Here is a fact pattern I want every reader with a foreign account to sit with. Two highly educated professionals. An accountant who prepared their returns every year. Nearly $2 million in Switzerland. They say they had no idea about the FBAR requirement. They lose anyway, on summary judgment, without a trial. United States v. Horowitz explains why.
The Facts
Peter Horowitz is an anesthesiologist. Susan Horowitz holds 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 they moved to Saudi Arabia, where Peter worked at a hospital. They correctly paid U.S. tax on their Saudi wages each year with the help of a U.S. accountant.
A few years in, a banker from a Swiss bank approached Peter, and the couple opened an account there, partly because the Saudi bank paid no interest. The Swiss account earned interest. They did not tell their accountant and did not pay tax on it. Their explanation was that friends in Saudi Arabia told them it was not taxable. In 1994 they moved the money to UBS.
They returned to the United States in 2001 and kept the UBS account, which had grown to about $1.6 million. They never gave UBS their U.S. address, so they received no statements; Peter called the bank every year or two. In 2008, after reading troubling news about UBS and hearing from a representative that the bank would close American accounts, Peter flew to Switzerland, closed the account and moved nearly $2 million to a different Swiss bank. The new account was a numbered account with "hold mail" service. That bank later said those services "allowed U.S. clients to eliminate the paper trail associated with the undeclared assets and income they held at Finter in Switzerland."
Every year, Peter gave the accountant summaries listing salaries, domestic bank interest, dividends and deductions. The Swiss accounts were never on them. The 2007 and 2008 returns answered "No" to the Schedule B question asking whether they had an interest in a foreign financial account, a question that referred to the FBAR form by number. Both spouses signed e-file declarations under penalties of perjury. Peter testified he had been in the "mode of not reading" his returns for decades. Susan said she signed without looking.
After UBS told them in late 2009 that the IRS was seeking information on accounts like theirs, they met with a tax attorney, entered the Offshore Voluntary Disclosure Program, filed FBARs and amended returns, and later opted out. On June 13, 2014, the IRS assessed willful penalties of $247,030 against each spouse for each of 2007 and 2008. The government sued in June 2016 to collect. The district court entered judgment against Peter for both years and against Susan for 2007, finding she had no ownership interest in the new Swiss account during 2008.
The Issues
Three questions reached the Fourth Circuit. Is a reckless FBAR violation "willful" for the civil penalty? Does a 1987 regulation cap the penalty at $100,000? And was the suit time-barred because a Treasury employee had deleted the assessment date from a database?
The Holding
Judge Niemeyer wrote for a unanimous panel. The court concluded "that, for the purpose of applying § 5321(a)(5)'s civil penalty, a 'willful violation' of the FBAR reporting requirement includes both knowing and reckless violations." It held "that the 1987 regulation on which the Horowitzes rely was abrogated by Congress's 2004 amendment to the statute and therefore is no longer valid." And it held "as a matter of law" that deleting the date from the database "did not have the legal effect of reversing the assessments." Affirmed.
The Reasoning
Civil versus criminal willfulness
The Horowitzes argued that "willful" should mean the same thing in the civil and criminal parts of the Bank Secrecy Act. For criminal prosecution, the Supreme Court in Ratzlaf v. United States required proof that the defendant knew his conduct was unlawful. The Fourth Circuit answered with Safeco, where the Supreme Court gave "willfully" different meanings in the civil and criminal provisions of a single statute. In civil statutes, willfulness generally covers reckless violations too.
What civil recklessness means
Civil recklessness is objective. Quoting Farmer v. Brennan, the court said a person is reckless who "fails to act in the face of an unjustifiably high risk of harm that is either known or so obvious that it should be known." It adopted the Third Circuit's formulation: 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." It is more than negligence, but it does not require proof of what the taxpayer subjectively believed.
Applying it
The court found the Horowitzes' recklessness established by their own testimony. They knew foreign wages were taxable. They knew domestic interest was taxable; Peter put it on the summaries. With "this compound knowledge," they "could hardly conclude reasonably that the interest income from their Swiss accounts was not subject to taxes." If the question was important enough to discuss with friends, they "were reckless in failing to discuss the same question with their accountant at any point over the next 20 years." Add the numbered, hold-mail account; the size of the "nest egg"; two trips to Switzerland to tend it; and returns signed under penalty of perjury that denied any foreign account. "Despite numerous red flags, they neither made a simple inquiry to their accountant nor gave even the minimal effort necessary to render meaningful their sworn declaration that their tax returns were accurate."
The $100,000 regulation
The Horowitzes argued that § 5321(a)(5)(A), which says the Secretary "may" impose a penalty, let Treasury keep a lower cap. The court disagreed. Congress itself set a specific maximum in 2004. The court agreed with the Federal Circuit in Norman v. United States.
The deleted date
Under 31 U.S.C. § 5321(b), the government has six years to assess an FBAR penalty and then two years from assessment to sue. The penalties were assessed on June 13, 2014, when a manager signed the assessment certifications. During an administrative appeal, an IRS employee asked that the assessments be "removed," and a Treasury employee deleted the date from the "date penalty input" field. Nothing else changed, no document reversed the certifications, and the Horowitzes were never told. In 2016 the date was put back. The court held that the formal assessment stood. The suit, filed in June 2016, was timely.
What It Means for Taxpayers Today
If you are in the Fourth Circuit, or anywhere that follows it, summary judgment on willfulness is a real risk when the documents tell the story. You do not get a jury just because you say you did not know. The court looked at objective facts: what you reported, what you left out, what you signed, how the account was set up, and how easy it would have been to ask.
The "ask your accountant" point is the one I would underline. The court treated the failure to ask a single question over two decades as reckless, given everything else the couple knew. Your preparer can only report what you disclose.
The limitations ruling matters too. Arguments built on internal IRS database entries rarely win against a signed, certified assessment.
Practical Takeaways
Disclose foreign accounts to your return preparer, and read the Schedule B foreign account question before you sign. If you are already past the deadline, the facts you create now matter. For nonwillful conduct, Bittner limits the penalty per report. Our article on foreign bank account reporting covers who has to file.
The Bottom Line
Horowitz shows how ordinary the path to a willful FBAR penalty can be. No secret plot required. Just money abroad, a return that said otherwise, and nobody asking the obvious question. In the civil FBAR world, not asking can cost as much as lying.