IRS Goes After Holocaust Survivor For Willful FBAR Penalty

• Published date: 21 March 2022
• Subject Matter: Litigation, Mediation & Arbitration, Tax, Trials & Appeals & Compensation, Income Tax, Tax Authorities
• Law Firm: Freeman Law
• Author: Mr Matthew Roberts

FBAR Penalties

On March 8, 2022, the Southern District of New York issued its Opinion in the case of United States v. Schik, No. 20-cv-0221 (MKV), 2022 U.S. Dist. Lexis 41148 (S.D.N.Y. Mar. 8, 2022). In that case, the United States brought a lawsuit against a Holocaust survivor for willful failure to file an FBAR for one year: 2007. Incredibly, the United States sought to assess the maximum willful FBAR penalty against Mr. Schik'i.e., 50% of the foreign account balance'which would have resulted in close to a $9 million FBAR penalty. As seems more and more common, the United States moved for summary judgment on the willfulness determination. This article discusses the Schik case.

FBARs Generally.

Prior to analyzing the facts and issues of the Schik case, it is important for the reader to understand the FBAR reporting and penalty regime. Generally, 31 U.S.C. ' 5314 requires a United States person to file an FBAR with the government if the person has a financial interest in a foreign financial account with an aggregate value in excess of $10,000 at any point during the relevant year. If the United States person fails to timely file an accurate FBAR, the United States may impose a "willful" penalty, which can equal the greater of $100,000 (adjusted for inflation) or 50% of the account balance in the account at the time of the violation. See 31 U.S.C. ' 5321(a)(5)(C).

Facts in Schik.

Mr. Schik is an almost 100-year-old Holocaust survivor. When he was only 13 years of age, he was forcibly separated from his family in Austria and sent to a Hungarian concentration camp. Because of the Holocaust, Mr. Schik never obtained a formal education. After World War II, Mr. Schik was liberated, and he moved to the United States in 1947. Only 10 years later he became a United States citizen.

Shortly after becoming a United States citizen, Mr. Schik opened a foreign account with UBS AG in Switzerland. The funds that Mr. Schik deposited into the foreign account represented funds that he had recovered from the Holocaust'i.e., funds that had originally belonged to his relatives who had died in concentration camps. Mr. Schik deposited the funds in a Swiss bank account because he believed that a second Holocaust-like event may occur, and he found it important that Switzerland had remained neutral during World War II.

Mr. Schik did not manage the funds in the foreign account. Rather, he had a Swiss money manager who managed the funds along with his son, Josef Beck, who later...