Tuesday, January 26, 2021

DC Say No Summary Judgment For IRS on Intent/Willful Blindness for Florida CPA's FBAR Assessment!

In US v. Isac SchwarzbaumUS District Court, Southern District Of FloridaCase No. 18-cv-81147, a Federal government allegations that a Florida accountant willfully failed to report four foreign bank accounts can't be resolved without a trial, a Florida district court ruled. 

On October 23, 2019, the Government initiated the instant action against Kronowitz seeking to collect outstanding civil penalties for his allegedly willful failure to report his financial interest in foreign bank accounts, as required by 31 U.S.C. § 3514 for the years 2005-2010.  

Specically, the Government alleges that Kronowitz failed to properly report his financial interest in the following accounts: 


Kenneth G. Kronowitz was born on March 21, 1937. He is married to Sybil Kronowitz and has three children. 

He graduated from the University of Miami with a degree in accounting in 1961. From 1961 to present, Kronowitz has been a licensed certified public accountant ("CPA").Since becoming an accountant in 1961, Kronowitz has always been a sole practitioner. Since 1962, Kronowitz has typically prepared approximately thirty (30) to forty (40) federal income tax returns annually for both individuals and businesses. In order to maintain his CPA license, Kronowitz was required to take at least forty (40) hours of Continuing Professional Education ("CPE") classes annually. However, Kronowitz does not recall the FBAR being mentioned in any of the CPE courses he has taken. He considers himself to be semi-retired, as he still prepares approximately ten or twelve returns per year for others for money. 

Kronowitz prepared his own tax returns for tax years 2005, 2006, 2007, 2008, 2009, and 2010. On the Schedule B forms filed with the 2007 and 2008 tax returns, in response to question 7a, Kronowitz marked "no." There were no Schedule B forms attached to the 2006, 2009, or 2010 individual tax returns. 

Question 7a on Schedule B states, "At any time during [applicable 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? See page B-2 for exceptions and filing requirements for Form TD F 90-22.1." Kronowitz also prepared the tax returns for the Trust for tax years 2008, 2009, and 2010. He marked "no" in response to question 3 under the "Other Information" section on Form 1041, which states, "[a]t any time during calendar year [ ], did the estate or trust have an interest in or a signature or other authority over a bank, securities, or other financial account in a foreign country?" 

Kronowitz insists that he did not look up Form TD F 90.22.1 (the FBAR) due to a mistaken lack of knowledge, not a "desire to cheat the government." 

Kronowitz was provided notice of the FBAR penalty assessments, which remain unpaid. In addition to the amount of the assessments, interest and failure to pay penalties have accrued; and as of August 12, 2020, the balance owed on the FBAR penalties, including accruals, is $791,742.63.

in the Motion for summary judgment, the Governmen's t argues the Kronowitz's FBAR violations were willful because he recklessly failed to report his interest in foreign accounts or was willfully blind to the FBAR requirement. In support of its argument, the Government contends that the facts establish that Kronowitz recklessly opened the Cayman Island accounts to hide assets, that he recklessly managed the UBS and BKB bank accounts in Switzerland, and that his repatriation of funds into the United States and reporting of gains on the Trust tax returns formed part of a scheme to protect his foreign investment gains, which required planning, direction, and knowledge of international taxes and management of wired funds across international borders. Thus, the Government argues, "[i]t is implausible that Kronowitz could have known how to operate this process . . . without ever seeing the FBAR requirement." 

Upon review, the Government's argument itself demonstrates why summary judgment is inappropriate in this case. First, contrary the Government's suggestion, upon summary judgment, the Court views the facts in the light most favorable to Kronowitz and draws inferences from those facts in favor of Kronowitz as the non-moving party. Crocker, 886 F.3d at 1134. 

Unsurprisingly, Kronowitz disputes that his actions comprised any scheme to "cheat the government," and insists that he was simply mistaken. Significantly, in order to make the determination, the Court would be required to weigh the evidence and consider Kronowitz's credibility, which it may not do at summary judgment. Strickland, 692 F.3d at 1154. 

In arguing that summary judgment is appropriate in this case, the Government relies primarily upon the Fourth Circuit's opinion in Horowitz, in which the court stated that "willfulness based on recklessness is established if the defendant '(1) clearly ought to have known that (2) there was a grave risk that an accurate FBAR was not being filed and if (3) he was in a position to find out for certain very easily.'" United States v. Horowitz, 978 F.3d 80, 89 (4th Cir. 2020) (quoting Bedrosian, 912 F.3d at 153). 

In Horowitz, the court determined that, despite their contentions regarding their subjective intent, the defendant taxpayers' failure to file FBARs was objectively reckless. 978 F.3d at 89. However, the Government's reliance is misplaced for the simple reason that the district court in Horowitz was considering cross motions for summary judgment.

Similarly, the other cases relied upon by the Government do not support the conclusion that it urges here—that the Court may determine the issue of willfulness as a matter of law upon summary judgment. See United States v. Williams, No. 1:09-cv-437, 2010 WL 3473311, at *1 (E.D. Va. Sept. 1, 2010) (finding no willfulness following bench trial), rev'd 489 F. App'x at 660; Bedrosian, 912 F.3d at 148 (same); Bohanec, 263 F. Supp. 3d at 888-89 (finding willfulness following bench trial). 

Moreover, whether Kronowitz was willfully blind based upon the facts in this case requires a determination of his subjective awareness and whether he purposely avoided learning the facts pointing to liability. Williams, 489 F. App'x at 658 (citation omitted). "As a general rule, a party's state of mind (such as knowledge or intent) is a question of fact for the factfinder, to be determined after trial." Chanel, Inc. v. Italian Activewear of Fla., Inc., 931 F.2d 1472, 1476 (11th Cir. 1991). 

Second, in this case, genuine issues of material fact bearing upon the issue of willfulness remain. In pertinent part, although it is undisputed that Kronowitz has been a licensed CPA for fifty-nine years, has prepared returns on behalf of both companies and individuals during the course of his career, and was required to attend CPE courses, Kronowitz testified that he did not deal with foreign tax issues for his clients, he did not remember any of the CPE courses mentioning the FBAR, and he was unaware of the FBAR until 2011. Accordingly, the Government's Motion for summary judgment was DENIED.

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