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United States v. Schwarzbaum

United States District Court, S.D. Florida

August 22, 2019

UNITED STATES OF AMERICA, Plaintiff,
v.
ISAC SCHWARZBAUM, Defendant.

          ORDER ON MOTION FOR SUMMARY JUDGMENT

          BETH BLOOM UNITED STATES DISTRICT JUDGE.

         THIS CAUSE is before the Court upon Defendant Isac Schwarzbaum's (“Defendant” or “Schwarzbaum”) Motion for Summary Judgment, ECF No. [33] (the “Motion”). The Court has carefully considered the Motion, all opposing and supporting submissions, including Plaintiff the United States of America's (“Plaintiff” or “USA”) Response, ECF No. [43] and Defendant's Reply, ECF No. [47], the record in this case and the applicable law, and is otherwise fully advised. For the reasons set forth below, the Motion is denied.

         I. INTRODUCTION

         This case involves an attempt by the USA to collect outstanding civil penalties assessed against Schwarzbaum for his allegedly willful failure to timely report his financial interest in foreign bank accounts as required by 31 U.S.C. § 3514 for the years 2006-2009. See generally, ECF No. [1] (“Complaint”). In the Complaint, the USA asserts four counts seeking to reduce to judgment the previously assessed Report of Foreign Bank and Financial Accounts (“FBAR”) penalties for each applicable year pursuant to 31 U.S.C. § 5321(a)(5).

         In 1970, Congress enacted the Currency and Foreign Transactions Reporting Act, referred to as the Bank Secrecy Act (BSA), 31 U.S.C. §§ 5311, et seq. See Pub. L. No. 91-508, 84 Stat. 1114 (1970). The primary purpose of the BSA is to require the making of certain reports that “have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.” Id. § 202. To effectuate this purpose, the BSA directs the Secretary of the Department of Treasury to promulgate regulations requiring the reporting of information from United States persons who have relationships, or conduct transactions, with foreign financial agencies. See Id. § 241(a) (codified at 31 U.S.C. § 5314). As relevant here, the regulations require “each United States person having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country” to file a FBAR. See 31 C.F.R. § 1010.350(a). The FBAR is required “with respect to foreign financial accounts exceeding $10, 000 maintained during the previous calendar year.” See 31 C.F.R. § 1010.306(c).

         The authority to assess and collect civil penalties for non-compliance with FBAR requirements rests with the IRS. See Delegation of Enforcement Authority Regarding the Foreign Bank Account Report Requirements, 68 Fed. Reg. 26489 (May 16, 2003).

         II. RELEVANT FACTS

         Isac Schwarzbaum was born in Germany to parents who had resettled from Poland. Defendant Isac Schwarzbaum's Statement of Undisputed Material Facts, (“Def. SOMF”), ECF No. [34] ¶ 1.[1] Schwarzbaum received a high school diploma in Germany but did not attend a university. Id. ¶ 5. As a student in Germany, Schwarzbaum did not study U.S. law, tax law, or accounting. Id. ¶ 6. The parties dispute Schwarzbaum's proficiency in the English language, though English is his fourth or fifth language. Id; United States of America's Opposing Statement of Material Facts (“Pl. SOMF”), ECF No. [44] ¶ 6. Schwarzbaum has retained German citizenship but became a U.S. citizen in 2000. Def. SOMF ¶ 11. His father was successful in the textile business and later in Germany as a real estate investor. ECF No. [35-2] ¶ 6. Schwarzbaum has supported himself and his children with his investments and inheritance from his father, which includes gifts he received before his father's death in 2009. Def. SOMF ¶ 9; Pl. SOMF ¶ 9.

         Schwarzbaum employed three certified public accountants (“CPAs”) to prepare his U.S. tax returns-Brian Gordon from 1993/94 to 2006, Doris Shaw in 2007 for tax year 2006, Steven Weitz for tax years 2008-2009 (and an individual at Mr. Weitz's firm named Robert Silver for tax year 2007). Def. SOMF ¶¶ 21, 26, 32; ECF No. [35-1] at 71, 160; Pl. SOMF ¶¶ 34-35; ECF No. [44-1] at 14-15. However, the parties disagree as to whether Schwarzbaum told any of the CPAs about the monetary gifts he received from his father, or his Swiss bank accounts. Compare Def. SOMF ¶¶ 22-23, 25, 27, 33 and Pl. SOMF ¶¶ 22-23, 25, 27, 33. The CPA who prepared Schwarzbaum's 2006 return completed a FBAR reporting a foreign account in Costa Rica. Id. ¶ 29. Schwarzbaum himself filed FBARs for tax years 2007 and 2009 for foreign accounts that had a U.S. connection. Id. ¶¶ 40-41. Schwarzbaum did not file an original 2008 FBAR; rather the 2008 FBAR was filed in 2011. Def. SOMF ¶ 41; ECF No. [35-1] at 297 ¶ 7.

         In October of 2009, Schwarzbaum received a letter from one his banks in Switzerland, indicating that the Internal Revenue Service (“IRS”) had submitted a request under treaty to the Swiss government to obtain information about accounts of certain individuals maintained at UBS, and that his account appeared to fit within the scope of the request. Def. SOMF ¶ 46; ECF No. [35-12]. The parties disagree about Schwarzbaum's motivations following receipt of the letter. Schwarzbaum maintains that he did not understand the letter and sought the advice of a Swiss attorney, who told him that the letter did not apply to him under Swiss law. The USA maintains that Schwarzbaum actively sought to prevent disclosure of his account information to the IRS. Def. SOMF ¶ 47; Pl. SOMF ¶ 47.

         Ultimately, in 2011, Schwarzbaum entered into the IRS's voluntary disclosure program, the Offshore Voluntary Disclosure Initiative (“OVDI”). Def. SOMF ¶ 49. He and the IRS agreed to additional income tax, interest, and accuracy-related penalties due as a result of the failure to report interest earned on foreign accounts, which amounts Schwarzbaum promptly paid. Id. ¶¶ 50-51. Schwarzbaum then opted out of OVDI and underwent full examinations under Title 26 and Title 31. Id. ¶¶ 52-53. IRS Agent Bjork made the initial determination that the IRS should assert a non-willful FBAR penalty against Schwarzbaum. Id. ¶ 56; Pl. SOMF ¶ 56. Ultimately, however, willful FBAR penalties were assessed on September 6, 2016, and the Title 26 examination concluded with the assessment of accuracy-related penalties for the underpayment of income tax. Def. SOMF ¶¶ 60-61. The aggregate amount of FBAR penalties, plus late payment penalties and interest is $15, 559, 072.00, and interest continues to accrue. Id. ¶ 62; Pl. SOMF ¶ 62.

         III. LEGAL STANDARD

         A court may grant a motion for summary judgment “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.” Fed.R.Civ.P. 56(a). The parties may support their positions by citation to the record, including, inter alia, depositions, documents, affidavits, or declarations. See Fed. R. Civ. P. 56(c). An issue is genuine if “a reasonable trier of fact could return judgment for the non-moving party.” Miccosukee Tribe of Indians of Fla. v. United States, 516 F.3d 1235, 1243 (11th Cir. 2008) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986)). A fact is material if it “might affect the outcome of the suit under the governing law.” Id. (quoting Anderson, 477 U.S. at 247-48). The court views the facts in the light most favorable to the non-moving party and draws all reasonable inferences in the party's favor. Crocker v. Beatty, 886 F.3d 1132, 1134 (11th Cir. 2018). “The mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient; there must be evidence on which a jury could reasonably find for the [non-moving party].” Anderson, 477 U.S. at 252. The Court does not weigh conflicting evidence. See Skop v. City of Atlanta, Ga., 485 F.3d 1130, 1140 (11th Cir. 2007) (quoting Carlin Comm'n, Inc. v. S. Bell Tel. & Tel. Co., 802 F.2d 1352, 1356 (11th Cir. 1986)).

         The moving party shoulders the initial burden to demonstrate the absence of a genuine issue of material fact. See Shiver v. Chertoff, 549 F.3d 1342, 1343 (11th Cir. 2008). If a movant satisfies this burden, “the non-moving party ‘must do more than simply show that there is some metaphysical doubt as to the material facts.'” Ray v. Equifax Info. Servs., L.L.C., 327 Fed.Appx. 819, 825 (11th Cir. 2009) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). Instead, “the non-moving party ‘must make a sufficient showing on each essential element of the case for which he has the burden of proof.'” Id. (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)). The non-moving party must produce evidence, going beyond the pleadings, and by its ...


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