In United States v. Saydam, the Government moved for summary judgment, arguing that Tuncay Saydam (Saydam) “willfully” failed to comply with 31 U.S.C. § 5314, which requires annual reporting of a taxpayer’s foreign bank accounts in a Report of Foreign Bank and Financial Accounts (FBAR). Saydam opposed the Government’s motion, arguing that material facts remained disputed. After analyzing whether Saydam’s failure to file FBARs timely was willful, which would render him liable for civil willful FBAR penalties under 31 U.S.C. § 5321(a)(5), the United States District Court for the Northern District of California denied the Government’s motion.

Facts.

Saydam was born in 1938 in Turkey and worked as a professor there until 1980, when he moved to the United States to teach at the University of Delaware. Around 1988 or 1989, Saydam acquired U.S. citizenship and, thus, became a dual citizen of Turkey and the U.S. He maintained dual citizenship and would travel to Turkey once or twice a year during the time periods relevant to this case. He also worked and taught in Switzerland during the late 1980s and early 1990s.

Saydam maintained bank accounts in Turkey with Akbank, in Switzerland with Zürcher Kantonalbank (ZKB), and in America with M&T Bank. Following tightening U.S. regulations in 2012, ZKB closed Saydam’s accounts, prompting him to transfer over $500,000 from such accounts to a Turkish bank, DenizBank. He entered an agreement to permit Egeli & Co. to manage his portfolio with DenizBank.

In 2015, Saydam terminated his relationship with Egeli & Co. and transferred the remaining funds to another Turkish bank, Isbank. From 2013 to 2017, Saydam engaged the services of H&R Block to prepare his U.S. tax returns. During the annual in-person appointments with the H&R Block tax preparers, Saydam did not disclose his foreign accounts and subsequently did not file FBARs.

The Government accused Saydam of failing to file FBARs from 2013 to 2017. Neither the Government nor Saydam disputed that Saydam (i) had foreign accounts with a total balance exceeding $10,000 from 2013 through 2017, (ii) was required to file an annual FBAR in this time period, and (iii) failed to timely file FBARs despite maintaining foreign bank accounts exceeding the reporting threshold of $10,000.

Unsatisfied with the parties briefing on the willfulness standard in the FBAR context, the court discussed the legal precedent of the willfulness standard and defining recklessness in the FBAR context and explained how, under any of these definitions, a reasonable juror could conclude that Saydam acted negligently as opposed to willfully.

Analysis. 

31 U.S.C. § 5321(a)(5) imposes liability in the case of any person “willfully violating, or willfully causing any violation of,” failing to file an FBAR timely. The court noted section 5321(a)(5) does not define willfulness, and its appellate court, the Ninth Circuit, has not addressed willfulness in the FBAR context.

A court shall grant summary judgment “if […] there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” As the moving party, the Government bore the burden of establishing the absence of a genuine issue of material fact.

The Government argued that Saydam’s Schedule B forms demonstrated a willful violation of section 5321(a)(5) because Saydam falsely answered “No” to the Schedule B question regarding whether Saydam had any financial interest in or signature authority over a financial account in a foreign country. Saydam argued that the Schedule B forms did not demonstrate a willful violation because the H&R Block tax preparers never asked him about foreign accounts, and thus, he was unaware that his foreign accounts were relevant to his U.S. tax returns. Testimonies from H&R Block tax preparers indicated standard procedures, including asking clients about foreign accounts.

Because of the discrepancies between Saydam’s claims and the tax preparers’ testimonies, the court found that genuine issues of material fact existed regarding what Saydam was asked during his tax preparation appointments and what he disclosed. The court said that a reasonable jury could conclude that Saydam’s signed tax forms, which were the product of short and routinized oral interviews conducted by the H&R Block tax preparers, are insufficient to establish willfulness.

The court noted that other courts in the district have found that willfulness includes “both knowing and reckless violations” of section 5321(a)(5). In United States v. Burga, although signatures on tax forms indicated “constructive knowledge of the FBAR requirements and the risk they were not met, this alone [was] not enough to show willfulness.” The court said Burga was in line with the Ninth Circuit’s careful differentiation between the negligence standard (when the defendant “should have known” or had “constructive knowledge” of wrongdoing) and the recklessness standard (when the defendant “[knew] of a substantial and unjustified risk of such wrongdoing”).

The court emphasized the importance of distinguishing between negligence and willfulness (including as a result of recklessness). The Ninth Circuit has defined negligence as when the defendant “should have known” or had “constructive knowledge” of wrongdoing. “[C]ivil recklessness requires proof of something more than negligence: ‘It is [the] high risk of harm, objectively assessed, that is the essence of recklessness at common law.” The Court said reasonable jurors could differ on whether Saydam’s failure to review his Schedule B or consult with a specialized foreign income tax preparer demonstrates mere negligence or willfulness.

Conclusion.

Ultimately, the Court denied the Government’s motion for summary judgment because of the factual disputes regarding the communication between Saydam and his tax preparers and the specific actions taken (or not taken) by Saydam regarding the disclosure of his foreign accounts. The Court concluded that a reasonable jury could determine that Saydam acted negligently instead of willfully, and therefore, a jury must decide the issue, and a summary judgment is not warranted.

Frank Baldino is an estates and trusts attorney who helps people throughout the greater Washington, DC area protect assets for their families and future generations through careful estate tax planning. For more information, contact Frank at (301) 657-0175 or fsbaldino@lerchearly.com.