United States District Court, D. Maryland, Southern Division
W. Grimm United States District Judge
States citizens Peter Horowitz and Susan Horowitz lived in
Saudi Arabia for most years between 1984 and 2001. Beginning
in 1988, they maintained a Swiss bank account at the Union
Bank of Switzerland (“UBS”), with money that
Peter earned working as an anesthesiologist in Saudi Arabia.
When they returned to the United States they did not close
their Swiss bank account; by 2008, its balance was almost $2
million. Toward the end of 2008, Peter transferred the money
to another Swiss bank account, at Finter Bank
(“Finter”), this time in his name only. Yet,
Peter, who communicated for the couple with their accountant,
never mentioned the accounts, and they signed their tax
returns each year without ever answering “Yes” to
the income tax return question about whether they had money
in an overseas account or filing a file Form TD F 90-22.1
(“FBAR”) to disclose either account. In 2010,
they disclosed the funds for the first time, and in June
2014, the Government assessed penalties of $247, 030 against
each of them for their alleged willful failure to disclose
the UBS account for the 2007 tax year and penalties of $247,
030 against each of them for their alleged willful failure to
disclose the Finter account for the 2008 tax year.
Government has brought this action to collect those
penalties, and it moves for summary judgment on its claims.
ECF No. 66. The Horowitzes have filed a cross-motion
for summary judgment, ECF No. 68, arguing that the IRS
reversed the 2014 penalties, such that the penalties the
Government is trying to collect were not assessed until 2016,
at which time they were untimely. They also argue that their
failure to disclose was not willful-a point that would reduce
the maximum penalties from 50% of the amount in the foreign
account at the time of the violation to $10, 000. Because the
Horowitzes have not shown that the IRS actually reversed the
penalties in 2014, they have not established that the statute
of limitations ran before the penalties were assessed.
Further, the undisputed facts show that their failure to
disclose the UBS account on their 2007 tax return was
willful, and that Peter's failure to disclose the Finter
account on their 2008 tax return also was willful. Therefore,
the Government's motion will be granted and
Defendants' denied with regard to the penalties for 2007
and those assessed against Peter for 2008.
noted, in October 2008, Peter transferred the funds out of
their joint Swiss bank account into a Swiss bank account in
his name only at Finter Bank. Despite the undisputed evidence
that the parties intended for Susan to be a holder on that
account as well, and that they added her to the account in
2009, Susan was not an account holder on the Finter account
in 2008. Nor has the Government shown that she had any
financial interest in or authority over the Finter account in
2008. Therefore, she had no obligation to disclose the Finter
account, and FBAR penalties against her for 2008 are not
appropriate. Accordingly, Susan's individual motion
for partial summary judgment on this claim regarding 2008
penalties is granted, and the Government's motion with
regard to 2008 penalties against Susan will be denied.
who pay taxes to the United States must “report
annually to the Internal Revenue Service (‘IRS')
any financial interests they have in any bank, securities, or
other financial accounts in a foreign country.”
United States v. Williams, 489 Fed. App'x 655,
656 (4th Cir. 2012) (citing 31 U.S.C. § 5314(a)). To do
so, a taxpayer must file “a completed form TD F 90-22.1
(‘FBAR') with the Department of the Treasury . . .
. on or before June 30 of each calendar year with respect to
foreign financial accounts maintained during the previous
calendar year.” Id. (citing 31 U.S.C. §
5314; 31 C.F.R. §§ 1010.350, 1010.306(c)). If a
taxpayer fails to file a timely FBAR, “the Secretary of
the Treasury may impose a civil money penalty.”
Id. (citing 31 U.S.C. § 5321(a)(5)(A)).
violation is not “willful, ” the amount of civil
penalty is capped at $10, 000. 31 U.S.C. §
5321(a)(5)(B)(i). In contrast, “[i]n the case of any
person willfully violating, or willfully causing any
violation of, any provision of section 5314, . . . the
maximum penalty [of $10, 000 for a non-willful violation]
shall be increased to the greater of-(I) $100, 000,
or (II) 50 percent of the [balance in the account at the time
of the violation].” 31 U.S.C. § 5321(a)(5)(C)(i);
see United States v. Shinday, No. 18-CV-6891-CAS-EX,
2018 WL 6330424, at *3 (C.D. Cal. Dec. 3, 2018) (quoting 31
U.S.C. § 5321(a)(5)(C) and noting that Congress removed
the original $100, 000 cap on penalties for willful
violations when it amended the statute in 2004).
Horowitzes do not dispute the statutory provision. Defs.'
Am. Reply 14. Nonetheless, they argue that “the
Department of the Treasury, via notice and comment rulemaking
promulgated regulations, limited the maximum amount of
willful FBAR penalties to $100, 000.” Id.
(citing 31 C.F.R. § 103.27). And, relying on United
States v. Colliot, 2018 WL 2271381, at *3 (W.D. Texas
2018), they insist that “the IRS cannot act outside of
its own regulation.” Id. at 15.
true that 31 C.F.R. § 103.27, which is now 31 C.F.R.
§ 1010.820(g)(2), provides that “[f]or any willful
violation committed after October 27, 1986 . . . the
Secretary may assess upon any person, 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.” 31 C.F.R. §
1010.820(g)(2) (reorganized and renumbered, with technical
corrections, eff. Mar. 1, 2011). But, as the Court of Federal
Claims recently explained:
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. § 188.8.131.52.5.1, 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. §
184.108.40.206.5.1. 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. § 220.127.116.11.5.1. 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, 97 S.Ct. 2150, 53 L.Ed.2d 48 (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.
Kimble v. United States, No. 17-421, 2018 WL
6816546, at *15 (Fed. Cl. Dec. 27, 2018) (emendations in
original). The Kimble Court persuasively rejected
the Colliot Court's conclusion that “the
IRS is still bound by the maximum penalty in the pre-2004
statute, ” reasoning that the conclusion
“conflicts with the decision of the United State Court
of Appeals for the Federal Circuit in Barseback Kraft AB
v. United States, 121 F.3d 1475 (Fed. Cir. 1997), where
the Federal Circuit concluded that the fact that regulations
“had not been formally withdrawn from the Code of
Federal Regulations [did] not save them from
invalidity” based on a conflicting federal statute.
Id. (quoting Barseback, 121 F.3d at 1480).
On that basis, the Kimble Court affirmed a civil
penalty of $697, 229, representing 50% of the relevant
the IRS's Internal Revenue Manual (“I.R.M.”)
§ 18.104.22.168.5(3) now provides that “[f]or
violations occurring after October 22, 2004, the statutory
ceiling is the greater of $100, 000 or 50% of the balance in
the account at the time of the violation.” I.R.M.
§ 22.214.171.124.5(3) (Nov. 6, 2015).
The purpose of the IRS Manual is to govern the internal
affairs of the Internal Revenue Service. See United
States v. Horne, 714 F.2d 206, 207 (1st Cir.1983). The
provisions of the manual do not have the force of law and are
not mandatory or binding for the IRS. See Id. See also
Anderson v. United States, 44 F.3d 795, 799 (9th
Cir.1995). Despite these weaknesses, the manual has been
used, on a limited basis, to provide guidance in interpreting
terms in regulations. See United States v. Boyle,
469 U.S. 241, 243 n. 1, 105 S.Ct. 687, 83 L.Ed.2d 622 (1985)
(citing IRM section 4350(24) for what constitutes reasonable
cause for filing a late tax return). Thus, it is possible for
sections of the IRS manual to bear a limited relevance to
actions such as the one at hand.
Vons Cos. v. United States, 51 Fed.Cl. 1, 13 n.12
(2001), modified, No. 00-234T, 2001 WL 1555306 (Fed.
Cl. Nov. 30, 2001), and abrogation on other grounds
recognized by Alpha 1, L.P. ex rel. Sands v. United
States, 83 Fed.Cl. 279, 288 (2008). I agree with the
Kimble Court that 31 C.F.R. § 1010.820(g)(2)
cannot be enforced in light of its conflict with 31 U.S.C.
§ 5321(a)(5)(C)(1) and this more recent provision from
the IRS's Internal Revenue Manual. See Kimble,
2018 WL 6816546, at *15; I.R.M. §
authority to enforce such assessments has been delegated to
the IRS.” Williams, 489 Fed. App'x at 656
(citing 31 C.F.R. § 1010.810(g)). The statute of
limitations for assessing civil penalties for FBAR violations
of 31 U.S.C. § 5314 is six years, and it begins to run
on the date that the FBAR is due. 31 U.S.C. §
5321(b)(1); see United States v. Bussell, No.
CV1502034SJOVBKX, 2015 WL 9957826, at *6 (C.D. Cal. Dec. 8,
2015) (“The Secretary of the Treasury may assess a
civil penalty for willfully failing to timely report
financial interests in foreign accounts “at any time
before the end of the 6-year period beginning on the date of
the transaction with respect to which the penalty is
Peter Horowitz, M.D. and Susan Horowitz, Ph.D. are U.S.
citizens who have been married since 1969. Jt. Stip. of Facts
1. They lived and worked in Saudi Arabia from 1984 to 1992
and 1994 to 2001. Id. ¶¶ 4, 9, 10. Susan,
who only worked part of the time they resided in Saudi
Arabia, was paid in cash, which she spent on family living
expenses. Id. ¶¶ 10, 13, 14. From 1984 to
1988, Peter “deposited most of his salary into a Saudi
Arabian account at Al-Rajhi Bank, which had a branch at the
King Feisal Hospital where he worked.” Id.
funds from his Al-Rajhi Bank account, Peter established an
account at the Swiss bank Foreign Commerce Bank
(“FOCO”) in 1988. Id. ¶ 16. When
the Horowitzes returned to the United States in 1992,
“Peter withdrew the remaining balance in his account at
Al-Rajhi Bank.” Id. ¶ 18.
1994, the Horowitzes returned to Saudi Arabia, and Peter
closed the FOCO bank account and opened an account at the
Union Bank of Switzerland (“UBS”), “using
funds transferred from his FOCO account.” Id.
¶¶ 19, 21, 22. Peter and Susan jointly owned the
UBS account, and the “account opening documents listed
an address for Peter and Susan [in] Saudi Arabia.”
Id. ¶¶ 23, 27. Peter used his account at
the Al-Rajhi Bank again beginning in 1997 and transferred his
savings to the UBS account. Id. ¶ 25.
the Horowitzes left Saudi Arabia for the United States in
2001, Peter again withdrew the funds that remained in his
Saudi Arabian bank account. Id. ¶ 26. The
Horowitzes left the UBS account open. Id. ¶ 26.
2001 to 2008, Peter monitored the UBS account “by
calling the bank every year or two, ” and neither of
the Horowitzes made any deposits into or withdrawals from the
account. Id. ¶¶ 28-29. After
“read[ing] troubling news articles concerning UBS,
” Peter called UBS and then traveled to Switzerland in
October 2008 and closed the account. Id.
¶¶ 30, 32, 34-35.
transferred the account balance to an account that he opened
at another Swiss bank, Finter Bank (“Finter”).
Id. ¶ 36. Peter had brought Susan's
passport with him “to designate her as a joint account
owner of the Finter account at the time that he opened that
account, ” but Finter would not allow him to do so
because Susan was not present. Id. ¶ 37. When
Peter opened the account, he filled out a “List of
Authorized Signatories and Powers of Attorney for Natural
Persons, ” designating Susan as a person to whom he
gave “an unlimited power of attorney.” Finter
Bank Docs., ECF No. 87-8, at 1-2. Because she was not
present, Susan could not sign the “signature
specimen” box on the form. See id.
to the Government,
The UBS account was a “hold mail” account in
which the bank agreed to hold statements at the bank for
pickup or inspection by the account holders rather than
mailing them to account holders on a periodic basis.
“BLST Zurich” is the only information that
appeared in the address field of the Defendants' UBS bank
account statements. UBS typically charged a fee for this
“hold mail” service.
Compl. ¶ 13, ECF No. 1. Peter Horowitz neither admitted
nor denied this allegation. P. Horowitz Ans. ¶ 13, ECF
No. 17. Peter did, however, admit in his Answer that
“Finter Bank designated the account as a
numbered account and a hold mail account.” Id.
¶ 21 (emphasis added). Yet, Peter testified on November
9, 2017 that when he identified the UBS account as a hold
mail account on an IRS Offshore Voluntary Disclosure Program
form, he did so incorrectly, as it was not. P. Horowitz Dep.
127:19 - 129:16, 131:12-19; see also Forms, ECF No.
Horowitzes did not make any additional deposits after opening
the Finter account. Jt. Stip. of Facts ¶ 40. In October
2009, they traveled to Switzerland and added Susan “as
a joint owner of record of the Finter account.”
Id. ¶ 41.
Jack Weiss began preparing Peter's personal tax returns
beginning in about the late 1970's and continuing through
the time the Horowitzes lived in Saudi Arabia, during which
time he prepared their joint income tax return. Id.
¶¶ 42-45. Weiss would prepare the tax returns and
mail them to the Horowitzes for signature, and the Horowitzes
would sign them and submit them to the IRS. Id.
¶¶ 46-47. Accountant Ivan Sokoloff began preparing
the Horowitzes tax returns sometime after they returned from
Saudi Arabia, and he prepared their 2007 and 2008 joint tax
returns, which Donald Hilker, a partner at the firm where
Sokoloff worked, “reviewed and signed as the
‘paid preparer.'” Id. ¶¶
51, 53, 54. The Horowitzes' tax returns, “including
those for 2007 and 2008, were prepared relying on summaries
of tax-pertinent information that Peter prepared and mailed
to the return preparer each year”; those
“summaries never listed the UBS or Finter
account.” Id. ¶¶ 48, 49.
Additionally, Peter, who communicated with the accountants on
behalf of himself and his wife, id. ¶ 49, never
asked whether he should disclose either account. P. Horowitz
Dep. 168:6-9, ECF No. 87-1.
2007 tax return included “Part III: Foreign Accounts
and Trusts, ” which stated:
You must complete this part if you (a) had over $1, 500 of
taxable interest or ordinary dividends; or (b) had a foreign
account; or (c) received a distribution from, or were a
grantor of, or a transferor to, a foreign trust.
7a At any time during 2007, 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? See page B-2 for exceptions and
filing requirements for Form TD F 90-22.1 [FBAR].
b If “Yes, ” enter the name of the foreign
8 During 2007, did you receive a distribution from, or were
you the grantor of, or ...