United States of America v. Schwarzbaum

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA

Case No. 18-cv-81147-BLOOM/Reinhart

UNITED STATES OF AMERICA,

Plaintiff,

v.

ISAC SCHWARZBAUM,

Defendant.
______________________________/

ORDER ASSESSING PENALTIES

THIS CAUSE is before the Court following the Court’s Findings of Fact and Conclusions
of Law, ECF No. [92] (“Decision”). The parties have filed supplemental briefing regarding the
proposed amount of penalties to be assessed against Defendant Isac Schwarzbaum (“Defendant”
or “Schwarzbaum”) for a non-willful FBAR violation in tax year 2006, and willful FBAR
violations for tax years 2007, 2008, and 2009. The Court has carefully considered the United States
of America’s (“USA” or “Plaintiff”) Supplemental Post-Trial Brief, ECF No. [93] (“USA’s
Brief”), Schwarzbaum’s Supplemental Brief, ECF No. [94] (“Schwarzbaum’s Brief”), the record
in this case and the applicable law, and is otherwise fully advised. For the reasons set forth below,
the Court will assess $12,907,952.00 in penalties against Schwarzbaum for willful violations of
the FBAR filing requirements for tax years 2007, 2008, and 2009.
In its Decision, the Court determined that Schwarzbaum’s violation of the FBAR reporting
requirement for tax year 2006 was non-willful, and that the subsequent FBAR violations for tax
years 2007, 2008, and 2009 were willful. See, ECF No. [92]. However, based upon the evidence
presented at trial, the Court also concluded that the penalty assessed by the USA did not conform
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with 31 U.S.C. § 5321, because rather than utilizing 50% of the balance in each account at the time
of the violation (which was the deadline to file the FBAR or June 30 of each year), the USA used
the highest aggregate balance in each of the accounts for each year as reported by Schwarzbaum
on a penalty calculation worksheet provided in connection with his OVDI disclosures. Id. As a
result, the Court concluded that the IRS used the incorrect base amounts to calculate the FBAR
penalties in this case. Id.
At the outset, the Court notes that despite its request that the parties submit additional
briefing only with respect to the proposed amount of penalties to be assessed based upon the
findings in its Decision, Schwarzbaum’s Brief nevertheless presents a host of arguments that are
inappropriate given the narrow scope of the Court’s request. Moreover, those arguments are being
raised for the first time in this case and, in any event, lack merit.
I. Additional arguments
A. Schwarzbaum’s arguments
First, Schwarzbaum argues that the Court should set aside the 2007-2009 penalty
assessments because the IRS did not follow the statute with respect to the base amounts used to
calculate such penalties. The argument is unnecessary, as the Court in its Decision expressly found
that the IRS used the incorrect base amounts to calculate the FBAR penalties, and for that very
reason, directed the parties to provide the Court with the correct amount of penalties in keeping
with the findings in its Decision. As such, it appears that Schwarzbaum is asking the Court to do
what it has already done.
Second, Schwarzbaum argues that this case must be remanded back to the IRS for further
action, and that the IRS upon remand is time-barred from assessing FBAR penalties. This is the
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first time that Schwarzbaum has argued for remand of this case to the IRS. As such, the argument
has not been properly raised and the Court will not consider it at this late stage.
Third, Schwarzbaum argues that, because the Court found that the penalties assessed for
the 2007-2009 tax years were not in accordance with law, such penalties are invalid, and the USA
may not now provide new reasons or explanations in an attempt to validate unlawful penalty
assessments. Schwarzbaum’s argument lacks merit. The Court found upon a de novo review that
Schwarzbaum’s violations of the FBAR reporting requirement were willful for tax years 2007-
2009 for the reasons set forth in the Decision. Therefore, the Court ordered the parties to submit
additional briefing with respect to the amount of proposed penalties based upon utilizing what the
Court determined to be the proper base amounts—the account balances in each account as of June
30 of each year. The USA fully complied with the Court’s directive in the USA’s Brief, while
Schwarzbaum has not.
Finally, Schwarzbaum argues that the applicable statute should be interpreted to apply
penalties per FBAR, rather than per unreported account, claiming that there this is an unsettled
issue of law regarding whether the flat statutory penalty amounts apply per account or per FBAR.
Therefore, Schwarzbaum reasons further that the penalties assessed against him should be capped
at $100,000.00 per tax year. However, Schwarzbaum has failed to cite any case in which a court
has interpreted the statute in the manner he now urges. In addition, upon review, the Court finds
that the plain meaning of the statute does not support Schwarzbaum’s interpretation.
With any question of statutory interpretation, the Court presumes that Congress “says in a
statute what it means and means in a statute what it says there.” Conn. Nat. Bank v. Germain, 503
U.S. 249, 254 (1992) (citing United States v. Ron Pair Enterps., Inc., 489 U.S. 235, 241-42 (1989))
(further citations omitted). “The first rule in statutory construction is to determine whether the
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language at issue has a plain and unambiguous meaning with regard to the particular dispute. If
the statute’s meaning is plain and unambiguous, there is no need for further inquiry.” U.S. v. Silva,
443 F.3d 795, 797-98 (11th Cir. 2006) (internal quotations omitted); see Hartford Underwriters
Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6 (2000) (where “the statute’s language is plain,
the sole function of the courts—at least where the disposition required by the text is not absurd—
is to enforce it according to its terms.”) (internal quotation and citation omitted). “This is so
because ‘[t]he plain language is presumed to express congressional intent and will control a court’s
interpretation.’” Moss v. GreenTree-Al, LLC, 378 B.R. 655, 658 (S.D. Ala. 2007) (quoting U.S. v.
Fisher, 289 F.3d 1329, 1338 (11th Cir. 2002)) (alterations in the original). It is a court’s duty “to
give effect, if possible, to every clause and word of a statute.” Duncan v. Walker, 533 U.S. 167,
174 (2001) (citations omitted). And, “[w]hen interpreting a statute, words must be given their
‘ordinary or natural’ meaning[.]” Leocal v. Ashcroft, 543 U.S. 1, 8 (2004) (citation omitted). In
any event, “[a] court ‘should not interpret a statute in a manner inconsistent with the plain language
of the statute, unless doing so would lead to an absurd result.’” Moss, 378 B.R. at 658 (quoting
Silva, 443 F.3d at 798).
The statute at issue in this case states as follows:
(C) Willful violations.—In the case of any person willfully violating, or willfully
causing any violation of, any provision of section 5314—
(i) the maximum penalty . . . shall be increased to the greater of—
(I) $100,000, or
(II) 50 percent of the amount determined under subparagraph (D),
[. . .]
(D) Amount.—The amount determined under this subparagraph is—
[. . .]
(ii) in the case of a violation involving a failure to report the existence of an
account or any identifying information required to be provided with respect to
an account, the balance in the account at the time of the violation.

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31 U.S.C. § 5321(a)(5). Contrary to Schwarzbaum’s contention, the language of the statute is
clear—in the event of a willful violation, the maximum penalty to be assessed is the greater of
$100,000 or 50% of the balance in the account at the time of the violation. The statute does not
anchor the assessment of the penalty specifically to the FBAR, but rather, to an account. To
interpret the statute in the manner Schwarzbaum urges would render subsection (D)(ii)
meaningless, or its application illogical.
For example, in the case of an individual who willfully failed to file a FBAR for a single
tax year disclosing one foreign bank account containing $12,000.00 at the time of violation, the
maximum penalty under the statute is $100,000.00 (because it is greater than 50% of the balance
in the account, which would total $6,000.00). Schwarzbaum urges the same result. However, this
interpretation ignores the fact that for tax year 2008 alone, Schwarzbaum willfully failed to report
eleven (11) foreign bank accounts with balances totaling at least $17,450,000.00 on the date of
violation. Such an outcome leads to an absurd result, and one which does not fit with the purpose
of the statute, which is “to require certain reports or records where they have a high degree of
usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of
intelligence or counterintelligence activities, including analysis, to protect against international
terrorism.” 31 U.S.C. § 5311.
Because the Court finds that the plain language of the statute is dispositive, it need not
delve into Congress’s intent. See Birnholz v. 44 Wall St. Fund, Inc., 880 F.2d 335, 341 (11th Cir.
1989), certified question answered, 559 So. 2d 1128 (Fla. 1990) (“Thus, the cardinal rule of
statutory construction is that ‘[w]hen the language of the statute is clear and unambiguous and
conveys a clear and definite meaning, there is no occasion for resorting to the rules of statutory
interpretation and construction; the statute must be given its plain and obvious meaning.’”)
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(quoting Streeter v. Sullivan, 509 So. 2d 268, 271 (Fla. 1987) (quoting A.R. Douglass, Inc. v.
McRainey, 137 So. 157, 159 (1931))).
B. The USA’s harmless error argument
The USA asserts that the recalculations undertaken per the Court’s Decision do not reduce
the amounts of the penalties assessed for 2007-2009, and that in any event, the originally assessed
resulting penalties were below the statutory maximum authorized, and therefore any error in the
IRS’s method of calculation was harmless. Thus, the USA argues that the Court should sustain the
previously assessed penalties for 2007 through 2009 in full. Schwarzbaum argues in response that
the USA’s failure to calculate the penalties on a yearly basis using the June 30 account balances
substantively impacted the assessed amounts.
Upon review, the Court determines that the USA’s arguments lack merit. First, as reflected
by the recalculated mitigated penalties that follow, utilizing the account balances in each account
on June 30 of each year, the resulting assessed penalty is indeed lower than the penalty initially
assessed by the USA—$13,729,591.00. Second, a court employs a harmless error analysis when
“a mistake of the administrative body is one that clearly had no bearing on the procedure used or
the substance of decision reached.” Salmeron-Salmeron v. Spivey, 926 F.3d 1283, 1286 (11th Cir.
2019) (quoting Animal Legal Def. Fund v. U.S. Dep’t of Agric., 789 F.3d 1206, 1224 n.13 (11th
Cir. 2015) (citations omitted).
Here, instead of following the statute, the USA utilized the highest aggregate balance in
each account for each year to arrive at a mitigated willful FBAR penalty amount of
$35,729,591.00, despite making representations that it had used the balance in each account as of
June 30 of each relevant tax year. See ECF No. [92] at 25. The IRS then considered that this amount
was excessive, and further reduced the mitigated penalty to $13,729,591.00, which represents the
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maximum penalty for 2008 divided and spread over the years 2006 through 2009. Id. Indeed, using
the highest aggregate balance in each bank account predictably resulted in a significantly higher
penalty than results when utilizing the account balances as of June 30, as illustrated in the
following section. The initial mitigated penalty based on the highest aggregate account balances
far exceeds that amount, even allowing the USA to utilize estimated account balances on June 30
of each year—which results in a maximum penalty of $23,826,738.00 (as opposed to
$35,729,591.00). See ECF No. [93] at 6-10. As such, the USA fails to show that the IRS’s mistake
in methodology clearly had no bearing on the procedure used or the substance of the decision
reached.
As a result, the Court will proceed to recalculate the penalty to be assessed in this case.
II. Penalty Assessment
A. Tax year 2006
In the Decision, the Court determined that Schwarzbaum’s violation for tax year 2006 was
non-willful. In its Brief, the USA concedes that it is not seeking a reduced penalty for
Schwarzbaum’s FBAR violation in 2006, which based upon the Court’s Decision should be zero.
As such, the Court will assess no penalty for Schwarzbaum’s non-willful FBAR violation for tax
year 2006.
B. Tax years 2007-2009
With respect to tax years 2007-2009, the USA has provided charts detailing different
amounts resulting from the calculation of penalties. These calculations are based upon the account
balances in each account as of June 30 of the relevant year where the balances are known, and
utilizing estimated account balances on June 30 of each reporting year where the balances are
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unknown.
1
Because the IRS applied the mitigation guidelines to the initial penalties assessed, the
Court finds that the recalculated penalties should also be mitigated.
In addition, in its Brief, the USA provides two different mitigated penalty calculations,
both using a June 30 balance where it is known; and where the balance is unknown or zero, one
calculation using an estimated balance on June 30, and the other imposing up to a $100,000.00
penalty. The USA argues that it should be permitted to rely on the best available information in
determining an estimated June 30 balance and that the Court should permit the USA to rely on
estimated account balances provided by Schwarzbaum (which he provided in the course of his
OVDI disclosures). Otherwise, the USA contends, individuals would be motivated to withhold
accurate account balance information. However, the Court determined in its Decision, and the
statute makes clear, that the relevant time for purposes of the penalty is the date of violation—in
this case, the date that Schwarzbaum failed to timely file his FBARs, i.e. June 30. Thus, it was
incumbent upon the USA to obtain the necessary information prior to assessing the penalties in
this case. That the USA did not obtain the account balances on the relevant date of violation does
not permit the USA to now substitute estimated account balances in its proposed recalculations,
even if those estimates were provided by Schwarzbaum. As such, the Court will utilize the
proposed mitigated penalty amounts that do not rely on the USA’s estimates of an account balance
as of June 30 in accounts with unknown balances.
Accordingly, the penalties to be assessed against Schwarzbaum for each tax year are as
follows:

1
For the accounts in which the balance is not known or is zero on June 30, the USA proposes a maximum
penalty of $100,000.00 per account. The Court agrees that $100,000.00 per account is correct for these
accounts, as Schwarzbaum has not disputed that such accounts were reportable, and per the statute,
$100,000.00 would be the greater amount, even assuming the balance in such an account was zero on the
date of violation.

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2007
Account Balance on 6/30/08 New Mitigated Penalty
Aargauische $12,034.00 $5,000.00
UBS 6308 $8,615,602.00 $4,307,801.00
UBS 9250 $5,571.00 $100,000.00
UMB 4201 Only estimated balance
provided
$67,218.00
CR 0588 Unknown $18,467.00
TOTAL: $4,498,486.00

2008
Account Balance on 6/30/09 New Mitigated Penalty
Aargauische $10,940.00 $5,000.00
UBS 6308 $0 $100,000.00
UBS 9250 $0 $100,000.00
UMB 4201 Only estimated balance
provided
$67,219.00
CR 0588 Unknown $18,722.00
CR 1472
Clariden Leu $4,106,132.00 $2,053,066.00
Raiffeisen $3,137,728.00 $1,568,864.00
Bank Linth Only estimated balance
provided
$100,000.00
BSI Only estimated balance
provided
$100,000.00
St. Galler Only estimated balance
provided
$100,000.00
TOTAL: $4,212,871.00

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2009
Account Balance on 6/30/10 New Mitigated Penalty
Aargauische $11,515.00 $5,000.00
Clariden Leu $4,504,701.00 $2,252,350.00
Raiffeisen $0 $100,000.00
Bank Linth Only estimated balance
provided
$100,000.00
BSI Only estimated balance
provided
$100,000.00
St. Galler Only estimated balance
provided
$100,000.00
Banca Arner $3,078,492.00 $1,539,245.00
TOTAL: $4,196,595.00

Thus, the total recalculated penalty to be assessed for Schwarzbaum’s willful FBAR violations for
tax years 2007, 2008, and 2009 is $12,907,952.00.
III. The FBAR penalties are not subject to the Eighth Amendment
Schwarzbaum has argued that the FBAR penalties in this case violate the Eighth
Amendment. Although the Court did not address this argument in its Decision, the Court
recognized the eventual need to consider it upon recalculation of the penalties. See ECF No. [92]
at 26. While Schwarzbaum contends that it is not “the statute itself [31 U.S.C. §5321(a)(5)] that
must be struck down as unconstitutional,” he argues that “the IRS’s interpretation and application
of the statute, and the resulting $15.6 million assessment”
2
in this case violate the Eighth
Amendment. See ECF No. [83] at 49. The USA argues that FBAR penalties are not “fines” subject
to the Eighth Amendment, and that in any event, Schwarzbaum fails to meet his burden of showing
that the penalties are unconstitutionally excessive.

2
The penalty originally assessed by the USA was $13,729,591.00. The $15.6 million Schwarzbaum refers
to is the penalty amount including interest and late payment penalties.
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“Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual
punishments inflicted.” U.S. Const. amend. VIII. In order to evaluate whether a penalty violates
the Eighth Amendment, the Court must first determine whether the penalty is a “fine” subject to
the Eighth Amendment, before deciding whether it is excessive.
In arguing that the FBAR penalties are subject to the Eighth Amendment, Schwarzbaum
contends that the penalties serve primarily punitive, retributive, or deterrent purposes, rather than
being remedial, relying on United States v. Bajakajian, 524 U.S. 321 (1998), Austin v. United
States, 509 U.S. 602 (1993), and Kokesh v. Securities and Exchange Commission, 137 S. Ct. 1635
(2017). As such, Schwarzbaum argues that because FBAR penalties are not solely remedial, they
are subject to the Eighth Amendment. See Austin, 509 U.S. at 610 (“a civil sanction that cannot
fairly be said solely to serve a remedial purpose, but rather can only be explained as also serving
either retributive or deterrent purposes, is punishment”) (citation omitted); see also Bajakajian,
524 U.S. at 328 (“The Excessive Fines Clause thus limits the government’s power to extract
payments, whether in cash or in kind, as punishment for some offense.”) (quoting Austin, 509 U.S.
at 609-10) (quotations omitted). Upon review, however, the Court is not persuaded that these cases
are particularly helpful with respect to FBAR penalties and concludes that extending such
reasoning to civil FBAR penalties is not warranted and would be ill-advised. See McNichols v.
Comm’r of Internal Revenue, 13 F.3d 432, 434 (1st Cir. 1993) (characterizing proposed extension
of rule from Austin to tax penalties as a “giant leap” the court was unwilling to make).
The cases relied upon by Schwarzbaum are inapposite to this case. In Bajakajian, the
respondent failed to report all money in excess of $10,000.00 in his possession upon traveling to
a destination outside of the United States, and the question raised was whether forfeiture of the
entire sum of money that the respondent failed to declare violated the Eighth Amendment. 524
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U.S. at 325-25. Similarly, in Austin, the Supreme Court was tasked with determining whether the
Eighth Amendment applies to forfeitures of property arising from convictions for violations of
drug laws. 509 U.S. at 604-05. In Kokesh, the Supreme Court examined whether disgorgement
under securities laws is subject to the same statute of limitations as a fine, penalty, or forfeiture.
137 S. Ct. at 1642-43. In contrast, the FBAR penalties in this case cannot be properly characterized
as forfeitures, as in Bajakajian and Austin, or disgorgement, as in Kokesh.
3
Importantly, none of
these cases relied upon by Schwarzbaum suggest either explicitly or impliedly that their holdings
should apply outside of the contexts in which they were decided.
4
See, e.g. Cole v. United States
Dep’t of Agric., A.S.C.S., 133 F.3d 803, 807 (11th Cir. 1998) (recognizing that there is no
“comprehensive test to determine whether an in personam civil penalty violates the . . . Eighth
Amendment” although Austin “did articulate a bright line rule in one category of cases: a fine that
serves purely remedial purposes cannot be considered excessive in any event.”) (citations and
internal quotations omitted).
Tax penalties traditionally have been held to fulfill remedial purposes, as opposed to
punitive purposes relevant in the Eighth Amendment. Indeed, the Supreme Court recognized as
early as 82 years ago, specifically in the tax context, that “[t]he remedial character of sanctions
imposing additions to a tax has been made clear by this Court in passing upon similar legislation.
They are provided primarily as a safeguard for the protection of the revenue and to reimburse the

3
“[D]isgorgement is a form of restitution measured by the defendant’s wrongful gain.” Kokesh, 137 S. Ct.
at 1640 (citation and quotations omitted).

4
In addition, the cases in which Schwarzbaum maintains that the Eighth Amendment was discussed
specifically in the FBAR context simply assumed that FBAR penalties are fines within the meaning of the
Eighth Amendment. See United States v. Garrity, No. 3:15-CV-243(MPS), 2019 WL 1004584, at *6 n.7
(D. Conn. Feb. 28, 2019); Moore v. United States, No. C13-2063RAJ, 2015 WL 1510007, at *12 (W.D.
Wash. Apr. 1, 2015); United States v. Bussell, No. CV 15-02034 SJO(VBK), 2015 WL 9957826, at *7
(C.D. Cal. Dec. 8, 2015).
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Government for the heavy expense of investigation and the loss resulting from the taxpayer’s
fraud.” Helvering v. Mitchell, 303 U.S. 391, 401 (1938); see also Dewees v. United States, 272 F.
Supp. 3d 96, 101 (D.D.C. 2017) (collecting additional cases in which lower courts “have erected
‘an insurmountable wall of tax cases’ to support this proposition.”). Indeed, “the payment of fixed
or variable sums of money are other sanctions which have been recognized as enforceable by civil
proceedings since the original revenue law of 1789.” Helvering, 303 U.S. at 400.
Moreover, a finding that the FBAR penalty does not fall within the purview of the Eighth
Amendment is consistent with the purpose for the FBAR. See Dewees, 272 F. Supp. 3d at 101
(penalty for failure to file Form 5471 disclosing certain ownership and financial information about
a foreign corporation authorized by Congress for a legitimate remedial purpose and not a “fine”).
“The purpose of the FBAR is to identify persons who may be using foreign financial accounts to
circumvent United States law and to identify or trace funds used for illicit purposes or to identify
unreported income maintained or generated abroad.” United States v. Estate of Schoenfeld, 344 F.
Supp. 3d 1354, 1372 (M.D. Fla. 2018) (citations and quotations omitted).
Indeed, Congress enacted the Currency and Foreign Transactions Reporting Act, referred
to as the Bank Secrecy Act (BSA), 31 U.S.C. §§ 5311, et seq. See Pub. L. No. 91-508, 84 Stat.
1114 (1970). The primary purpose of the BSA was to require the making of certain reports that
“have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.”
Id. § 202. In enacting the BSA, Congress noted the following:
Secret foreign bank accounts and secret foreign financial institutions have
permitted proliferation of ‘white collar’ crime; have served as the financial
underpinning of organized criminal operations in the United States; have been
utilized by Americans to evade income taxes, conceal assets illegally and purchase
gold; have allowed Americans and others to avoid the law and regulations
governing securities and exchanges; have served as essential ingredients in frauds
including schemes to defraud the United States . . . ; and have served as the
cleansing agent for hot or illegally obtained monies.
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[. . .]

The debilitating effects of the use of these secret institutions on Americans and the
American economy are vast. It has been estimated that hundreds of millions in tax
revenues have been lost.

[. . .]

One of the most damaging effects of an American’s use of secret foreign financial
facilities is its undermining of the fairness of our tax laws. Secret foreign financial
facilities, particularly in Switzerland, are available only to the wealthy. To open a
secret Swiss account normally requires a substantial deposit, but such an account
offers a convenient means of evading U.S. taxes. In these days when the citizens of
this country are crying out for tax reform and relief, it is grossly unfair to leave the
secret foreign bank account open as a convenient avenue of tax evasion. The former
U.S. Attorney for the Southern District of New York has characterized the secret
foreign bank account as the largest single tax loophole permitted by American law.

H.R. Rep. No. 91-975, at 4397-98 (1970). Congress also recognized the cost to law enforcement—
“[m]any of the cases have been in the investigative stage for years. United States law enforcement
agencies are often delayed or totally frustrated when wrongdoers cloak their activities in the shield
of foreign financial secrecy.” Id. at 4397.
When law enforcement personnel are confronted with the secret foreign bank
account or the secret financial institution they are placed in an impossible position.
In order to receive evidence and testimony regarding activities in the secrecy
jurisdiction they must subject themselves to a time consuming and oftimes fruitless
foreign legal process. Even when procedural obstacles are overcome, the foreign
jurisdictions rigidly enforce their secrecy law against their own domestic
institutions and employees.

Id.
Furthermore, the statute itself indicates that it should not be regarded primarily as punitive,
and therefore considered a fine subject to the Eighth Amendment, in that the penalty provision is
titled “Civil penalties.” See 31 U.S.C. § 5321; see also United States v. Ward, 448 U.S. 242, 249
(1980) (“where Congress has indicated an intention to establish a civil penalty, we have inquired
further whether the statutory scheme was so punitive either in purpose or effect as to negate that
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intention. . . . In regard to this latter inquiry, we have noted that ‘only the clearest of proof could
suffice to establish the unconstitutionality of a statute on such a ground.’”) (citations omitted).
Although the FBAR penalty provision undoubtedly promotes deterrence, the Supreme Court has
recognized that “all civil penalties have some deterrent effect,” such that none are “‘solely’
remedial (i.e., entirely nondeterrent).” Hudson v. United States, 522 U.S. 93, 102 (1997) (citations
omitted). In fact, “the FBAR penalty serves the additional alternative purpose of reimbursing the
Government for the cost of investigating and recovering the funds.” Estate of Schoenfeld, 344 F.
Supp. 3d at 1372. Thus, the assessment of the FBAR penalty, in addition to the collection of taxes
owed, is properly viewed as compensating the Government for a loss.
The direct result of a taxpayer’s filing of a fraudulent income tax return which
understates his true tax liability is to deprive the sovereign of money it is entitled
to receive and obligated to collect. It also makes it necessary for the Government
to expend other public funds in order to uncover the fraud and collect the proper
amount of tax due. These are monetary losses. Consequently, we feel that the
taxpayer’s wrongful act is in the nature of an injury to the property of the United
States.

Reimer’s Estate v. Comm’r of Internal Revenue, 12 T.C. 913, 920-21 (1949). At least one other
decision in this district has already taken this view. See United States v. Green, -- F. Supp. 3d ---,
2020 WL 1980859, at *6 (S.D. Fla. Apr. 27, 2020) (finding that FBAR penalty has a remedial
purpose, recognizing that “the Government itself has suffered a monetary harm as a result of
Defendants’ conduct,” and that “FBAR violations may deprive the Government of taxes on
investment gains and the Government likely expends significant resources on investigating foreign
accounts.”). Thus, the statutory amounts of $100,000 or 50% of the account balance at the time of
the FBAR violation were “selected to ensure that the Government would be made completely
whole.” Id. at *7. As a result, the Court determines that the FBAR penalty in this case is not a
“fine” subject to the Eighth Amendment.
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Finally, the Court notes in closing, that although Schwarzbaum contends not to be
mounting a constitutional challenge to the statute itself, such a challenge would likely fail in any
event. See Crawford v. United States Dep’t of the Treasury, No. 3:15-cv-250, 2015 WL 5697552,
at *16 (S.D. Ohio Sept. 29, 2015) (finding that facial challenge to willful FBAR penalty under
Eighth Amendment fails). As the court in Crawford observed, “[s]etting the maximum willful
penalty as a substantial proportion of the account ensures that the willful penalty is not merely a
cost of doing business for tax evaders, terrorists, and organized criminals.” Id. Thus, “[a] 50%
willful FBAR penalty—the maximum permitted by statute—is severe. But given the ills it
combats, it is an appropriate penalty in at least some circumstances.” Id. Such is the case here,
where Schwarzbaum willfully failed to report for multiple tax years the bulk of his wealth, which
he held in numerous Swiss bank accounts.
Because the Court determines that the FBAR penalties are not subject to the Eighth
Amendment, the Court does not evaluate whether the penalties are excessive.
IV. CONCLUSION
Accordingly, it is ORDERED AND ADJUDGED that Schwarzbaum is assessed
$12,907,952.00, in addition to applicable interest and late payment penalties, for willful violations
of the FBAR reporting requirements for tax years 2007, 2008, and 2009. The Court will enter
judgment by separate order pursuant to Rule 58 of the Federal Rules of Civil Procedure. The Clerk
of Court is directed to CLOSE this case.
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DONE AND ORDERED in Chambers at Miami, Florida, on May 18, 2020.

_________________________________
BETH BLOOM
UNITED STATES DISTRICT JUDGE

Copies to:

Counsel of Record
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