United States v. Horowitz

978 F.3d 80

UNITED STATES of America, Plaintiff - Appellee,

v.Peter HOROWITZ; Susan Horowitz, Defendants - Appellants.

No. 19-1280

United States Court of Appeals, Fourth Circuit.

Submitted: September 11, 2020

Decided: October 20, 2020

James N. Mastracchio, Daniel G. Strickland, Washington, D.C., Stacey M. Mohr, EVERSHEDS SUTHERLAND (US) LLP, Atlanta, Georgia, for Appellants. Richard E. Zuckerman, Principal Deputy Assistant Attorney General, Travis A. Greaves, Deputy Assistant Attorney General, Gilbert S. Rothenberg, Francesca Ugolini, Douglas C. Rennie, Tax Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; Robert K. Hur, United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Baltimore, Maryland, for Appellee.

Before WILKINSON, NIEMEYER, and DIAZ, Circuit Judges.

Affirmed by published opinion. Judge Niemeyer wrote the opinion, in which Judge Wilkinson and Judge Diaz joined.

NIEMEYER, Circuit Judge:

To help combat tax evasion, the Bank Secrecy Act of 1970 requires that U.S. citizens who have foreign bank accounts report the accounts to the government on an annual basis by filing a Report of Foreign Bank and Financial Accounts, commonly referred to as an FBAR. See 31 U.S.C. § 5314(a) ; 31 C.F.R. § 1010.350(a). Any person who fails to file an FBAR is subject to a maximum civil penalty of not more than $10,000 or, if the person's failure to file was "willful," to a maximum civil penalty of the greater of $100,000 or 50% of the balance in the account at the time of the violation. 31 U.S.C. § 5321(a)(5).

Peter and Susan Horowitz, U.S. citizens and a married couple, failed to file FBARs as required for the years 1988 through 2008 for accounts that they owned in Swiss banks. The Horowitzes maintain that they had no knowledge of the requirement to file an FBAR until late 2009.

The government, however, determined that the Horowitzes’ failure to file FBARs was "willful," as that term is used in the Act, and, on June 13, 2014, it assessed enhanced penalties of $247,030 against each spouse for both 2007 and 2008. When the Horowitzes refused to pay the assessed penalties, the government commenced this action in June 2016 to collect the penalties, along with interest and additional penalties for late payment.

On the parties’ cross-motions for summary judgment filed after the completion of discovery, the district court entered judgment in favor of the government against Peter Horowitz for the assessed penalty of $494,060, plus $160,508 in interest and additional penalties that accrued after the assessment, for a total of $654,568; and against Susan Horowitz, for the assessed penalty of $247,030 for the calendar year 2007, plus $80,254 in interest and additional penalties, for a total of $327,284. The court, however, entered judgment in favor of Susan for the calendar year 2008, concluding that she did not have an ownership interest in the relevant Swiss account during that year. The court concluded that even if the Horowitzes lacked actual knowledge of the FBAR reporting requirement, as they claimed, the "undisputed facts [established] that [they] recklessly disregarded the ... requirement" and that such recklessness "suffice[d] for a finding of willfulness."

For the reasons given herein, we affirm.

I

Peter and Susan Horowitz are highly educated professionals. Peter is a doctor who has spent his career working as an anesthesiologist, while Susan received a Ph.D. in clinical social work and worked as a public health analyst at the U.S. Department of Health and Human Services.

In 1984, the Horowitzes moved to Riyadh, Saudi Arabia, to enable Peter to take a job working at the King Feisal Hospital for an annual salary of $120,000. Susan found a job in Saudi Arabia after they arrived there. The Horowitzes used Susan's wages for the family's living expenses, while saving most of Peter's salary and depositing the money into an account with a Saudi Arabian bank that had a branch at the hospital. The Horowitzes correctly understood that they were required to pay U.S. income taxes on the money that they earned in Saudi Arabia, and they did so each year with the help of an accountant in the United States who prepared their returns.

After the Horowitzes had been living in Saudi Arabia for over three years, a banker from the Foreign Commerce Bank ("FOCO"), a Swiss bank, contacted Peter about the possibility of opening an account with the bank. Peter decided to do so because "the money that was in the Saudi bank was not earning any interest because Saudi banks don't do that. It's a religious thing." Also, Peter was concerned that he and Susan might have trouble accessing his Saudi account should they suddenly be deported by the Saudi government. He concluded that opening a Swiss bank account would provide more safety and security for their savings.

Even though the money in their FOCO account earned interest, the Horowitzes did not disclose the Swiss account to their accountant and did not pay taxes on the income. They explained that, after talking to their friends in Saudi Arabia, their understanding was that they did not have to pay U.S. taxes on the money earned from the Swiss account.

When the Horowitzes learned in 1994 that FOCO was being acquired by an Italian bank, they decided to move their funds from the FOCO account into an account with Union Bank of Switzerland ("UBS"). The Horowitzes set up their account with UBS as a joint account and listed their address in Saudi Arabia. The UBS account also earned interest, but again the Horowitzes neither disclosed the account nor paid taxes on the income from it.

In 2001, the Horowitzes moved back to the United States, but they decided to maintain their UBS account, which had grown to approximately $1.6 million and amounted to one of their largest assets. Peter testified that they felt like the Swiss banking system was safe and secure and, therefore, saw no reason to transfer the money to the United States. Susan thought of their UBS account as a "nest-egg retirement account." Prior to their move back to the United States, the Horowitzes told a UBS representative that they were returning to the United States, but they could not provide the representative with a new address because they did not yet know where they would live. After they had settled in the United States, however, they still never provided UBS with their address and thus did not receive statements from UBS by mail after 2001. Instead, Peter monitored the account on the couple's behalf by calling the bank every year or two.

Beginning in 2008, Peter began reading troubling news articles concerning UBS, which he shared with Susan. According to Peter, the articles "describe[d] how UBS was in big trouble because of their involvement in the ... worldwide housing bubble" and how the bank was receiving a $50 billion bailout from the Swiss government. Wanting to make sure that the bank's financial troubles were not going to impact their account, Peter called a UBS representative in July 2008. The representative told Peter that the bank intended to close the accounts of all Americans by the end of the year. When Peter asked why UBS would do such a thing, the representative said "something about it being bank policy." This phone call prompted Peter to travel to Switzerland in October 2008, close the UBS account, and transfer the couple's nearly $2-million balance to an account he opened with Finter Bank Zürich, another Swiss bank. Peter had brought Susan's passport with him on that trip with the intent of designating her as a joint owner, but Finter Bank would not do so because Susan was not present. Accordingly, in October 2008, Peter became the sole owner of the Finter Bank account.

The Finter Bank account was set up on October 13, 2008, as a "numbered" account (such that a number, rather than a name, identified the account holder in correspondence) with "hold mail" service (meaning that, for a quarterly fee, the bank would hold all correspondence). Finter Bank later explained that "[t]hese services allowed U.S. clients to eliminate the paper trail associated with the undeclared assets and income they held at Finter in Switzerland." Peter testified later, however, that he was "not try[ing] to ‘eliminate a paper trail’ [or] ‘hide [his] account from U.S. authorities’ " when he maintained the Finter Bank account.

To open that account, Peter was required to sign an agreement with Finter Bank, which established the terms of the relationship and allowed him to make numerous elections with regard to the account. The agreement form included boxes to check for the elections and other items of information. And the signed agreement shows that boxes were checked to make the account a numbered account; to maintain the account in U.S. dollars; to authorize the bank to invest with foreign banks; to hold mail about the account; and to correspond in English, among other things. Peter initialed each page of the agreement and signed it on the last page. One checked box identified the currency of Peter's funds and had a blank next to it that was filled in by hand with "USD." While Peter testified, "I don't think [that] is my check," he did acknowledge that he had written in the "USD" in the blank. When explaining why he did that when the agreement form already had a box checked that it was to be maintained in U.S. dollars, Peter stated that he wrote in "USD" because, "being obsessive-compulsive, I write in USD. And then I resume signing [each page], you know." But he also claimed that he did not generally read the language in the agreement as he initialed each page.

A year later, in October 2009, Peter and Susan traveled back to Switzerland to make her a joint owner of the Finter Bank account.

Shortly after the Horowitzes’ October 2009 trip, Peter started reading "newspaper articles about people who were voluntarily disclosing" foreign bank accounts. He stated that as "the numbers of people [making such declarations] got larger and larger," he...