{"id":5505,"date":"2026-09-11T13:21:31","date_gmt":"2026-09-11T13:21:31","guid":{"rendered":"https:\/\/patellawoffices.com\/blog\/?p=5505"},"modified":"2026-09-25T13:25:47","modified_gmt":"2026-09-25T13:25:47","slug":"fbar-willfulness-recklessness-and-the-excessive-fines-defense-key-takeaways-from-united-states-v-rund","status":"publish","type":"post","link":"https:\/\/patellawoffices.com\/blog\/planning-for-tax-minimization\/fbar-willfulness-recklessness-and-the-excessive-fines-defense-key-takeaways-from-united-states-v-rund\/","title":{"rendered":"FBAR Willfulness, Recklessness, and the Excessive Fines Defense: Key Takeaways from United States v. Rund"},"content":{"rendered":"\n

Foreign bank account reporting under 31 U.S.C. \u00a7 5314 continues to represent a high-stakes area of international tax controversy. Earlier this month, in United States v. Rund<\/em> (4th Cir. Sept. 4, 2026), the Fourth Circuit Court of Appeals affirmed a large $2,915,663 willful FBAR penalty against a U.S. taxpayer, offering critical guidance regarding the objective standard for civil willfulness and the constitutional boundaries of the Eighth Amendment’s Excessive Fines Clause.<\/p>\n\n\n\n

For tax advisors, CPAs, and legal practitioners, this decision highlights key lessons in defending offshore compliance audits and assessing penalty exposure.<\/p>\n\n\n\n

Factual Background<\/strong><\/h3>\n\n\n\n

The taxpayer, a U.S. citizen and businessman, held financial interests in or signature authority over more than a dozen foreign financial accounts across multiple institutions, including HSBC in Hong Kong, Bank of East Asia, UBS in Switzerland (held through a Mauritius shell company), and China Construction Bank.<\/p>\n\n\n\n

Over many tax years, the taxpayer failed to timely report these accounts on FinCEN Form 114 (Report of Foreign Bank and Financial Accounts, or FBAR). The IRS identified 48 distinct reporting deficiencies, determined that the non-compliance was willful, and assessed civil penalties totaling $2,915,663. The IRS calculated this penalty by taking 50% of the highest aggregate balance of the unreported accounts and allocating it pro rata across the years and accounts at issue.<\/p>\n\n\n\n

When the taxpayer failed to pay the assessment, the government filed a civil collection action in federal district court to reduce the penalties to judgment under 31 U.S.C. \u00a7 5321(b)(2). The district court granted summary judgment for the government, and the Fourth Circuit affirmed.<\/p>\n\n\n\n

1. Objective Recklessness Satisfies Civil FBAR Willfulness<\/strong><\/h3>\n\n\n\n

Under 31 U.S.C. \u00a7 5321(a)(5)(C), civil willful FBAR penalties carry a statutory maximum equal to the greater of $100,000 (adjusted for inflation) or 50% of the account balance at the time of the violation.<\/p>\n\n\n\n

Following its precedent in United States v. Horowitz<\/em>, 978 F.3d 80 (4th Cir. 2020), the Fourth Circuit reaffirmed that civil willfulness under Title 31 does not require bad faith, evil motive, or subjective intent to break the law. Instead, objective recklessness or “willful blindness” satisfies the statutory threshold.<\/p>\n\n\n\n

The court rejected several defenses raised by the taxpayer to dispute objective recklessness:<\/p>\n\n\n\n

    \n
  • Prior Partial Filings Do Not Negate Recklessness:<\/strong> The taxpayer argued that his historical disclosure of certain accounts on earlier FBARs demonstrated a lack of motive to conceal. The court held that while motive may be relevant to a knowing violation, it is not required to establish civil recklessness.<\/li>\n\n\n\n
  • Compounding Medical\/Personal Stressors Are Insufficient:<\/strong> The taxpayer pointed to diagnoses of ADHD, ongoing business litigation, cancer treatment, and depression as mitigating factors. The court held that these conditions did not undermine objective recklessness, noting that the taxpayer managed to file complete and timely FBARs for intervening years (2009\u20132012) under the same circumstances.<\/li>\n\n\n\n
  • Participation in Voluntary Disclosure Programs Raises the Bar:<\/strong> The taxpayer participated in the IRS’s Offshore Voluntary Disclosure Program (OVDP) from 2010 until his removal in 2016. However, during 2013\u2014while actively in the OVDP\u2014he opened new foreign accounts at China Construction Bank and failed to report them. The court observed that participating in an IRS disclosure program put the taxpayer on heightened notice of his reporting duties, making subsequent omissions even more clearly reckless.<\/li>\n\n\n\n
  • Lack of Disclosure to Tax Preparers:<\/strong> The court specifically emphasized that there was no evidence the taxpayer informed his CPA or tax return preparers about the omitted foreign accounts, foreclosing any reliance-on-professionals defense.<\/li>\n<\/ul>\n\n\n\n

    2. Proportionality Analysis Under the Excessive Fines Clause<\/strong><\/h3>\n\n\n\n

    The taxpayer challenged the $2.9 million assessment under the Eighth Amendment’s Excessive Fines Clause. Assuming without deciding that the Excessive Fines Clause applies to civil willful FBAR penalties, the Fourth Circuit concluded that the penalty was not constitutionally excessive.<\/p>\n\n\n\n

    In evaluating whether the fine was “grossly disproportional to the gravity of the offense,” the court considered:<\/p>\n\n\n\n

      \n
    • 30% of Statutory Maximum:<\/strong> The total penalty assessed ($2,915,663) represented roughly 30% of the theoretical maximum statutory penalty exposure ($9,842,840 across all 48 violations). On a per-account, per-year basis, the effective penalty amounted to approximately 14% to 16% of each account balance.<\/li>\n\n\n\n
    • Pervasive and Prolonged Non-Compliance:<\/strong> The court distinguished this case from single, isolated reporting failures (such as United States v. Bajakajian<\/em>), noting that the taxpayer committed over 40 willful violations across a dozen accounts over eight separate years. Repeated or prolonged violations justify higher aggregate penalties.<\/li>\n\n\n\n
    • Relation to Tax Evasion:<\/strong> The court noted that failing to report foreign accounts facilitates the concealment of taxable offshore income from the federal government, compounding the gravity of the offense.<\/li>\n<\/ul>\n\n\n\n

      Key Takeaways for Practice Strategy<\/strong><\/h3>\n\n\n\n

      The decision in United States v. Rund<\/em> offers critical strategic lessons for practitioners navigating offshore controversy:<\/p>\n\n\n\n

        \n
      1. Document Professional Advice:<\/strong> Taxpayers who fail to inform their CPAs or tax return preparers about foreign accounts cannot rely on claims of ignorance or confusion. Full disclosure to tax advisors remains the cornerstone of a successful defense against willful FBAR penalties.<\/li>\n\n\n\n
      2. Beware Heightened Duties During Audits or Disclosures:<\/strong> Entering IRS voluntary disclosure programs or undergoing an audit creates an explicit record of knowledge. Omitting newly opened or existing foreign accounts while participating in compliance programs almost guarantees a finding of civil recklessness.<\/li>\n\n\n\n
      3. Eighth Amendment Defense Has a High Bar:<\/strong> While constitutional defenses under the Excessive Fines Clause remain viable in extreme cases, courts will readily uphold multi-million-dollar FBAR penalties where the total assessment remains well below the statutory maximum and involves multi-year, multi-account non-compliance.<\/li>\n\n\n\n
      4. Evaluate Compliance Early:<\/strong> Taxpayers with undisclosed offshore interests must address reporting deficiencies proactively before an IRS examination or inquiry begins.<\/li>\n<\/ol>\n\n\n\n

        How Our Firm Can Help<\/strong><\/h3>\n\n\n\n

        Navigating foreign account reporting, IRS audits, voluntary disclosures, and civil FBAR penalty litigation requires experienced tax controversy counsel. Our firm represents individual and corporate taxpayers in complex international tax controversy, FBAR penalty defense, and federal litigation.<\/p>\n\n\n\n

        If your client has undisclosed foreign accounts or is facing an IRS FBAR examination, contact our office today to schedule a confidential consultation.<\/p>\n","protected":false},"excerpt":{"rendered":"

        Foreign bank account reporting under 31 U.S.C. \u00a7 5314 continues to represent a high-stakes area of international tax controversy. Earlier this month, in United States v. Rund (4th Cir. Sept. 4, 2026), the Fourth Circuit Court of Appeals affirmed a large $2,915,663 willful FBAR penalty against a U.S. taxpayer, offering critical guidance regarding the objective […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_daextam_enable_autolinks":"","_monsterinsights_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-5505","post","type-post","status-publish","format-standard","hentry","category-planning-for-tax-minimization"],"_links":{"self":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/5505","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/comments?post=5505"}],"version-history":[{"count":1,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/5505\/revisions"}],"predecessor-version":[{"id":5509,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/posts\/5505\/revisions\/5509"}],"wp:attachment":[{"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/media?parent=5505"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/categories?post=5505"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/patellawoffices.com\/blog\/wp-json\/wp\/v2\/tags?post=5505"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}