United States v. Schik
- Vyskocil
- 1:20-cv-02211
- U.S. District Court · Southern District of New York
- 15
In United States v. Schik, Judge Vyskocil denied summary judgment because a jury could find the FBAR violation nonwillful.
The ruling affected the United States and Walter Schik. The Government could not obtain judgment on the $8,822,806 penalty at this stage; the case was to proceed to trial, with possible IRS recalculation if a jury found that Schik acted willfully.
What happened
United States v. Schik concerns the Government’s effort to collect an $8,822,806 penalty from Walter Schik for not reporting Swiss bank accounts on a required foreign-account form for 2007.
Schik admitted that he had not timely filed the form, but argued that his failure was accidental because he did not know about the requirement, relied on his tax preparer, and did not manage the accounts himself. The Government argued that the failure was willful, including because it was reckless.
Judge Mary Kay Vyskocil denied the Government’s motion for summary judgment. She ruled that the evidence could support a finding that Schik’s conduct was negligent rather than willful, so the issue must be decided at trial. If a jury finds willfulness, the court will send the penalty calculation back to the Internal Revenue Service for recalculation.
The detailed version
- United States v. Schik · No. 1:20-cv-02211
- Vyskocil
- Mar. 8, 2022
Background
The United States sued Walter Schik to collect an $8,822,806 civil penalty assessed for failing to file a Report of Foreign Bank and Financial Accounts, commonly called an FBAR, for the 2007 tax year. An FBAR was required because Schik had interests in, or authority over, foreign accounts whose balances exceeded $10,000. It was undisputed that Schik was required to file the form and did not timely do so.
The relevant accounts were at UBS in Switzerland. One account was held in Schik’s name; the other was held by Tikva Consulting S.A., which was described to the Internal Revenue Service as Schik’s alter ego. The accounts had maximum 2007 balances of $1,594,398 and $15,649,573. Schik said he did not manage the money, which was maintained as a safety net connected to money recovered from the Holocaust. His tax preparer did not ask about foreign accounts, and the “no” answer to a related question on his 2007 tax return was apparently entered by tax-preparation software. Schik generally reviewed the return before signing it but did not identify the incorrect answer.
Legal Standard
The Government had to prove by a preponderance of the evidence—that the facts were more likely true than not—that Schik willfully failed to disclose the accounts and file the FBAR. The court held that, for a civil FBAR penalty, “willful” includes both knowing violations and reckless violations. Recklessness in this context can mean failing to act despite a known or obvious unjustifiably high risk of harm. It requires more than mere negligence.
Court’s Analysis
The court found genuine disputes about whether Schik’s failure was willful. It considered evidence that Schik had little formal education, did not know of the reporting obligation, did not manage the accounts, relied on his tax preparer, and was not asked about foreign accounts. Viewing the evidence in the light most favorable to Schik, the court concluded that a reasonable jury could find that he was negligent rather than reckless or knowing. Signing a tax return, by itself, did not automatically establish willfulness.
The court also determined that the IRS’s penalty calculation was deficient because the Government could not identify records supporting the account balances used to calculate the penalty. The court stated that the matter would be remanded to the IRS for recalculation if a jury ultimately found that Schik acted willfully. It rejected Schik’s argument that such a recalculation would be a new, time-barred penalty assessment. The court did not decide Schik’s argument that the penalty violated the constitutional ban on excessive fines because recalculation was needed first.
Disposition
The court denied the United States’ motion for summary judgment. The case was to proceed to trial on whether Schik’s failure to file the 2007 FBAR was willful. The court also stated that it would refer the parties to the Southern District of New York’s mediation program by separate order.
Read the full 15-page opinion on CourtListener, the free public archive maintained by the Free Law Project.