Sixth Circuit Affirms Summary Judgment on FBAR Willful Penalty on Conduct Objectively Reckless (2/14/24)

I report this morning on United States v. Kelly, 92 F.4th 598 (6th Cir. 8/8/24), CA6 here and GS here. Kelly affirms the district court's approval of the FBAR willful penalty on motion for summary judgment.

I first offer the MS CoPilot (MS’s version of AI) explanation of the case:

Case Title: United States v. James J. Kelly, Jr.

Background:

• James J. Kelly, Jr., a U.S. citizen, opened an interest-bearing account at Finter Bank in Zurich, Switzerland in 2008.

• He designated the account as “numbered” to keep his name off the statements and requested that Finter retain account-related correspondence instead of mailing it to him.

Legal Context:

• Under the Bank Secrecy Act, individuals with foreign bank accounts containing $10,000 or more must annually file a Report of Foreign Bank and Financial Accounts (FBAR) with the U.S. Department of the Treasury.

• Failure to file an FBAR by the deadline can result in civil penalties. The penalty amount depends on whether the failure was accidental or willful.

Case Details:

• The government sued James Kelly, alleging that he willfully failed to timely file FBARs for the years 2013, 2014, and 2015.

• The district court granted summary judgment in favor of the government.

• Kelly’s failure to file was deemed a willful violation of the Bank Secrecy Act.

Outcome:

• The court affirmed the judgment, emphasizing that Kelly’s actions constituted a willful violation of the law.

• In summary, James Kelly’s failure to file FBARs for his foreign bank account led to civil penalties due to willful non-compliance with the Bank Secrecy Act.

CoPilot gets it right in high level summary. Lawyers and students need a bit more of the key reasoning of the case, so I offer some bullet points below:

• The fact pattern is a variation on the theme of FBAR willful penalty cases (secret foreign bank accounts (Switzerland and Liechtenstein) and incomplete OVDP filings, with also incomplete Form 433-A filing, resulting in removal from OVDP).

Key holdings are:

•  “[W]e hold that, for purposes of an FBAR civil penalty, a willful violation of the FBAR reporting requirements includes both knowing and reckless violations. In so holding, we join every other circuit to have addressed this issue.”
• The objective evidence on the motion for summary judgment shows that Kelly’s conduct was at least reckless, the requirement for the civil FBAR willful penalty. 
• "The undisputed facts show that Kelly knew about his foreign account, undertook considerable efforts to keep it secret, did not consult with any professionals about his tax obligations, and then failed to ensure that the FBARs were submitted after learning he had not met these reporting requirements in the past. Given all of this, Kelly’s failure to satisfy his FBAR requirements for the years 2013, 2014, and 2015 was a willful violation of the Bank Secrecy Act."

Willfulness can be a classic case of a fact-intensive issue, with some courts holding in the particular facts of the cases that summary judgment is not appropriate. But where the relevant facts show clearly that the objective reckless standard is met, summary judgment is appropriate.

This blog entry is cross-posted on the Federal Tax Crimes Blog here.