 In the United States Court of Federal Claims
                                           No. 17-421
                                    Filed: December 27, 2018

****************************************
                                       *             26 U.S.C. § 6511 (Limitations On Credit
                                       *                Or Refund);
                                       *             26 U.S.C. § 6672 (Failure To Collect And
                                       *                Pay Over Tax);
                                       *             26 U.S.C. § 7121 (Closing Agreements);
                                       *             26 U.S.C. § 7422 (Civil Actions For
                                       *                Refund);
ALICE KIMBLE,                          *             28 U.S.C. § 1346 (United States As
                                       *                Defendant);
      Plaintiff,                       *             28 U.S.C. § 1491 (Tucker Act);
                                       *             31 U.S.C. § 5314 (Records And Reports
v.                                     *                On Foreign Financial Agency
                                       *                Transactions);
THE UNITED STATES,                     *             31 U.S.C. § 5321 (Civil Penalties);
                                       *             26 C.F.R. § 301.7701(b)-2(d)(1) (Closer
      Defendant.                       *                Connection Exception);
                                       *             31 C.F.R. § 1010.350 (Reports Of Foreign
                                       *                Financial Accounts);
                                       *             31 C.F.R. § 1010.820 (Civil Penalty);
                                       *             RCFC 11(b) (Representations To The
                                       *                Court);
                                       *             RCFC 56 (Summary Judgment).
****************************************

James O. Druker, Kase & Druker, Garden City, New York, Counsel for Plaintiff.

Jason S. Selmont, United States Department of Justice, Tax Division, Washington, D.C., Counsel
for the Government.

    MEMORANDUM OPINION AND FINAL ORDER GRANTING DEFENDANT’S
                MOTION FOR SUMMARY JUDGMENT

BRADEN, Senior Judge.

        This case presents two issues arising under 31 U.S.C. § 5321(a)(5) (2004) that currently
are before the United States Court of Appeals for the Federal Circuit in a pending appeal: (1)
whether the Internal Revenue Service (“IRS”) must establish that a taxpayer had knowledge of the
legal duty under federal tax law to report foreign bank accounts, but acted in “reckless disregard”
of that duty, before it may impose a civil penalty for a willful violation of 31 U.S.C. § 5314; and
(2) whether the maximum penalty for a willful violation of 31 U.S.C. § 5314, as set forth in 31
U.S.C. § 5321(a)(5)(C)(i) (2004), supersedes 31 C.F.R. § 1010.820(g)(2). See Appellant’s Br.,
Norman v. United States, Fed. Cir. No. 18-2408 (Nov. 20, 2018).

I.     RELEVANT FACTUAL BACKGROUND.1

       A.      Alice Kimble’s Foreign Bank Accounts.

        Alice Green is a United States citizen, born in 1951. Stip. ¶ 1. Her father, Harold Green,
died in 1997; her mother, Frances Green, died in 2016. Stip. ¶ 10.

       Sometime prior to 1980, Harold Green and Frances Green opened an investment account
at the Union Bank of Switzerland (“UBS account”); Harold Green designated Alice as a joint
owner. Stip. ¶¶ 12, 13.

       According to Harold Green’s daughter, the purpose of the UBS account was, as follows:

               As you know, ever since you have been a little girl, I have taught
               you that we need to have a safe haven because I am Jewish. You
               are half Jewish and our family was killed in the Holocaust and my
               parents escaped prosecution. So we have an account that we are not
               going to use the money for in case we ever have to escape America
               and it’s in Switzerland and you must never tell anybody about this
               account.

Alice Kimble Tr. 18:24–19:8.

      Neither Harold nor Frances Green filed a gift tax return reporting that Alice Green was a
co-owner. Alice Kimble Tr. 18:1–13.

       In 1983 or 1984, Alice Green married Michael Kimble. Compare Stip. ¶ 7 with Michael
Kimble Tr. 25:6. Sometime afterwards, Harold Green told Michael Kimble about the UBS
account. Stip. ¶ 15; Michael Kimble Tr. 38:21–39:1 (“[Harold Green] feared . . . a repeat of the
Holocaust. And to the extent that anyone knew about this bank account that would defeat the
whole purpose.”); 41:13–16 (“You cannot touch this, except for dire emergency. Life-and-death
emergency. You need to get out of the country.”). Michael Kimble promised to “always respect”
Harold Green’s wishes. Alice Kimble Tr. 22:14–15.

      Alice and Michael Kimble had one son, David Kimble, born in 1985. Stip. ¶ 8. Alice
Kimble told David Kimble about the UBS account when he was a teenager and instructed him to


       1
          The facts recited herein were derived from: the June 27, 2018 Stipulation Of Facts
(“Stip.”); Exhibits attached to the June 27, 2018 Motion For Summary Judgment (“Def. Ex. 1–
37”); the deposition transcripts of Alice Kimble (“Alice Kimble Tr.”), Michael Kimble (“Michael
Kimble Tr.”), and Steven Weinstein (“Weinstein Tr.”); documents attached to the Declaration of
Melissa Irons (“Irons Decl. 006–604”); and Exhibits attached to Plaintiffs’ July 24, 2018 Cross-
Motion For Summary Judgment (“Pl. Ex. A–B”).

                                                2
keep it “totally secret[,] because one day we [may] need to escape the United States.” Alice
Kimble Tr. 23:7–8, 116:19.

       In or around 1998, Alice and Michael Kimble opened a bank account at HSBC (“HSBC
account”) in Paris, France to pay expenses associated with a Paris apartment they owned. Stip. ¶¶
32, 35. Michael Kimble made the initial deposit opening the HSBC account. Stip. ¶ 33. No
money in the HSBC account was derived from illegal activities or used for illegal purposes. Stip.
¶ 34.

        On July 22, 1998, Alice Kimble signed a “Numbered Account Agreement” that directed
UBS physically to retain all correspondence about the UBS account at the bank in Switzerland and
paid a fee for that service. Stip. ¶ 23. That same day, Alice Kimble also signed a “Basic Trust
Agreement” that instructed UBS “to effect capital investments in the form of time deposits.” Stip.
¶ 22.2

        During his marriage to Alice Kimble, Michael Kimble handled the couple’s finances and
prepared their joint federal tax returns, but never reported any investment income derived either
from the HSBC or UBS accounts. Michael Kimble Tr. 61:24, 62:22–63:1. Nor did Michael
Kimble and Alice Kimble report the existence of their foreign bank accounts on their joint federal
tax returns. Michael Kimble Tr. 63:2–8. According to Michael Kimble, he did not know about
the federal requirement to report foreign bank accounts until he learned about it in the “[l]ate ‘90s,”
while using Turbo Tax. Michael Kimble Tr. 65:12–17.

       In 2000, Alice and Michael Kimble divorced. Stip. ¶ 7. Alice Kimble did not disclose the
UBS account in any of the documents produced during the divorce. Stip. ¶ 17. However, after the
divorce, Alice Kimble became the sole owner of the HSBC account. Stip. ¶ 36. Michael Kimble
continued to provide Alice Kimble with financial advice and attended meetings with UBS
representatives. Stip. ¶¶ 18, 29.3 According to Alice Kimble, she and Michael Kimble continued
to keep the UBS account secret out of respect for Harold Green. Alice Kimble Tr. 98:15.

        In or around 2000, Alice Kimble hired Steven Weinstein, a certified public accountant
licensed in New York, to prepare her federal and New York state income tax returns. Stip. ¶ 41.
Mr. Weinstein never asked Alice Kimble if she had a foreign bank account. Weinstein 15:15. At
that time, Alice Kimble did not disclose the existence of either the UBS or HSBC accounts to
Steven Weinstein. Stip. ¶ 43. Alice Kimble also never asked Steven Weinstein whether foreign
investment income needed to be reported on her federal income tax returns. Stip. ¶¶ 44, 45.

       In 2005, Alice Kimble granted David Kimble and Frances Green a general Power of
Attorney over the UBS account. Stip. ¶ 19. The Power of Attorney provided that David Kimble
       2
        The Parties’ Stipulation Of Facts states that “June 22, 2018,” was the date that Alice
Kimble signed the Numbered Account Agreement and Basic Trust Agreement. Stip. ¶¶ 22, 23.
Those documents, however, were dated “22.07.98.” Defs. Ex. 1, 2.
       3
        Between 1998 and 2008, Alice and Michael Kimble met with UBS representatives in
New York at least six times to discuss the account. Stip. ¶¶ 28, 29. Alice Kimble also met with a
UBS representative in Switzerland at least once. Stip. ¶ 28.

                                                  3
and Frances Green “are authorized to act severally and by their sole signature.” Def. Ex. 6. Alice
Kimble testified that she gave Michael Kimble a “certain type” of Power of Attorney over the UBS
account in 2005, but Michael Kimble’s name does not appear on any authorization document and
Michael Kimble testified that he was not aware that he was granted a Power of Attorney. Compare
Alice Kimble Tr. 96:2–6 with Def. Ex. 6; Michael Kimble Tr. 44:2.

        On April 15, 2005, Alice Kimble signed three documents concerning the USB account.
Def. Exs. 3, 4, 5. The first document was a “Basic Document for Account/Custody Account
Relationship,” that provided: “Except for special circumstances, correspondence is . . . to be
retained for a fee and held available at UBS.” Def. Ex. 5. The second document was a
“Supplement for New Account US Status Tax Form US Withholding Tax/Natural Person Assets
and Income Subject to United States Withholding Tax Declaration of Non-US Status.” Stip. ¶ 25.
Question 2 of this document provided: “The undersigned account holder hereby declares that
he/she is the beneficial owner of the assets and income to which this declaration relates in
accordance with [United States] tax law.” Def. Ex. 3. The third document was a “Verification of
the beneficial owner’s identity” and provided: “The contracting partner hereby declares” and then
listed two options. Def. Ex. 4. Alice Kimble checked the box next to the option indicating that
“the contracting partner is the sole beneficial owner of the assets concerned.” Def. Ex. 4. Frances
Green was a co-owner of the UBS account at that time; therefore, Alice Kimble’s representation
to UBS that she was the sole beneficial owner was not accurate. Alice Kimble Tr. 49:2–3.

       Prior to 2008, Alice Kimble did not make any deposits into or withdrawals from the UBS
account. Stip. ¶ 30. The UBS account earned investment income each year from 2003 through
2008. Stip. ¶ 49. In or around 2008, Alice Kimble added David Kimble as a co-owner on the UBS
account. Alice Kimble Tr. 17:19–22. Thereafter, David Kimble continued to attend meetings
between Alice Kimble and UBS representatives. Alice Kimble Tr. 28:22.

       In 2008, Alice Kimble also learned from an article in the New York Times that the United
States was “putting pressure on UBS to reveal the names of people who had secret accounts in
UBS.” Alice Kimble Tr. 55:7–18. Prior to reading the New York Times article, Alice Kimble did
not know that she had an obligation to disclose her foreign bank accounts. Alice Kimble Tr. 87:3;
100:20–101:8. Around that time, Alice Kimble retained counsel to comply with foreign reporting
requirements. Alice Kimble Tr. 56:20–22.

       On June 30, 2008, the balance in the UBS account was $1,365,661.65. Stip. ¶ 31. On June
30, 2008, the balance in the HSBC account was $134,129.67. Stip. ¶ 40.

       In 2009, UBS entered a deferred prosecution agreement with the United States that required
UBS to provide the IRS with the names and account information of United States citizen clients.
Def. Ex. 31 at 161. On October 24, 2009, Alice Kimble signed a document authorizing UBS to
comply with the IRS’s request. Def. Ex. 32 at 199.

       In or around 2010, Alice Kimble sold the Paris apartment, closed the HSBC account, and
deposited the proceeds into the UBS account. Stip. ¶ 38; Alice Kimble Tr. 59:1–6.




                                                4
       B.      Alice Kimble’s Federal Tax Returns.4

        Alice Kimble timely filed Form 1040s for tax years 2004 through 2008. Stip. ¶ 47; Def.
Ex. 10–14.5 But, on those Form 1040s, Alice Kimble did not report any investment income, either
from the UBS or HSBC accounts. Stip. ¶ 50; Def. Exs. 10–14. Alice Kimble also did not review
the accuracy of any federal income tax returns filed on her behalf for tax years 2003 through 2008.
Stip. ¶ 46.

        Question 7(a) of IRS Federal Form 1040, U.S. Individual Income Tax Return, Schedule B
– Interest and Ordinary Dividends, Part III, Foreign Accounts and Trusts, for the tax years 2004
through 2007 asked: “At any time during [that tax year], did you have an interest in or a signature
or other authority over a financial account in a foreign country, such as a bank account, securities
account, or other financial account?” Def. Ex. 13 at 82.

        In each tax year 2003 through 2008, the IRS also published instructions to Schedule B.
See, e.g., Def. Ex. 27. For example, the 2007 instructions for completing Schedule B stated that a
taxpayer should reply “Yes” to Question 7(a) if either:

               1. You own more than 50% of the stock in any corporation that owns
               one or more foreign bank accounts.

               2. At any time during 2007 you had an interest in or signature
               authority over a financial account in a foreign country (such as a
               bank account, securities account, or other financial accounts).

Def. Ex. 27 at 137.

       The 2007 instructions also provided:

               See [the Report of Foreign Bank and Financial Accounts (“FBAR”)]
               to find out if you are considered to 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).
               You can get [a FBAR] by visiting the IRS website at
               www.irs.gov/pub/irs-pdf/f90221.pdf.



       4
      All relevant statutes and regulations are produced in the Court Appendix, attached to this
Memorandum Opinion And Final Order.
       5
          Alice Kimble timely filed Form 1040s for tax years 2003 through 2008. Stip. ¶ 47. The
only Form 1040s, attached as an Exhibit to the June 27, 2018 Motion For Summary Judgment,
were for tax years 2004 through 2008. Def. Ex. 10–14. Therefore, the court did not rely on the
parties’ representations regarding Alice Kimble’s Form 1040 for tax year 2003 in resolving the
pending motions. See RCFC 56(a) (“A party asserting that a fact cannot be or is genuinely disputed
must support the assertion by: (A) citing to particular parts of materials in the record.”).

                                                 5
                If you checked the “Yes” box on line 7a, file [a FBAR] by June 30,
                2008, with the Department of the Treasury at the address shown on
                that form. Do not attach it to Form 1040.

Def. Ex. 27 at 137.

       On each Form 1040 for tax years 2004 through 2007, Alice Kimble checked the box next
to Question 7(a) labeled “No.” Stip. ¶ 48; see, e.g., Def. Ex. 13 at 82. On the Form 1040 for 2008,
Alice Kimble left the spaces next to Question 7(a) blank. Def. Ex. 14 at 88.

        Alice Kimble did not timely file a FBAR for calendar years 2003 through 2008. Stip. ¶ 61.
In July 2000, the IRS issued specific FBAR instructions, that stated:

                Who Must File this Report Each United States person, who has a
                financial interest in or signature authority, or other authority over
                any financial accounts, including bank, securities, or other types of
                financial accounts in a foreign country, if the aggregate value of
                these financial accounts exceeds $10,000 at any time during the
                calendar year, must report that relationship each calendar year by
                filing [a FBAR] with the Department of the Treasury on or before
                June 30, of the succeeding year.

Def. Ex. 28 at 140 (bold in original).

        The FBAR instructions define a “financial interest” as:

                Financial Interest A financial interest in a bank, securities, or other
                financial account in a foreign country means an interest described in
                either of the following two paragraphs:

                (1) A United States person has a financial interest in each account
                for which such person is the owner of record or has legal title,
                whether the account is maintained for his or her own benefit or for
                the benefit of others including non-United States persons.

Def. Ex. 28 at 140 (bold in original).6

        On April 8, 2009, Alice Kimble applied to the Offshore Voluntary Disclosure Program
(“OVDP”), a “voluntary disclosure program specifically designed for taxpayers with exposure to
potential criminal liability and/or substantial civil penalties due to a willful failure to report foreign
financial assets and pay all tax due in respect of those assets.” Def. Ex. at 33.



        6
          The instructions for completing the FBAR were again revised in October 2008; those
instructions materially are identical to the July 2000 instructions. Compare Def. Ex. 28 with Def.
Ex. 29.

                                                    6
        On October 16, 2009, Alice Kimble was accepted into the OVDP. Stip. ¶ 64; Irons Decl.
351. Around that time, however, Alice Kimble “switched” the UBS account number to a new one,
to reflect that David Kimble was no longer a co-owner on the UBS account. Alice Kimble Tr.
37:1–24.

       On January 27, 2011, Alice Kimble filed Form 1040X, Amended U.S. Individual Income
Tax Return, for tax years 2003 through 2008, as part of her participation in the OVDP. Stip. ¶ 51;
Def. Ex. 15–20.

       •     On the amended return for tax year 2003, Alice Kimble reported an underpayment of
             $14,564. Stip. ¶ 52; Def. Ex. 15 at 92.

       •     On the amended return for tax year 2004, Alice Kimble reported an underpayment of
             $9,473. Stip. ¶ 53; Def. Ex. 16 at 97.

       •     On the amended return for tax year 2005, Alice Kimble reported an underpayment of
             $11,165. Stip. ¶ 54; Def. Ex. 17 at 101.

       •     On the amended return for tax year 2006, Alice Kimble reported an underpayment of
             $25,643. Stip. ¶ 55; Def. Ex. 18 at 105.

       •     On the amended return for tax year 2007, Alice Kimble reported an underpayment of
             $26,391. Stip. ¶ 56; Def. Ex. 19 at 111. Alice Kimble also changed her answer to
             Question 7(a) on Schedule B – Interest and Ordinary Dividends from “No” to “Yes.”
             Stip. ¶ 60; Def. Ex. at 111.

       •     On the amended return for tax year 2008, Alice Kimble reported an underpayment of
             $12,130. Stip. ¶ 57; Def. Ex. 20 at 118.

      Each of these underpayments were caused by Alice Kimble’s failure to report foreign
income to the IRS. Stip. ¶ 58.

       On the amended returns for tax years 2003 to 2006 and 2008, Alice Kimble also did not
amend her answer to Question 7(a), although income from both the UBS and HSBC accounts was
included on amended Schedule B for each of those years. Stip. ¶ 59. Alice Kimble proffered no
explanation as to why her answer to Question 7(a) for those years was never amended. Alice
Kimble Tr. 82:15.

        On September 25, 2012, Alice Kimble filed a FBAR for calendar years 2003 through 2008.
Stip. ¶ 62; Def. Ex. 21–26. On each FBAR, Alice Kimble reported the existence of the UBS or
HSBC accounts. Stip. ¶ 63; Def. Ex. 21–26.

       On October 5, 2012, Alice Kimble and the IRS negotiated a Closing Agreement7 that
required an amendment to her income tax returns 2003 through 2008 to report undisclosed foreign


       7
           Section 7121 of the Internal Revenue Code provides that:

                                                 7
income and pay the tax liability due. Def. Ex. 34 at 202. In addition, the October 5, 2012 Closing
Agreement required Alice Kimble to pay a miscellaneous penalty of $377,309.00. Def. Ex. 34 at
202 ¶ 3. But, Alice Kimble did not know whether the Closing Agreement, bearing her signature,
was ever submitted to the IRS. Alice Kimble Tr. 107:10.

        In or around February 2013, Alice Kimble attempted to withdraw from the OVDP and
declined to pay the miscellaneous penalty. Irons Decl. 334, 336. A letter from Alice Kimble’s
attorney to the IRS, relaying her decision to withdraw from the OVDP, is dated “January 23, 2013,”
but a follow-up letter dated “February 26, 2013” clarified that her decision was effective on the
later date. Irons Decl. 334, 336. Alice Kimble testified that she decided to “take her chances”
with the IRS. Stip. ¶ 66; Alice Kimble Tr. 103:10–11 (“The penalty was so high that I was advised
to appeal the penalty.”). Thereafter, the IRS sent Alice Kimble a letter informing her that any opt-
out from the OVDP would be irrevocable and might cause her to incur a higher penalty. Stip. ¶
65.

       C.        The Internal Revenue Service Examination.

        Sometime in 2013, the IRS began an examination of Alice Kimble’s FBAR filings for the
2007 calendar year. Stip. ¶ 67. After an IRS Revenue Agent conducted an audit of the UBS and
HSBC accounts, it was determined that Alice Kimble’s failure to file a FBAR for 2007 was
“willful.” Irons Decl. 025–037. Specifically, the IRS found: Alice Kimble was “required to file
[FBARs] annually for many years but failed to do so;” she qualified for mitigation, because she
satisfied the four regulatory criteria;8 but her failure to file FBARs nevertheless was “willful.”
Irons Decl. 025–033. The “willfulness” finding was based on eight factual findings:

       1. Alice Kimble had “direct financial interest in the accounts as she was listed as the sole
       owner of each account.” Irons Decl. 030.



                 (a) The Secretary is authorized to enter into an agreement in writing
                 with any person relating to the liability of such person (or of the
                 person or estate for whom he acts) in respect of any internal revenue
                 tax for any taxable period.

26 U.S.C. § 7121.
       8
           The four regulatory criteria were:

                 •   No prior history of past FBAR penalty assessments.
                 •   No money in the foreign accounts was from illegal sources or
                     used for criminal purposes, based on available information.
                 •   [Alice Kimble] is cooperating with the [IRS].
                 •   The civil fraud penalty was not asserted for any underpayments
                     of tax that were connected to her failure to file FBARs.

Irons Decl. 025; see also I.R.M. § 4.26.16.4.6.1. Unless otherwise noted, all citations to Internal
Revenue Manual (“I.R.M.”) §§ 4.26.16 et seq. reference the I.R.M., issued on July 1, 2008.
                                                  8
       2. “All original Schedule B’s-Part III [Question 7(a)] per returns were checked ‘No.’”
       Irons Decl. 031. “It is reasonable to assume that a person inheriting a Swiss bank account
       worth over a million dollars would inform themselves of their obligations related to such
       an account.” Irons Decl. 031.

       3. Alice Kimble “failed not only to disclose her accounts and [sic] but also omitted all
       income associated with them, repeatedly. This went on for decades, and [Alice] Kimble
       only choose [sic] to correct her returns and participate in [OVDP] after advisement from
       UBS, once the [July 8, 2008] John Doe [S]ummons was issued to the bank.” Irons Decl.
       031.

       4. Alice Kimble “took efforts to conceal the existence of her accounts.” Irons Decl. 031.

       5. Alice Kimble “had active management of both accounts.” Irons Decl. 032.

       6. Alice Kimble “has no business or family connection to either France, or Switzerland.”
       Irons Decl. 032. Fear of persecution “does not represent reasonable cause for
       noncompliance with U.S. law.” Irons Decl. 032.

       7. “Even after entering into and opting out of [OVDP] the [sic] [Alice] Kimble has
       remained non-compliant.” Irons Decl. 032.

       8. Alice Kimble “had significant involvement with her accounts[,] and has generated
       sizable offshore income that she chose to conceal (52% of her overall earnings in 2007
       were related to concealed foreign accounts).” Irons Decl. 033.

       The IRS also rejected Alice Kimble’s request to apply a “reasonable cause” standard,9
because her violation was “willful” and “the facts do not support that ordinary business care and
prudence were exercised.” Irons Decl. 034. Therefore, the IRS calculated the applicable penalty,
in accordance with I.R.M. § 4.26.16.3.610 and I.R.M. Exhibit 4.26.16-2.11 Irons Decl. 035. Next,
the IRS added 50 percent of the balance in the UBS account, as of June 30, 2008 ($682,832), to



       9
          Title 31, U.S.C. § 5321(a)(5)(B)(ii) states that, for non-willful violations, “[n]o penalty
shall be imposed” if:

                 (I) such violation was due to reasonable cause, and

                 (II) the amount of the transaction or the balance in the account at the
                 time of the transaction was properly reported.

31 U.S.C. § 5321(a)(5)(B)(ii).
       10
            See Court Appendix, infra, for the text of I.R.M. § 4.26.16.3.6.
       11
            See Court Appendix, infra, for the text of I.R.M. Exhibit 4.26.16-2.

                                                   9
10 percent of the balance in the HSBC account, as of December 31, 2007 ($14,397). Irons Decl.
037, 092.12 The total penalty amount was determined to be $697,229. Irons Decl. 037.

       On April 7, 2014, the IRS issued Letter 3709, advising Alice Kimble that she owed a
penalty of $697,229, pursuant to 31 U.S.C. § 5321(a)(5),13 for the willful failure to file a FBAR
for 2007. Stip. ¶ 68; Iron Decl. 013–015.

       On July 15, 2016, the IRS assessed a penalty in the amount of $697,229. Stip. ¶ 69. On
or about August 3, 2016, Alice Kimble paid the full amount of the assessed penalty. Stip. ¶ 70.14
On September 8, 2016, Alice Kimble filed a Claim For Refund And Request For Abatement with
the IRS. Compl. Ex. A.15

II.    PROCEDURAL HISTORY.

       On March 24, 2017, Alice Kimble (“Plaintiff”) filed a Complaint in the United States Court
of Federal Claims for a refund of the assessed penalty. ECF No. 1.16

       On May 16, 2017, the Government filed an Unopposed Motion For An Enlargement Of
Time to answer the March 24, 2017 Complaint. ECF No. 5. On May 30, 2017, the court granted
that Motion.

        On July 24, 2017, the Government filed a Second Unopposed Motion For An Enlargement
Of Time to answer the March 24, 2017 Complaint. ECF No. 6. On July 26, 2017, the Government
filed a Motion For Leave To File Answer Out Of Time. ECF No. 7. On July 28, 2017, the court
granted both the July 24, 2017 and July 26, 2017 Motions. On July 31, 2017, the Government
filed an Answer. ECF No. 8.



       12
         The fractional balance for each account was rounded to the nearest dollar, before adding
them together. Irons Decl. 037.
       13
            See Court Appendix, infra, for the text of 31 U.S.C. § 5321(a)(5) (2004).
       14
         The Parties’ Stipulation states that Alice Kimble paid the assessed penalty on August 3,
2016. Stip. ¶ 70.
       15
          See RCFC 56(c)(3) (“The court need consider only the cited materials, but it may
consider other materials in the record.”).
       16
          The March 24, 2017 Complaint alleged that Alice Kimble paid the assessed penalty on
August 8, 2016. Compl. ¶ 8. But, the September 8, 2016 Claim For Refund states that Alice
Kimble paid the assessed penalty on “8/11/2016.” Compl. Ex. A. The March 24, 2017 Complaint
also alleged that Alice Kimble’s parents were “Holocaust survivors.” Compl. ¶ 16. But, Alice
Kimble testified that both her parents were born in the United States. Alice Kimble Tr. 92:19–24.
These discrepancies should have been addressed by an amendment to the March 24, 2017
Complaint. See RCFC 11(b).

                                                 10
       On September 19, 2017, the parties filed a Joint Preliminary Status Report. ECF No. 9.

        On November 9, 2017, the court issued a Scheduling Order setting a May 18, 2018 deadline
for the close of fact discovery and May 29, 2018 as the trial date. ECF No. 13.

       On December 7, 2017, Plaintiff filed a Status Report requesting the court’s assistance in
“narrowing down, and perhaps resolving, the issues in this case.” ECF No. 14 at 1.

        On January 8, 2018, the Government filed a Motion For Order Compelling Production Of
Documents. ECF No. 15. On January 10, 2018, the parties filed a Joint Status Report requesting
that the court vacate the May 29, 2018 trial date. ECF No. 16. On January 11, 2018, the court
granted the January 8, 2018 Motion To Compel. ECF No. 17.

       On March 12, 2018, the parties submitted a Joint Status Report. ECF No. 18. On March
20, 2018, Plaintiff filed a letter requesting that the court convene a discovery conference. ECF
No. 22. On March 27, 2018, the Government filed an Unopposed Motion For An Enlargement Of
Time to respond to the March 20, 2018 letter. ECF No. 23. On April 2, 2018, the court granted
the March 27, 2018 Motion. ECF No. 24.

         On April 2, 2018, Plaintiff filed a Motion To Withdraw the March 20, 2018 letter. ECF
No. 25. That same day, the court granted the Motion To Withdraw. On April 6, 2018, the parties
filed a Joint Status Report again requesting that the court vacate the May 29, 2018 trial date. ECF
No. 26. On April 10, 2018, the court issued a Scheduling Order canceling the May 29, 2018 trial
date and setting deadlines for briefing on a motion for summary judgment. ECF No. 27.

       On June 27, 2018, the parties filed a Stipulation Of Facts. ECF No. 28. That same day,
the Government filed a Motion For Summary Judgment (“Gov’t Mot.”). ECF No. 29.

       On July 24, 2018, Plaintiff filed a Response And Cross-Motion For Summary Judgment
(“Pl. Resp.”). ECF No. 30. That same day, Plaintiff filed a letter urging the court to consider a
case Plaintiff had omitted from its Response And Cross-Motion. ECF No. 31.

       On August 16, 2018, the Government filed an Unopposed Motion For An Enlargement Of
Time And Motion For Leave To Exceed Page Limit. ECF No. 32. That same day, the court
granted the August 16, 2018 Motion. ECF No. 33. On August 24, 2018, the Government filed a
Response And Reply In Support Of Summary Judgment (“Gov’t Reply”). ECF No. 34. On August
30, 2018, Plaintiff filed an Unopposed Motion For An Enlargement Of Time to file a Reply. ECF
No. 35. That same day, the court granted the August 30, 2018 Motion. ECF No. 36.

      On October 4, 2018, Plaintiff filed a Reply In Support Of The Cross-Motion For Summary
Judgment (“Pl. Reply”). ECF No. 37.

       On November 8, 2018, the Government filed a Notice Of Recent Decision to inform the
court about the decision of the United States District Court for the Middle District of Florida in
United States v. Estate of Schoenfeld, No. 3:16-CV-1248-J-34PDB, 2018 WL 4599743 (M.D. Fla.
Sept. 25, 2018). ECF No. 38.



                                                11
III.   DISCUSSION.

       A.      Subject Matter Jurisdiction.

        Subject matter jurisdiction is a threshold issue that a court must determine at the outset of
a case. See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94–95 (1998) (“The requirement
that jurisdiction be established as a threshold matter ‘spring[s] from the nature and limits of the
judicial power of the United States’ and is ‘inflexible and without exception.’”) (quoting
Mansfield, C. & L.M.R. Co. v. Swan, 111 U.S. 379, 382 (1884)).
       The Tucker Act authorizes the United States Court of Federal Claims with jurisdiction to
adjudicate “any claim against the United States founded either upon the Constitution, or any Act
of Congress or any regulation of an executive department, or upon any express or implied contract
with the United States, or for liquidated damages in cases not sounding in tort.” 28 U.S.C. §
1491(a)(1).
        The United States Court of Appeals for the Federal Circuit has held that the United States
Court of Federal Claims does not have jurisdiction to adjudicate claims that arise under the Due
Process Clause of the Fifth Amendment to the United States Constitution. See, e.g., Wheeler v.
United States, 11 F.3d 156, 159 (Fed. Cir. 1993). But, in Norman v. United States, 429 F.3d 1081
(Fed. Cir. 2005), our appellate court recognized that the United States Court of Federal Claims has
jurisdiction to adjudicate an illegal exaction, as it “involves a deprivation of property without due
process of law, in violation of the Due Process Clause of the Fifth Amendment to the Constitution.”
Id. at 1095. “The classic illegal exaction claim is a tax refund suit alleging that taxes have been
improperly collected or withheld by the government.” Id. at 1095. Therefore, to invoke the Tucker
Act, a plaintiff must demonstrate that a “statute or provision causing the exaction itself provides,
either expressly or by necessary implication, that the remedy for its violation entails a return of
money unlawfully exacted.” Id. (quotations omitted). In subsequent cases, the United States Court
of Appeals for the Federal Circuit has clarified that “jurisdiction over illegal exaction claims is
subject to the administrative refund scheme that Congress established in the Internal Revenue
Code,” i.e., filing an administrative claim for refund, and complying with applicable statutory time
limits. See Strategic Hous. Fin. Corp. of Travis Cty. v. United States, 608 F.3d 1317, 1324 (Fed.
Cir. 2010) (citing United States v. Clintwood Elkhorn Min. Co., 553 U.S. 1, 4 (2008)); see also
Taha v. United States, No. 2018-1879, 2018 WL 6600221, at *3 (Fed. Cir. Dec. 14, 2018)
(summarizing the administrative refund scheme).
        Although the March 24, 2017 Complaint does not invoke jurisdiction under the Due
Process Clause, it does allege that Plaintiff did not commit a willful violation of 31 U.S.C. § 5314,
and, even if Plaintiff did commit a willful violation, the IRS assessed an unlawful penalty in excess
of $10,000. Stip. ¶ 69. Therefore, if Plaintiff can establish that her violation of 31 U.S.C. § 5314
was not willful, the IRS’s penalty assessment ipso facto is contrary to law and the court has
jurisdiction to order the return of those funds. See 28 U.S.C. § 1346(a);17 see also Jarnagin v.
United States, 134 Fed. Cl. 368, 375 (Fed. Cl. 2017) (determining that the United States Court of

       17
          See Court Appendix, infra, for the text of 28 U.S.C. § 1346(a). Section 1346
complements, but does not displace, the Tucker Act. See Hinck v. United States, 64 Fed. Cl. 71,
76 (Fed Cl. 2005), aff’d, 446 F.3d 1307 (Fed. Cir. 2006), aff’d, 550 U.S. 501 (2007).

                                                 12
Federal Claims has subject matter jurisdiction to adjudicate a violation of 31 U.S.C. § 5321(a)(5)
(2004)).18

       The September 8, 2016 Claim For Refund19 is sufficient to satisfy Congress’s
administrative refund scheme. See 26 U.S.C. § 7422(a) (“No suit or proceeding shall be
maintained . . . until a claim for refund or credit has been duly filed[.]”); see also 26 U.S.C. §
6511(a) (establishing time limits for refund claims).20

       For these reasons, the court has determined that it has subject matter jurisdiction to
adjudicate the claim alleged in the March 24, 2017 Complaint.

       B.      Standing.

        The United States Court of Federal Claims, although an Article I court, “applies the same
standing requirements enforced by other federal courts created under Article III.” Weeks Marine,
Inc. v. United States, 575 F.3d 1352, 1359 (Fed. Cir. 2009). Article III of the United States
Constitution limits the jurisdiction of federal courts to “Cases” and “Controversies.” Bank of Am.
Corp. v. City of Miami, Fla., 137 S. Ct. 1296, 1302 (2017). To demonstrate the existence of a case
or controversy, a plaintiff must show “an ‘injury in fact’ that is ‘fairly traceable’ to the defendant’s
conduct and ‘that is likely to be redressed by a favorable judicial decision.’” Id. (quoting Spokeo,
Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016)).

        The IRS assessed a $697,229 penalty against Plaintiff. Stip. ¶ 69. Plaintiff paid that
penalty in full. Compl. ¶ 8. That is sufficient to establish an injury in fact. See Janus v. Am. Fed’n
of State, Cty., & Mun. Employees, Council 31, 138 S. Ct. 2448, 2462 (2018) (holding that an
employee had standing to challenge agency fees automatically deducted from his wages).
Plaintiff’s monetary injury was “fairly traceable” to the IRS’s penalty assessment. See Spokeo,
136 S. Ct. at 1547. And, if the court orders the IRS to refund the penalty, that will redress
Plaintiff’s alleged monetary injury. Id.




       18
         In Jarnagin, Plaintiffs did not appeal the decision of the United States Court of Federal
Claims and the time to file a Notice of Appeal has passed.
       19
          The September 8, 2016 Claim For Refund was attached as an Exhibit to the March 24,
2017 Complaint. The court may consider that Exhibit in ruling on the June 27, 2018 Motion For
Summary Judgment. See RCFC 56(c)(3) (“The court need consider only the cited materials, but
it may consider other materials in the record.”).
       20
          See Court Appendix, infra, for the text of 26 U.S.C. § 6511(a). Plaintiff filed the
September 8, 2016 Claim For Refund approximately one month after she paid the IRS the full
amount of the assessed penalty, well within the 2-year and 3-year time limits set by 26 U.S.C. §
6511(a). Compare Compl. Ex. A with Stip. ¶ 70. Therefore, the court does not need to determine
whether Section 6511 applies to an administrative claim requesting refund of a FBAR penalty
assessed, pursuant to 31 U.S.C. § 5321(a)(5).

                                                  13
       For these reasons, the court has determined that Plaintiff has standing to seek an
adjudication of the claims alleged in the March 24, 2017 Complaint.

       C.      Standard Of Review.

         Rule 56 of the United States Court of Federal Claims (“RCFC”) authorizes a party to file
a motion for summary judgment, that a court should grant “if 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.”
RCFC 56. “A genuine dispute exists when the evidence is such that a reasonable [factfinder] could
return a verdict for the nonmoving party.” 8x8, Inc. v. United States, 854 F.3d 1376, 1380 (Fed.
Cir. 2017) (citations omitted). “A material fact is one that might affect the outcome of the case.”
Id. (citations omitted). “The party seeking summary judgment has the initial burden of establishing
that there is no genuine dispute as to any material fact.” Id. In addition, the court must “draw all
factual inferences in favor of the nonmovant.” Zafer Taahhut Insaat ve Ticaret A.S. v. United
States, 833 F.3d 1356, 1361 (Fed. Cir. 2016).

       D.      Whether Plaintiff Willfully Failed To File A Foreign Bank Account Report.

        The parties stipulated that Plaintiff failed to file a FBAR for 2007. Stip. ¶ 48. In addition,
Plaintiff admitted that she is “not disput[ing] the FBAR penalty for the HSBC account.” Def. Ex.
30 at 154. Plaintiff also admitted that she “is not seeking recovery of the 2007 FBAR penalty
imposed for the HSBC account.” Def. Ex. 30 at 154. As such, the court does not need to determine
whether the penalty assessed by the IRS against the HSBC account was lawful. See RCFC 36(b)
(“A matter admitted under this rule is conclusively established unless the court, on motion, permits
the admission to be withdrawn or amended.”). Therefore, the threshold issue the court must
determine is whether Plaintiff’s failure to file a FBAR for the 2007 tax year was “willful.”

               1.      The Government’s Motion For Summary Judgment.

        The Government argues that summary judgment is appropriate to resolve “willfulness,”
because Plaintiff “(1) knew that she had funds in a Swiss bank account and in a French bank
account; and (2) did not report her interest in the accounts on a timely FBAR, but despite that
knowledge, falsely represented on her income-tax return that she had no foreign bank accounts.”
Gov’t Mot. at 2. In addition, Plaintiff: “manag[ed] her foreign accounts with the help of her UBS
bankers;” “did not maintain the account in her own name;” “hid the account from the United States
by not investing in U.S. securities;” and “failed to tell her accountant that she had a foreign bank
account.” Gov’t Mot. at 2–3.

        Then-applicable IRS regulations required Plaintiff to file a FBAR for 2007, on or before
June 30, 2008. Gov’t Mot. 17. Plaintiff failed to file a FBAR on that date, either for the UBS or
HSBC accounts. Gov’t Mot. 17. A violation of 31 U.S.C. § 5321(a)(5) (2004) is “willful[]” where
a taxpayer: (1) violates the law “voluntarily rather than accidentally;” (2) is “willfully blind” to the
legal duty to report; or (3) engages in conduct that is in “reckless disregard” of the legal duty to
report. Gov’t Mot. at 18. Plaintiff’s conduct was willful under each of these standards. Gov’t
Mot. at 18.

        First, Plaintiff’s failure to report was voluntary, because she signed her 2007 federal tax
return knowing of the obligation to report. Gov’t Mot. 19–23. Plaintiff had actual knowledge of
                                                  14
the filing requirement, but decided not to inform the IRS about the UBS account. Gov’t Mot. at
21. In addition, Plaintiff maintained a numbered account and instructed UBS not to send any
account-related correspondence to the United States. Gov’t Mot. at 22. And, Plaintiff did not
inform her accountant about the existence of her foreign bank accounts. Gov’t Mot. at 22.

        Second, as a matter of law, a taxpayer is charged with knowledge of the representations
made on federal tax returns. Gov’t Mot. at 19 (citing Jarnagin, 134 Fed. Cl. at 378). Plaintiff also
had knowledge of the FBAR requirement posited by Question 7(a) on Form 1040 of her 2007
income tax return. Gov’t Mot. at 20. In addition, Plaintiff was “willfully blind” to the requirement
that she file a FBAR. Gov’t Mot. at 23–25. To be “willfully blind,” “a [person] must subjectively
believe that there is a high probability that a fact exists and the [person] must take deliberate actions
to avoid learning that fact.” United States v. McBride, 908 F. Supp. 2d 1186, 1210 (D. Utah 2012)
(modifications in original). Plaintiff admitted that she never read her tax returns or any of the
documents she signed related to the UBS account. Stip. ¶ 46. Therefore, Plaintiff was “willfully
blind” of her duty to comply with IRS reporting requirements. Gov’t Mot. at 24.

        In sum, Plaintiff engaged in reckless disregard of the statutory duty to: file a FBAR; answer
Question 7(a) accurately on her 2007 income tax return; and ask her accountant for advice on any
reporting requirements or other federal tax issues that might arise in connection with the UBS
account. Gov’t Mot. at 25–28. Therefore, Plaintiff’s conduct was “willful.” Gov’t Mot. at 8.

                2.      Plaintiff’s Response And Cross-Motion For Summary Judgment.

        Plaintiff responds that “willfulness” is a “voluntary, intentional violation of a known legal
duty.” Pl. Resp. at 12. The Government’s interpretation of 31 U.S.C. § 5321 would render the
term “willful” superfluous, because every taxpayer who fails to file a FBAR does so willfully. Pl.
Resp. at 13. In this case, Plaintiff never read her tax returns and had no knowledge of the FBAR
or other federal tax reporting requirements. Pl. Resp. at 17. “[C]onduct properly characterized as
willful must meet a higher standard than a simple failure to check the box on the tax return showing
the existence of a foreign account, pay taxes on the income[,] and file a FBAR.” Pl. Resp. at 14.
In addition, each case cited by the Government “involved conduct significantly more egregious
than that evidenced here.” Pl. Resp. at 15.
        I.R.M. § 4.26.16.6.5.1, Willful FBAR Violations–Evidence (Nov. 6, 2015) defines
“willfulness” as “knowledge of the reporting requirements and [a] conscious choice not to
comply.” Pl. Resp. at 18. Plaintiff was not aware that she had a legal duty to report her foreign
bank accounts to the IRS until 2008. Pl. Resp. at 13–14. Therefore, she made no conscious choice
not to comply. Pl. Resp. at 14. In addition, I.R.M. § 4.26.16.6.5.2, Willful FBAR Violations–
Defining Willfulness (Nov. 6, 2015) provides a list of documents that the IRS references to
determine whether a failure to comply with reporting requirements is “willful;” none of those
documents, however, were proffered by the Government in this case. Pl. Resp. at 19–20. Congress
created a higher penalty for willful violations to punish “bad actors.” Pl. Resp. at 20. Plaintiff is
not a bad actor; she did not use the UBS account for any illegal activities. Pl. Resp. at 20.

                3.      The Government’s Reply And Response To Plaintiff’s Cross-Motion.

        The Government replies that Plaintiff’s definition of “willfulness” concerns criminal
activity; a less exacting standard applies to activity that is civil in nature. Gov’t Reply at 3. A
                                                   15
number of courts have determined that a willful failure to file a FBAR evidences recklessness and
willful blindness. Gov’t Reply at 4 (citing United States v. Williams, 489 F. App’x 655, 658 (4th
Cir. 2012) (holding that “willful blindness” in certain circumstances “may be inferred”)).
Moreover, Plaintiff’s failure to report the UBS account on her federal income tax returns was part
of a broader effort to conceal the account’s existence from the IRS. Gov’t Reply at 5. Plaintiff
designated the UBS account as a numbered account, elected not to receive account-related
correspondence in the United States, and instructed her son that the account was to remain secret.
Gov’t Reply at 5. It does not make any difference if Plaintiff did not read her tax returns; as a
matter of law, a taxpayer is charged with constructive knowledge of the contents of a signed
income tax return. Gov’t Reply at 7. Likewise, the fact that others have committed more egregious
FBAR violations does not shield Plaintiff from liability. Gov’t Reply at 8–9.

                 4.     Plaintiff’s Reply.

        Plaintiff reiterates that the Government’s position would render most FBAR violations as
willful, contrary to Congress’s intent in establishing a multi-tiered system of penalties. Pl. Reply
at 3–5. More importantly, when the IRS assessed a penalty against Plaintiff, it did not proffer any
evidence that she knew about the reporting requirement prior to 2008. Pl. Reply at 6.

                 5.     The Court’s Resolution.

        On October 22, 2004, Congress authorized the Secretary of the Treasury to impose a “civil
money penalty” for a violation of 31 U.S.C. § 5314, with a heightened penalty reserved for
“willful[]” violations. See 31 U.S.C. § 5321(a)(5)(C)(i) (2004). The United States Supreme Court
has held that, since “willfulness is a statutory condition of civil liability,” it is “generally taken[]
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) (holding that a “willful” violation of the Fair Credit Reporting
Act, 15 U.S.C. § 1681n, includes reckless conduct). Therein, the United States Supreme Court
defined “recklessness” as “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 (internal
quotations omitted); see also Godfrey v. United States, 748 F.2d 1568, 1577 (Fed. Cir. 1984)
(holding in the context of federal tax law that “willful conduct” includes “a reckless disregard of
an obvious and known risk that taxes might not be remitted”) (citations and quotation marks
omitted).
        On November 6, 2015, the IRS issued I.R.M. §§ 4.26.16.6.5.1 and 4.26.16.6.5.2. I.R.M. §
4.26.16.6.5.1 defined “willfulness” as “knowledge of the reporting requirements and [a] conscious
choice not to comply.”21 I.R.M. § 4.26.16.6.5.2 identified thirteen documents that “may be
helpful” to the IRS in “establishing willfulness.”22 Plaintiff argues that any violation of 31
U.S.C. § 5314 was not “willful,” because the Government did not proffer any of the documents
listed in I.R.M. § 4.26.16.6.5.2 in this case. Pl. Resp. at 19–20. There are two problems with
Plaintiff’s argument. First, I.R.M. § 4.26.16.6.5.2 does not state that the existence of one of the
listed documents is a prerequisite to establishing a willful FBAR violation. Second, the
       21
            See Court Appendix, infra, for the text of I.R.M. § 4.26.16.6.5.1.
       22
            See Court Appendix, infra, for the text of I.R.M. § 4.26.16.6.5.2.

                                                  16
Government did proffer several of the listed documents, i.e., bank statements from the UBS
account and the IRS examiner’s work product. See I.R.M. § 4.26.16.6.5.2(2)(a), (m) (Nov. 6,
2015).
       The relevant stipulated facts in this case are as follows:

       •    Plaintiff did not disclose the existence of the UBS account to her accountant until
            approximately 2010. Stip. ¶ 43.
       •    Plaintiff never asked her accountant how to properly report foreign investment income.
            Stip. ¶ 44.
       •    Plaintiff did not review her individual income tax returns for accuracy for tax years
            2003 through 2008. Stip. ¶ 46.
       •    Plaintiff answered “No” to Question 7(a) on her 2007 income tax return, falsely
            representing under penalty of perjury, that she had no foreign bank accounts. Stip. ¶
            48.
        In the court’s judgment, stipulations ¶¶ 46 and 48 together evidence conduct by Plaintiff,
as a co-owner of the UBS account that exhibited a “reckless disregard” of the legal duty under
federal tax law to report foreign bank accounts to the IRS by filing a FBAR. See Godfrey, 748
F.2d at 1577; see also Norman v. United States, 138 Fed. Cl. 189, 194 (Fed. Cl. 2018) (determining
that a taxpayer was “put on inquiry notice of the FBAR requirement when she signed her tax
return”) (internal quotations omitted), appeal docketed, No. 18-2408 (Fed. Cir. Sept. 18, 2018);
see also Jarnagin, 134 Fed. Cl. at 378 (“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.”) (citations omitted).23 Although Plaintiff had no legal duty to disclose
information to her accountant or to ask her accountant about IRS reporting requirements, these
additional undisputed facts do not affect the court’s determination that Plaintiff’s conduct in this
case was “willful.”
       For these reasons, the court has determined, viewing the evidence in the light most
favorable to Plaintiff, that there is no genuine issue of material fact that Plaintiff violated 31
U.S.C. § 5314 and that her conduct was “willful.” See 31 U.S.C. § 5321(a)(5) (2004); see also
RCFC 56.




       23
           A May 23, 2018 Memorandum the IRS Office of Chief Counsel distributed to IRS
program managers states that, “[t]he standard for willfulness under 31 U.S.C. § 5321(a)(5)(C) is
the civil willfulness standard, and includes not only knowing violations of the FBAR requirements,
but willful blindness to the FBAR requirements as well as reckless violations of the FBAR
requirements.” Burden of Proof and Standard for Willfulness Under 31 U.S.C. § 5321(a)(5)(C),
PMTA-2018-13, at 1 (May 23, 2018). For a comprehensive discussion of how other federal courts
have construed whether a FBAR violation is “willful,” see Hale E. Sheppard, “What Constitutes A
‘Willful’ FBAR Violation?,” 129 J. TAX’N 24 (Nov. 2018) (collecting cases).

                                                 17
       E.      Whether The Internal Revenue Service Abused Its Discretion In Assessing
               Plaintiff A Civil Penalty Of $697,229.

               1.      The Government’s Motion For Summary Judgment.

       The Government argues that Congress amended 31 U.S.C. § 5321(a)(5) in 2004 to increase
the maximum penalty for FBAR violations, and thereby superseded 31 C.F.R. § 1010.820(g)(2).
Gov’t Mot. at 34. Thereafter, if the IRS determined a willful violation of 31 U.S.C. § 5321(a)(5)
(2004) occurred, the IRS had authority to impose a civil penalty “up to the greater of $100,000 or
50% of the balance in the account at the time of the violation.” Gov’t Mot. at 28.

        In this case, the IRS considered I.R.M. Exhibit 4.26.16–2, Normal FBAR Penalty
Mitigation Guidelines For Violations Occurring After October 22, 2004, in calculating the penalty
to be assessed to Plaintiff regarding the UBS and HSBC accounts. Under those Guidelines, the
IRS properly exercised discretion in finding that Plaintiff’s HSBC account should be treated as a
Mitigation Level of II; but Plaintiff’s UBS account should be treated as a Mitigation Level of IV.
Gov’t Mot. at 30. The penalties that the IRS assessed were “within the range authorized by
Congress.” Gov’t Mot. at 33.24

               2.      Plaintiff’s Response And Cross-Motion For Summary Judgment.

        Plaintiff responds that the IRS abused its discretion when it assessed a penalty for the 2007
FBAR violation, because it did not consider factors other than the size of the account, in
determining the penalty. Pl. Resp. at 22. The IRS also abused its discretion when it found that
Plaintiff was the “sole beneficiary” of the UBS account after her father’s death, since she was a
co-owner with her mother. Pl. Resp. at 23. In addition, the IRS abused its discretion when it found
that Plaintiff did not have any personal connection to Switzerland, when she did have a connection
by “inherit[ing] an account domiciled there.” Pl. Resp. at 23. And, the IRS abused its discretion
when it found that Plaintiff “actively managed” the UBS account. Pl. Resp. at 23. In fact, Plaintiff
resisted her husband’s urgings to invest the funds in the UBS account more aggressively and
followed her father’s instructions that the account be used only in an emergency. Pl. Resp. at 23–
24.
        The IRS’s assessment of the maximum penalty against Plaintiff also was an abuse of
discretion, because the IRS did not adhere to regulations that set the maximum penalty of
$100,000, but were not changed after Congress amended 31 U.S.C. § 5321(a)(5) in 2004. Pl. Resp.
at 28. And, the penalty assessed was an “excessive fine,” in violation of the Eighth Amendment
to the United States Constitution. Pl. Resp. at 26–27.




       24
          In that regard, the Government suggests that the non-precedential decision of the United
States District Court for the Western District of Texas in United States v. Colliot, No. 16-1281,
2018 WL 2271381 (W.D. Tex. May 16, 2018), determining that 31 C.F.R. § 1010.820(g)(2)
continues to cap FBAR penalties at $100,000 is erroneous and should not be followed. Gov’t Mot.
at 35–37.

                                                 18
               3.      The Government’s Reply And Response To Plaintiff’s Cross-Motion.

        The Government replies that the IRS properly utilized I.R.M. § 4.26.16.3.6 in evaluating
Plaintiff’s FBAR violation and determined that she satisfied the requirements for a mitigated
penalty. Gov’t Reply at 10. But, the IRS declined to mitigate the maximum statutory penalty
assessed in 2016, with respect to the UBS account, because of the eight factual determinations
made by the IRS examiner. Gov’t Reply at 10–11. In addition, Plaintiff did “not explain how the
IRS’s allegedly erroneous findings would affect the outcome of the decision-making process.”
Gov’t Reply at 11. For example, the fact that Plaintiff was added as a co-owner of the UBS account
does not establish a personal connection with Switzerland. Gov’t Reply at 12. Plaintiff was
involved in management of the UBS account, as evidenced by meetings she attended with
representatives from the bank annually to review investments. Gov’t Reply at 13. In addition,
Plaintiff’s April 15, 2005 “Verification of the beneficial owner’s identity” evidences that she was
the sole beneficiary of the UBS account. Def. Ex. 4.
       The IRS penalty assessment also did not violate the Eighth Amendment to the United States
Constitution, because the penalty was not a “fine,” nor was it “excessive.” Gov’t Reply 15–28.
The IRS applied the maximum penalty established by Congress at 31 U.S.C. § 5321(a)(5)(C)(i)
(2004). Gov’t Reply at 29. As a matter of law, when Congress increased the maximum penalty
above $100,000 on October 22, 2004, 31 C.F.R. § 1010.820(g)(2) no longer had any effect. Gov’t
Reply 30–34.

               4.      Plaintiff’s Reply.

        Plaintiff replies that the IRS’s penalty assessment violated the Eighth Amendment to the
United States Constitution, because it was a disproportionate fine that was punitive in nature. Pl.
Reply at 8–11. When Congress increased the maximum penalty that could be assessed for FBAR
violations, it did not mandate that a penalty, greater than $100,000, be assessed in any individual
case. Pl. Reply at 13. The IRS is bound by the agency’s regulations and the IRS’s decision not to
remove the pre-2004 regulations from the Code of Federal Regulations was not unintentional;
Plaintiff is entitled to rely on those regulations. Pl. Reply at 14–15.

               5.      The Court’s Resolution.

         On July 15, 2016, the IRS assessed a maximum penalty against Plaintiff with respect to the
UBS account, pursuant to 31 U.S.C. § 5321(a)(5)(C)(i) (2004), and properly referenced I.R.M. §
4.26.16.3.6 in doing so. Irons Decl. 035. Plaintiff does not identify why that assessment violated
any statute or applicable regulation. See generally Compl.; Pl. Resp.; Pl. Reply. Instead, Plaintiff
argues that the IRS’s decision was an abuse of discretion, because: (1) Plaintiff was not the “sole
beneficiary” of the UBS account; (2) Plaintiff did have a personal connection to Switzerland; (3)
Plaintiff did not “actively manage” the UBS account; and (4) the IRS did not rely on the documents
listed in I.R.M. § 4.26.16.6.5.2 that evidence willfulness. Pl. Resp. at 23–24. Therefore, Plaintiff
reasons that she is entitled to rely on the $100,000 maximum penalty set forth in 31
U.S.C. §5321(a)(5) (2003). Pl. Resp. at 23–24.
       As to the ownership of the UBS account, although the record evidences that Plaintiff was
not the “sole beneficiary” of the UBS account, Plaintiff represented that she was the sole
beneficiary in an April 15, 2005 “Verification of the beneficial owner’s identity.” Def. Ex. 4.

                                                19
Assuming arguendo that the IRS erroneously determined Plaintiff was the sole beneficiary,
Plaintiff nevertheless failed to establish why being only a co-owner necessarily rendered the IRS’s
penalty assessment unlawful or an abuse of discretion. Compare Pl. Resp. at 23 with Irons Decl.
at 030.
        As to the IRS’s finding that Plaintiff did not have a personal connection to Switzerland, as
a matter of law, only having a property interest in a bank account is not sufficient to establish a
“significant contact with a foreign country.” See 26 C.F.R. § 301.7701(b)-2(d)(1).25
        As to Plaintiff’s role in managing the UBS account, the parties stipulated that between
1998 and 2008, Alice Kimble met with representatives of UBS in New York at least six times and
met with a UBS representative in Switzerland at least once. Stip. ¶¶ 28, 29. Therefore, the IRS
did not abuse its discretion in finding that Plaintiff actively was involved with the UBS account.
Irons Decl. at 032. As to the documents listed in I.R.M. § 4.26.16.6.5.2, the court previously
addressed this issue at D.5, supra.
        Plaintiff is also no longer entitled to be assessed a maximum civil penalty of $100,000, as
set forth in 31 U.S.C. § 5321(a)(5) (2003).26 On October 22, 2004, Congress enacted a new statute
that increased the statutory maximum penalty for a “willful” violation to “the greater of []
$100,000, or [] 50 percent of the . . . balance in the account at the time of the violation.” See
American Jobs Creation Act of 2004, Pub. L. No. 108-357, 118 Stat. 1418, 1586, § 821 (Oct. 22,
2004) (“Jobs Creation Act”). And, on July 1, 2008, the IRS issued I.R.M. § 4.26.16.4.5.1, that
stated: “At the time of this writing, the regulations at [31 C.F.R. § 1010.820] have not been revised
to reflect the change in the willfulness penalty ceiling.” I.R.M. § 4.26.16.4.5.1. The IRS, however,
warned that, “the statute [i.e., the Jobs Creation Act] is self-executing and the new penalty ceilings
apply.” I.R.M. § 4.26.16.4.5.1. Although, the Jobs Creation Act is inconsistent with 31 C.F.R. §
1010.820(g)(2), it is settled law that an agency’s regulations “must be consistent with the statute
under which they are promulgated.” United States v. Larionoff, 431 U.S. 864, 873 (1977). Since
the civil penalty amount for a “willful” violation in 31 U.S.C. § 5321(a)(5) (2003) was replaced
with 31 U.S.C. § 5321(a)(5)(C)(i) (2004), the April 8, 1987 regulations are “no longer valid.”
Norman, 138 Fed. Cl. at 196.
        The court’s research has found two recent United States District Court cases determining
that, although the IRS theoretically may assess a penalty greater than $100,000 for a FBAR
violation committed after 2004, the IRS is still bound by the maximum penalty in the pre-2004
statute. See Colliot, 2018 WL 2271381, at *3;27 United States v. Wahdan, 325 F. Supp. 3d 1136,

       25
            See Court Appendix, infra, for the text of 26 C.F.R. § 301.7701(b)-2(d)(1).
       26
            See Court Appendix, infra, for the text of 31 U.S.C. § 5321(a)(5) (2003).
       27
          In Colliot, the United States District Court for the Western District of Texas determined
that 31 C.F.R. § 1010.820(g)(2) survived the enactment of the Jobs Creation Act, because “[r]ules
issued via notice-and-comment rulemaking must be repealed via notice-and-comment
rulemaking.” 2018 WL 2271381, at *3 (citing Perez v. Mortg. Bankers Ass’n, 135 S. Ct. 1199,
1205 (2015)). In Perez, the United States Supreme Court held that agencies must “use the same
procedures when they amend or repeal a rule as they used to issue the rule in the first instance.”
135 S. Ct. at 1206. The Jobs Creation Act, however, is not an agency rule and Congress has
                                                 20
1141 (D. Colo. 2018).28 The reasoning of these cases, however, conflicts with the decision of the
United States Court of Appeals for the Federal Circuit in Barseback Kraft AB v. United States, 121
F.3d 1475 (Fed. Cir. 1997). In that case, nuclear energy companies sued to enforce contracts for
uranium with the United States Department of Energy (“DOE”). Id. at 1477. The contracts
provided that prices would be set in accordance with “DOE pricing policy for such services.” Id.
at 1478. After the parties executed the contracts, Congress enacted legislation that transferred
responsibility for administering uranium sales to a new federal agency, and “changed the
government’s pricing strategy from one based on recovering just its costs to one aimed at profit
maximization.” Id. The uranium companies argued that the new agency was bound by DOE’s
pricing regulations, but the United States Court of Appeals for the Federal Circuit held that the
“DOE could not have had any valid uranium enrichment pricing policy in 1993 and 1994[,]
because Congress had stripped it of its authority to sell uranium enrichment services.” Id. at 1480.
“The fact that DOE’s [pricing regulations] had not been formally withdrawn from the Code of
Federal Regulations [did] not save them from invalidity.” Id. (emphasis added). Like the
legislation that stripped DOE of authority over uranium pricing, the Jobs Creation Act replaced
the prior penalty for willful violations of federal tax law in 31 U.S.C. § 5321(a)(5) (2003), thereby
nullifying any inconsistent regulations governing the pre-2004 statute.
         For these reasons, the court has determined, viewing the evidence in the light most
favorable to Plaintiff, that there is no genuine issue of material fact as to whether the IRS abused
its discretion, when it assessed a civil penalty against Plaintiff of $697,229, i.e., 50 percent of the
balance in the UBS account in 2007. See 31 U.S.C. § 5321(a)(5)(C)(i) (2004); see also RCFC 56.
29




authority prospectively to alter the effect of agency regulations. See Robertson v. Seattle Audubon
Soc., 503 U.S. 429, 438–40 (1992) (holding that a statutory amendment affecting ongoing
litigation over forest management did not violate Article III of the United States Constitution,
because it “compelled changes in law, not findings or results under old law”).
       28
          In Wahdan, the United States District Court for the District of Colorado determined that
the Secretary of the Treasury adjusted the maximum FBAR penalty for inflation several times in
the past decade. See 325 F. Supp. 3d at 1140. According to that court, “[t]his suggests that the
Secretary was aware of the penalties available under 31 U.S.C. § 5321(a)(5)(C) and elected to
continue to limit the IRS’[s] authority to impose penalties to $100,000.” Id. Although this
inference is plausible, it is more likely that the Secretary of the Treasury determined that I.R.M. §
4.26.16.4.5.1 correctly determined that the Jobs Creation Act was “self-executing.” Regardless,
any legitimate inference that may be drawn from a series of routine inflation adjustments after
2004 does not alter the text of the Jobs Creation Act.

       Neither of the aforementioned United States District Court decisions explain why the Jobs
Creation Act should be construed to retain the $100,000 maximum penalty set forth at 31 C.F.R.
§ 1010.820(g)(2), but supersede the remainder of the regulation.
       29
          The court does not need to address Plaintiff’s argument that the penalty assessment
violated the Eighth Amendment to the United States Constitution, because the March 24, 2017
Complaint did not allege such a claim. See Casa de Cambio Comdiv S.A., de C.V. v. United States,
                                                  21
IV.    CONCLUSION.

        For the reasons discussed herein, the June 27, 2018 Motion For Summary Judgment is
granted; the July 24, 2018 Cross-Motion For Summary Judgment is denied. The Clerk of Court is
directed to enter judgment for the Government.

 IT IS SO ORDERED.
                                                     s/ Susan G. Braden
                                                     SUSAN G. BRADEN
                                                     Senior Judge




291 F.3d 1356, 1366 (Fed. Cir. 2002) (“No mention of this theory appears in [Plaintiff’s]
complaint. Under the circumstances, we hold that [Plaintiff] waived any claim it may have against
the government based on such a theory.”). In any event, the only other court that considered this
issue determined that the FBAR penalty was not punitive. See Estate of Schoenfeld, 2018 WL
4599743, at *11 (determining that the FBAR penalty is “remedial,” not “penal”).

                                               22
                                       COURT APPENDIX

       A.     Relevant Statutes.

       26 U.S.C. § 6511(a) provides:

              Claim for credit or refund of an overpayment of any tax imposed by
              this title in respect of which tax the taxpayer is required to file a
              return shall be filed by the taxpayer within 3 years from the time the
              return was filed or 2 years from the time the tax was paid, whichever
              of such periods expires the later, or if no return was filed by the
              taxpayer, within 2 years from the time the tax was paid. Claim for
              credit or refund of an overpayment of any tax imposed by this title
              which is required to be paid by means of a stamp shall be filed by
              the taxpayer within 3 years from the time the tax was paid.

26 U.S.C. § 6511(a).
       31 U.S.C. § 5314 provides:
              (a) Considering the need to avoid impeding or controlling the export
              or import of monetary instruments and the need to avoid burdening
              unreasonably a person making a transaction with a foreign financial
              agency, the Secretary of the Treasury shall require a resident or
              citizen of the United States or a person in, and doing business in, the
              United States, to keep records, file reports, or keep records and file
              reports, when the resident, citizen, or person makes a transaction or
              maintains a relation for any person with a foreign financial agency.
              The records and reports shall contain the following information in
              the way and to the extent the Secretary prescribes:
                       (1) the identity and address of participants in a transaction
                       or relationship.
                       (2) the legal capacity in which a participant is acting.
                       (3) the identity of real parties in interest.
                       (4) a description of the transaction.
              (b) The Secretary may prescribe—
                       (1) a reasonable classification of persons subject to or
                       exempt from a requirement under this section or a regulation
                       under this section;
                       (2) a foreign country to which a requirement or a regulation
                       under this section applies if the Secretary decides applying
                       the requirement or regulation to all foreign countries is
                       unnecessary or undesirable;


                                                  23
                     (3) the magnitude of transactions subject to a requirement
                     or a regulation under this section;
                     (4) the kind of transaction subject to or exempt from a
                     requirement or a regulation under this section; and
                     (5) other matters the Secretary considers necessary to carry
                     out this section or a regulation under this section.
              (c) A person shall be required to disclose a record required to be
              kept under this section or under a regulation under this section only
              as required by law.
31 U.S.C. § 5314.
       31 U.S.C. § 5321(a)(5) provides:
              (A) Penalty authorized.—

              The Secretary of the Treasury may impose a civil money penalty on
              any person who violates, or causes any violation of, any provision
              of section 5314.

              (B) Amount of penalty.—

                     (i) In general.—

                     Except as provided in subparagraph (C), the amount of any
                     civil penalty imposed under subparagraph (A) shall not
                     exceed $10,000.

                     (ii) Reasonable cause exception.—No penalty shall be
                     imposed under subparagraph (A) with respect to any
                     violation if—

                             (I) such violation was due to reasonable cause, and

                             (II) the amount of the transaction or the balance in
                             the account at the time of the transaction was
                             properly reported.

              (C) Willful violations.—In the case of any person willfully
              violating, or willfully causing any violation of, any provision of
              section 5314—

                     (i) the maximum penalty under subparagraph (B)(i) shall be
                     increased to the greater of—

                             (I) $100,000, or


                                                24
                             (II) 50 percent of the amount determined under
                             subparagraph (D), and

                     (ii) subparagraph (B)(ii) shall not apply.

31 U.S.C. § 5321(a)(5) (2004).

       31 U.S.C. § 5321(a)(5) (2003) provided:
              Foreign financial agency transaction violation.—

                     (A) Penalty authorized.—The Secretary of the Treasury may
                     impose a civil money penalty on any person who willfully
                     violates or any person willfully causing any violation of any
                     provision of section 5314.

                     (B) Maximum amount limitation.—The amount of any civil
                     money penalty imposed under subparagraph (A) shall not
                     exceed—

                             (i) in the case of violation of such section involving
                             a transaction, the greater of—

                                     (I) the amount (not to exceed $100,000) of
                                     the transaction; or

                                     (II) $25,000; and

                             (ii) in the case of violation of such section involving
                             a failure to report the existence of an account or any
                             identifying information required to be provided with
                             respect to such account, the greater of—

                                     (I) an amount (not to exceed $100,000) equal
                                     to the balance in the account at the time of the
                                     violation; or

                                     (II) $25,000.

31 U.S.C. § 5321(a)(5) (2003).

       28 U.S.C. § 1346(a) provides:
              The district courts shall have original jurisdiction, concurrent with
              the United States Court of Federal Claims, of:
              (1) Any civil action against the United States for the recovery of any
              internal-revenue tax alleged to have been erroneously or illegally
              assessed or collected, or any penalty claimed to have been collected

                                               25
              without authority or any sum alleged to have been excessive or in
              any manner wrongfully collected under the internal-revenue laws;
              (2) Any other civil action or claim against the United States, not
              exceeding $10,000 in amount, founded either upon the Constitution,
              or any Act of Congress, or any regulation of an executive
              department, or upon any express or implied contract with the United
              States, or for liquidated or unliquidated damages in cases not
              sounding in tort, except that the district courts shall not have
              jurisdiction of any civil action or claim against the United States
              founded upon any express or implied contract with the United States
              or for liquidated or unliquidated damages in cases not sounding in
              tort which are subject to sections 7104(b)(1) and 7107(a)(1) of title
              41. For the purpose of this paragraph, an express or implied contract
              with the Army and Air Force Exchange Service, Navy Exchanges,
              Marine Corps Exchanges, Coast Guard Exchanges, or Exchange
              Councils of the National Aeronautics and Space Administration
              shall be considered an express or implied contract with the United
              States.
28 U.S.C. § 1346(a).




                                               26
B.     Relevant Internal Revenue Service Regulations.

26 C.F.R. § 301.7701(b)-2(d)(1) provides that:

       In general. For purposes of section 7701(b) and the regulations
       under that section, an alien individual will be considered to have a
       closer connection to a foreign country than the United States if the
       individual or the Commissioner establishes that the individual has
       maintained more significant contacts with the foreign country than
       with the United States. In determining whether an individual has
       maintained more significant contacts with a foreign country than the
       United States, the facts and circumstances to be considered include,
       but are not limited to, the following -

              (i) The location of the individual’s permanent home;

              (ii) The location of the individual’s family;

              (iii) The location of personal belongings, such as
              automobiles, furniture, clothing and jewelry owned by the
              individual and his or her family;

              (iv) The location of social, political, cultural or religious
              organizations with which the individual has a current
              relationship;

              (v) The location where the individual conducts his or her
              routine personal banking activities;

              (vi) The location where the individual conducts business
              activities (other than those that constitute the individual’s tax
              home);

              (vii) The location of the jurisdiction in which the individual
              holds a driver’s license;

              (viii) The location of the jurisdiction in which the individual
              votes;

              (ix) The country of residence designated by the individual
              on forms and documents; and




                                         27
                      (x) The types of official forms and documents filed by the
                      individual, such as Form 1078 (Certificate of Alien Claiming
                      Residence in the United States), Form W-8 (Certificate of
                      Foreign Status) or Form W-9 (Payer’s Request for Taxpayer
                      Identification Number).

26 C.F.R. § 301.7701(b)-2(d)(1).

       31 C.F.R. § 1010.820 provides:
              (a) For any willful violation, committed on or before October 12,
              1984, of any reporting requirement for financial institutions under
              this chapter or of any recordkeeping requirements of §§ 1010.311,
              1010.313, 1020.315, 1021.311 or 1021.313, the Secretary may
              assess upon any domestic financial institution, and upon any partner,
              director, officer, or employee thereof who willfully participates in
              the violation, a civil penalty not to exceed $1,000.
              (b) For any willful violation committed after October 12, 1984 and
              before October 28, 1986, of any reporting requirement for financial
              institutions under this chapter or of the recordkeeping requirements
              of § 1010.420, the Secretary may assess upon any domestic financial
              institution, and upon any partner, director, officer, or employee
              thereof who willfully participates in the violation, a civil penalty not
              to exceed $10,000.
              (c) For any willful violation of any recordkeeping requirement for
              financial institutions, except violations of § 1010.420, under this
              chapter, the Secretary may assess upon any domestic financial
              institution, and upon any partner, director, officer, or employee
              thereof who willfully participates in the violation, a civil penalty not
              to exceed $1,000.
              (d) For any failure to file a report required under § 1010.340 or for
              filing such a report containing any material omission or
              misstatement, the Secretary may assess a civil penalty up to the
              amount of the currency or monetary instruments transported, mailed
              or shipped, less any amount forfeited under § 1010.830.
              (e) For any willful violation of § 1010.314 committed after January
              26, 1987, the Secretary may assess upon any person a civil penalty
              not to exceed the amount of coins and currency involved in the
              transaction with respect to which such penalty is imposed. The
              amount of any civil penalty assessed under this paragraph shall be
              reduced by the amount of any forfeiture to the United States in
              connection with the transaction for which the penalty was imposed.



                                                28
              (f) For any willful violation committed after October 27, 1986, of
              any reporting requirement for financial institutions under this
              chapter (except § 1010.350, § 1010.360 or § 1010.420), the
              Secretary may assess upon any domestic financial institution, and
              upon any partner, director, officer, or employee thereof who
              willfully participates in the violation, a civil penalty not to exceed
              the greater of the amount (not to exceed $100,000) involved in the
              transaction or $25,000.
              (g) For any willful violation committed after October 27, 1986, of
              any requirement of § 1010.350, § 1010.360 or § 1010.420, the
              Secretary may assess upon any person, a civil penalty:
                        (1) In the case of a violation of § 1010.360 involving a
                        transaction, a civil penalty not to exceed the greater of the
                        amount (not to exceed $100,000) of the transaction, or
                        $25,000; and
                        (2) In the case of a violation of § 1010.350 or § 1010.420
                        involving a failure to report the existence of an account or
                        any identifying information required to be provided with
                        respect to such account, a civil penalty not to exceed the
                        greater of the amount (not to exceed $100,000) equal to the
                        balance in the account at the time of the violation, or
                        $25,000.
              (h) For each negligent violation of any requirement of this chapter,
              committed after October 27, 1986, the Secretary may assess upon
              any financial institution a civil penalty not to exceed $500.
              (i) For penalties that are assessed after August 1, 2016, see §
              1010.821 for rules relating to the maximum amount of the penalty.
31 C.F.R. § 1010.820.




                                                 29
C.     Internal Revenue Service Manual.

I.R.M. § 4.26.16.3.6 provided:

       (1) The FBAR is required for each calendar year during which the
       aggregate amount(s) in the account(s) exceeded $10,000 valued in
       U.S. dollars at any time during the calendar year. The maximum
       value of an account is the largest amount of currency and non-
       monetary assets that appear on any quarterly or more frequent
       account statement issued for the applicable year. For example, if the
       statement closing balance is $9,000 but at any time during the year
       a balance of $15,000 appears on a statement, the maximum value is
       $15,000.

       (2) If periodic account statements are not issued, the maximum
       account asset value is the largest amount of currency and non-
       monetary assets in the account at any time during the year.

       (3) Convert foreign currency by using the official exchange rate in
       effect at the end of the year in question for converting the foreign
       currency into U.S. dollars. In valuing currency of a country that uses
       multiple exchange rates, use the rate that would apply if the currency
       in the account were converted into U.S. dollars at the close of the
       calendar year. The official Treasury Reporting Rates of Exchange
       for the previous quarter year can be obtained at
       http://fms.treas.gov/intn.html#rates or by calling the Department of
       the Treasury, Financial Management Service [(“FMS”)]
       International Funds Team at (202) 874-7994. As these rates are
       published quarterly, the rates should be accessed during the first
       quarter of the following year to obtain the previous December 31
       valuation. The rates posted on the FMS website are the current
       exchange rates. Historical exchange rates will be needed to
       determine the value in a foreign account in prior years. For
       historical exchange rates, call FMS at (202) 874-8001 or (202) 874-
       8004. These phone numbers may be subject to change. Check the
       FMS website (http://www.fms.treas.gov) for the most current
       information.

       (4) The value of stock, other securities, or other non-monetary assets
       in an account reported on the FBAR is the fair market value at the
       end of the calendar year, or if withdrawn from the account earlier in
       the year, at the time of the withdrawal.

       (5) If the filer had a financial interest in more than one account, each
       account is valued separately in accordance with the previous
       paragraphs.


                                         30
               (6) If a person had a financial interest in one or more but fewer than
               25 accounts and is unable to determine whether the maximum value
               of these accounts exceeded $10,000 at any time during the year, the
               FBAR instructions state that the person is to complete Part II of the
               FBAR and if needed, the continuation page(s) for each of these
               accounts. If the maximum aggregate value of the accounts was not
               in excess of $10,000, then there would be no FBAR violation if the
               person did not file the FBAR, whether or not the person knew the
               value of the accounts at the time the FBAR was due. This is because
               section 103.27(c) of the Title 31 regulations only requires FBARs to
               be filed when the value of the accounts exceeds $10,000 during a
               calendar year. For rules regarding a person with a financial interest
               in 25 or more accounts, see I.R.M. § 4.26.16.3.9.

I.R.M. § 4.26.16.3.6 (July 1, 2008).

       I.R.M. § 4.26.16.6.5.1 provides:
               (1) The test for willfulness is whether there was a voluntary,
               intentional violation of a known legal duty.
               (2) A finding of willfulness under the BSA must be supported by
               evidence of willfulness.
               (3) The burden of establishing willfulness is on the Service.
               (4) Willfulness is shown by the person's knowledge of the reporting
               requirements and the person's conscious choice not to comply with
               the requirements. In the FBAR situation, the person only need know
               that a reporting requirement exists. If a person has that knowledge,
               the only intent needed to constitute a willful violation of the
               requirement is a conscious choice not to file the FBAR.
               (5) Under the concept of “willful blindness,” willfulness is attributed
               to a person who made a conscious effort to avoid learning about the
               FBAR reporting and recordkeeping requirements.
                      EXAMPLE:
               Willful blindness may be present when a person admits knowledge
               of, and fails to answer questions concerning, his interest in or
               signature or other authority over financial accounts at foreign banks
               on Schedule B of his Federal income tax return. This section of the
               income tax return refers taxpayers to the instructions for Schedule
               B, which provides guidance on their responsibilities for reporting
               foreign bank accounts and discusses the duty to file the FBAR.
               These resources indicate that the person could have learned of the
               filing and recordkeeping requirements quite easily. It is reasonable
               to assume that a person who has foreign bank accounts should read

                                                 31
              the information specified by the government in tax forms. The
              failure to act on this information and learn of the further reporting
              requirement, as suggested on Schedule B, may provide evidence of
              willful blindness on the part of the person.
              Note: The failure to learn of the filing requirements coupled with
              other factors, such as the efforts taken to conceal the existence of the
              accounts and the amounts involved, may lead to a conclusion that
              the violation was due to willful blindness. The mere fact that a
              person checked the wrong box, or no box, on a Schedule B is not
              sufficient, in itself, to establish that the FBAR violation was
              attributable to willful blindness.
              (6) The following examples illustrate situations in which willfulness
              may be present:
                      (a.) A person files the FBAR, but omits one of three foreign
                      bank accounts. The person had previously closed the omitted
                      account at the time of filing the FBAR. The person explains
                      that the omission was due to unintentional oversight. During
                      the examination, the person provides all information
                      requested with respect to the omitted account. The
                      information provided does not disclose anything suspicious
                      about the account, and the person reported all income
                      associated with the account on his tax return. The penalty for
                      a willful violation should not apply absent other evidence
                      that may indicate willfulness.
                      (b.) A person filed the FBAR in earlier years but failed to
                      file the FBAR in subsequent years when required to do so.
                      When asked, the person does not provide a reasonable
                      explanation for failing to file the FBAR. In addition, the
                      person may have failed to report income associated with
                      foreign bank accounts for the years that FBARs were not
                      filed. A determination that the violation was willful would
                      likely be appropriate in this case.
                      (c.) A person received a warning letter informing him of the
                      FBAR filing requirement, but the person continues to fail to
                      file the FBAR in subsequent years. When asked, the person
                      does not provide a reasonable explanation for failing to file
                      the FBAR. In addition, the person may have failed to report
                      income associated with the foreign bank accounts. A
                      determination that the violation was willful would likely be
                      appropriate in this case.
I.R.M. § 4.26.16.6.5.1 (Nov. 6, 2015).



                                                32
I.R.M. § 4.26.16.6.5.2 provides:
       (1) Willfulness can rarely be proven by direct evidence, since it is a
       state of mind. It is usually established by drawing a reasonable
       inference from the available facts. The government may base a
       determination of willfulness on inference from conduct meant to
       conceal sources of income or other financial information. For FBAR
       purposes, this could include concealing signature authority, interests
       in various transactions, and interests in entities transferring cash to
       foreign banks.
       (2) Documents that may be helpful in establishing willfulness
       include:
              (a.) Copies of statements for the foreign bank account.
              (b.) Notes of the examiner's interview with the foreign
              account holder/taxpayer about the foreign account.
              (c.) Correspondence with the account holder's tax return
              preparer that may address the FBAR filing requirement.
              (d.) Documents showing criminal activity related to the non-
              filing of the FBAR (or non-compliance with other BSA
              provisions).
              (e.) Promotional material (from a promoter or offshore
              bank).
              (f.) Statements for debit or credit cards from the offshore
              bank that, for example, reveal the account holder used funds
              from the offshore account to cover everyday living expenses
              in a manner that conceals the source of the funds.
              (g.) Copies of any FBARs filed previously by the account
              holder (or FinCEN Query printouts of FBARs).
              (h.) Copies of Information Document Requests with
              requested items that were not provided highlighted along
              with explanations as to why the requested information was
              not provided.
              (i.) Copies of debit or credit card agreements and fee
              schedules with the foreign bank, which may show a
              significantly higher cost than typically associated with cards
              from domestic banks.
              (j.) Copies of any investment management or broker's
              agreement and fee schedules with the foreign bank, which
              may show significantly higher costs than costs associated
              with domestic investment management firms or brokers.

                                         33
                      (k.) The written explanation of why the FBAR was not filed,
                      if such a statement is provided. Otherwise, note in the
                      workpapers whether there was an opportunity to provide
                      such a statement.
                      (l.) Copies of any previous warning letters issued or
                      certifications of prior FBAR penalty assessments.
                      (m.) An explanation, in the workpapers, as to why the
                      examiner believes the failure to file the FBAR was willful.
              (3) Documents available in an FBAR case worked under a Related
              Statute Determination under Title 26 that may be helpful in
              establishing willfulness include:
                      (a.) Copies of documents from the administrative case file
                      (including the Revenue Agent Report) for the income tax
                      examination that show income related to funds in a foreign
                      bank account was not reported.
                      (b.) A copy of the signed income tax return with Schedule B
                      attached, showing whether or not the box pertaining to
                      foreign accounts is checked or unchecked.
                      (c.) Copies of tax returns (or RTVUEs or BRTVUs) for at
                      least three years prior to the opening of the offshore account
                      and for all years after the account was opened, to show if a
                      significant drop in reportable income occurred after the
                      account was opened. (Review of the three years' returns prior
                      to the opening of the account would give the examiner a
                      better idea of what the taxpayer might have typically
                      reported as income prior to opening the foreign account).
                      (d.) Copies of any prior Revenue Agent Reports that may
                      show a history of noncompliance.
                      (e.) Two sets of cash T accounts (a reconciliation of the
                      taxpayer's sources and uses of funds) with one set showing
                      any unreported income in foreign accounts that was
                      identified during the examination and the second set
                      excluding the unreported income in foreign accounts.
                      (f.) Any documents that would support fraud (see IRM
                      4.10.6.2.2 for a list of items to consider in asserting the fraud
                      penalty).
I.R.M. § 4.26.16.6.5.2 (Nov. 6, 2015).




                                                 34
       I.R.M. Exhibit 4.26.16-2, Normal FBAR Penalty Mitigation Guidelines For Violations
Occurring After October 22, 2004, in part:

 Willfulness Penalties

 To Qualify for Level I –        If the maximum aggregate balance for all accounts to which the
 Determine Aggregate             violations relate did not exceed $50,000, Level I applies to all
 Balances                        accounts. Determine the maximum balance at any time during the
                                 calendar year for each account. Add the individual maximum
                                 balances to find the maximum aggregate balance.

 Level I Penalty is              The greater of $1,000 per violation or 5% of the maximum
                                 balance during the year of the account to which the violations
                                 relate for each violation.

 To Qualify for Level II –       If Level I does not apply and if the maximum balance of the
 Determine Account Balance       account to which the violations relate at any time during the
                                 calendar year did not exceed $250,000, Level II applies to that
                                 account.

 Level II Penalty is per         The greater of $5,000 per violation or 10% of the maximum
 account                         balance during the calendar year for each Level II account.

 To Qualify for Level III        If the maximum balance of the account to which the Level III
                                 violations relate at any time during the calendar year exceeded
                                 $250,000 but did not exceed $1,000,000, Level III applies to that
                                 account.

 Level III Penalty is per        The greater of (a) or (b): (a) 10% of the maximum balance during
 account                         the calendar year for each Level III account, or (b) 50% of the
                                 closing balance in the account as of the last day for filing the
                                 FBAR.

 To Qualify for Level IV         If the maximum balance of the account to which the violations
                                 relate at any time during the calendar year exceeded $1 million,
                                 Level IV, the statutory maximum, applies to that account.

 Level IV Penalty is per         The greater of (a) or (b): (a) $100,000, or (b) 50% of the closing
 account the statutory           balance in the account as of the last day for filing the FBAR.
 maximum


I.R.M. Exhibit 4.26.16-2 (July 1, 2008).




                                               35
