Taxpayer Liable for Willful FBAR Penalties Despite Alleged ADHD, Stress, Depression, and Stage 3 Prostrate Cancer (8/10/24)

 In United States v. Rund (E.D. Va. No. 1:23-cv-00549 Memo Opinion & Order 8/6/24), CL here and GS here, the Court granted the Government summary judgment on Rund’s liability for FBAR willful penalties and ordered judgment for “$2,915,663 as of April 30, 2021, consisting of an assessment against him under 31 U.S.C. § 5321(a)(5), plus pre- and post-judgment interest and penalties accruing on that assessment in accordance with 31 U.S.C. § 3717.”

Significant features of the opinion:

1. Rund “participated in OVDP from 2010 through 2016” and apparently either withdrew or was terminated. (Slip Op. 6.) While in OVDP he apparently did not fully disclose offshore accounts and even failed to file FBARs as due. (Id.) He alleged as a defense “improper termination and/or denial of entry from the OVDP program.” (Slip Op. 7 n6.) There is no further discussion of that adventure, and  Rund apparently failed to address the defense in his motion for summary judgment. (Id.)

2. More significantly, Rund claimed certain personal characteristics that he felt negated willfulness. The Court addressed that claim as follows (Slip Op. 13-14):

vi. Rund’s personal challenges do not foreclose a finding of willfulness for his reporting violations

          While Rund asserts that several personal challenges affected his understanding and awareness of his reporting requirements for his foreign accounts, none of his asserted defenses are enough to protect him from liability. Rund argues that he was i) unsophisticated in business and tax matters, ii) diagnosed with attention deficit hyperactivity disorder (“ADHD”) in 2006, iii) under a period of significant stress from 2009 onwards because of his Hong Kong litigation against Charlety, iv) diagnosed with depression and recurrent stage 3 prostate cancer around 2013, and v) finding it difficult to retain an accountant in 2014 and 2015. ECF 39 at 23, 25, 30, 37, 48.

          Even accepting each of the difficulties Rund faced as true, the Court cannot agree that they establish that Rund’s violations were non-willful. To begin with, a finding of willfulness is based on an objective standard – Rund’s personal trials do not factor into this analysis. Horowitz, 978 F.3d at 89. Even an individual who was not well versed in business matters, suffered from ADHD and depression, and was under a period of stress could still have been reasonably expected to disclose important financial information to their tax preparers. n8 The standard is whether Rund failed “to act in the face of an unjustifiably high risk of harm that is either known or so obvious [*14] that it should be known.” Brennan, 511 U.S. at 836; see also Bentsen, 129 F.3d 122. Rund was aware of the FBAR reporting requirements, knew he held at least some financial interests in numerous foreign accounts, and worked with tax preparers whom he easily could have asked for advice. In fact, given the myriad of personal issues Rund was facing and his own purported lack of business skills, it would have been even more appropriate for him to turn to his official tax preparers for advice. See Gentges, 531 F. Supp. 3d at 751 (“Defendant, who possesses no financial or tax expertise himself, made no effort to consult his longtime tax preparer to determine whether his belief was correct.”); see also Horowitz, 978 F.3d at 89 (determining that the defendants’ reliance on “faulty advice they had received from others” was objectively reckless).
   n8 See also ECF 43 at 10-11 (citing Sturdy v. Bentsen, 129 F.3d 122 (8th Cir. 1997) (affirming summary judgment against defendant for willful firearm reporting violation, regardless of alleged attention deficit disorder (“ADD”))).

Obviously, Rund hoped that his personal characteristics would be enough to get him to a jury on the willfulness issue. That "defense" did not work, but in a case with less objective willful factors and analogous personal characteristics, it might work. That does not mean that a jury would necessarily be sympathetic enough to find nonwillfulness.

This entry has been cross-posted on the Federal Tax Crimes Blog, here.