the accounts not list her or her family’s names, and instructing the banks to hold mail to U.S. addresses.[10] Additionally, Green made false statement to the foreign banks as to her interest in the accounts.[11] The court held that this conduct amounted to a “lengthy history of ‘conduct meant to conceal or mislead sources of income or other financial information’” which the court used to infer that Marie’s failure to file an FBAR report was willful.[12]

[1] United States v. Green, No. 1:19-cv-24026-KMM, 2020 WL 1980859, *5 (S.D. Fla. Apr. 27, 2020).

[2] Hudson v. United States, 522 U.S. 93, 99–100 (1997); Id.

[3] Green, 2020 WL 1980859, at *5.

[4] Kennedy v. Mendoza-Martinez, 372 U.S. 144, 168–69 (1963); Id.

[5] Green, 2020 WL 1980859, at *5.

[6] Id. at *8.

[7] Id. at *7.

[8] Id. at *8.

[9] Id.

[10] Id.

[11] Id.

[12] Id. at *8–9.