Implications of United States v. Horowitz: Reckless = Willful?

            In a recent court case, a court found that “willfulness” in the context of civil FBAR penalties is satisfied by recklessness and does not require disregard of a known legal duty. In United States v. Horowitz, (4th Cir. Oct. 20, 2020), the taxpayers failed to file FBARs for a multi-million dollar Swiss bank account for 20 years and never paid tax on the account’s interest income. 

In the case, Peter and Susan Horowitz, U.S. citizens, opened bank accounts in three Swiss banks after moving to Saudi Arabia in 1984. They continued to maintain one of these accounts after moving back to the United States in 2001. They did not file FBARs from 1983 through 2008 citing no knowledge of the requirement until 2009. The government assessed willful violations and penalized each spouse for both 2007 and 2008.

            The Fourth Circuit affirmed the district court’s holding that the Horowitz’s failure to file FBARs in 2007 and 2008 was reckless and therefore willful and they would have to pay penalties accordingly. The court in determining willfulness looked to the Supreme Court’s decision in Safeco Insurance Co. v. Burr, 551 U.S. 47 (2007), to find willfulness includes reckless violations of a standard as well. The court reasoned the Horowitz’s were reckless because they did not mention the foreign accounts to their accountant and signed tax returns inaccurately denying the existence of any foreign bank accounts on signed tax returns.

            This case has major implications on the assessment of FBAR penalties in the future. U.S. Taxpayers will not only be considered willful when they knowingly fail to report foreign accounts but they will also be considered willful when they recklessly fail to report foreign accounts.

Taxpayers who have foreign accounts or have been sent a violation for failure to file an FBAR should contact Patel Law Offices. Over the years, our office has successfully assisted numerous taxpayers regarding their FBAR and tax compliance issues.

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