24-2333 United States of America v. Reyes
In the United States Court of Appeals For the Second Circuit
August Term, 2025
Submitted: September 8, 2025 Decided: January 7, 2026
Docket No. 24-2333
UNITED STATES OF AMERICA,
Plaintiff–Appellee,
–v.–
JUAN REYES AND CATHERINE REYES,
Defendants–Appellants.
Before: CABRANES AND MENASHI, Circuit Judges, and LIMAN, District Judge. *
*Judge Lewis J. Liman, of the United States District Court for the Southern District of New York, sitting by designation. Defendants-Appellants Juan and Catherine Reyes appeal from a judgment of the United States District Court for the Eastern District of New York (Margo K. Brodie, C.J.) granting summary judgment to the United States and enforcing civil penalties against them for failing to timely file a Report of Foreign Bank and Financial Accounts disclosing their financial interest in a jointly-held foreign account pursuant to 31 U.S.C. § 5321. The Reyeses also appeal the district court’s order granting the United States’ motion to reopen the case and entering judgment plus additional statutory interest and late payment penalties pursuant to 31 U.S.C. § 3717(e)(2). On appeal, they argue that the district court’s grant of summary judgment was improper because it could not have determined that they acted willfully as a matter of law, and that the district court misunderstood the six percent late payment penalty as mandatory. The district court did not err in holding that “willful” as used in the statute encompasses reckless conduct, nor in applying that standard in granting summary judgment to the United States. The district court similarly did not err in imposing a six percent late payment penalty pursuant to controlling Treasury Department regulations. Accordingly, we AFFIRM the orders of the district court.
CLINT A. CARPENTER, (Julie Ciamporcero Avetta on the brief), United States Department of Justice, Washington, D.C., for Plaintiff–Appellee.
JEAN-CLAUDE MAZZOLA, Mazzola Lindstrom LLP, New York, NY, for Defendants–Appellants.
LIMAN, District Judge:
The United States Treasury Department, under authority of the Bank
Secrecy Act, requires each United States person having a financial interest in a
bank, security, or other financial account in a foreign country to report such
relationship to the Commissioner of Internal Revenue in a Report of Foreign
2 Bank and Financial Accounts (FBAR). 31 C.F.R. §§ 1010.306(c), 1010.350(a).
Failure to file an FBAR is punishable by a civil penalty. 31 U.S.C. §
5321(a)(5)(A). The maximum penalty increases in cases of willful violations.
Id. § 5321(a)(5)(C). Defendants-Appellants Juan and Catherine Reyes are the
holders of a foreign bank account that was opened for Juan in the early 1970s.
By 2010, the foreign bank account comprised the majority of their wealth and a
major source of their income. They never filed an FBAR as required by federal
law. In 2018, the Internal Revenue Service (IRS) notified the Reyeses that they
were liable for willfully failing to file an FBAR in 2010, 2011, and 2012. The
Reyeses then failed to pay the penalties assessed against them, and in 2021, the
United States brought suit to convert the penalties to a money judgment.
The district court (Margo K. Brodie, C.J.) entered summary judgment for
the United States upon completion of discovery. The court determined that the
undisputed evidence established that the Reyeses had willfully failed to file an
FBAR. It did so on the basis that willful as used in the statute encompasses
reckless conduct in addition to intentional conduct. The court accepted the
IRS’s calculation of penalty amounts to be assessed under 31 U.S.C. §
5321(a)(5)(C)(i) and entered judgment in the amount of $420,051 plus interest and
a six percent late payment penalty of $84,102.26 under 31 U.S.C. § 3717(e)(2).
Before the court entered final judgment, the Reyeses challenged the district
court’s imposition of the late payment penalty. The court determined that the
3 six percent penalty was mandatory under Treasury regulations issued pursuant
to the governing statute and affirmed its prior calculation.
We conclude that the district court was correct to grant summary judgment
to the United States. The standard for willfulness under 31 U.S.C. § 5321
encompasses recklessness, and the undisputed evidence establishes that the
Reyeses acted recklessly in failing to file an FBAR. Furthermore, the district
court was correct that the six percent late payment penalty is mandatory under
governing Treasury Department regulations.
Accordingly, the decision of the district court is Affirmed.
BACKGROUND
I. Statutory Background
The Bank Secrecy Act of 1970 directs the Secretary of the Treasury to
require residents and citizens of the United States to “keep records and file
reports” when they “make[] a transaction or maintain[] a relation for any person
with a foreign financial agency.” 31 U.S.C. § 5314(a). Further, “[a] person shall
be required to disclose a record required to be kept under this section or under a
regulation under this section only as required by law.” Id. § 5314(c). Under
that authority, the Secretary of the Treasury has adopted regulations that require
any person “having a financial interest in, or signature or other authority over” a
bank account in a foreign country “to report such relationship to the
Commissioner of Internal Revenue for each year in which such relationship
exists.” 31 C.F.R. § 1010.350(a). Such a report is known as a Report of Foreign
Bank and Financial Accounts, or FBAR. Id.
4 As amended in 1986, the Bank Secrecy Act authorizes the Secretary of the
Treasury to “impose a civil money penalty on any person who violates, or causes
a violation of,” the Act’s reporting requirements. See 31 U.S.C. § 5321(a)(5)(A).
The penalty is calibrated based on whether the violation was willful. As
amended in 2004, the penalty is capped at $10,000 for violations that are not
willful. Id. § 5321(a)(5)(B). But for willful violations, “the maximum penalty
. . . shall be increased to the greater of” $100,000 or fifty percent of “the balance of
the account at the time of the violation.” Id. § 5321(a)(5)(C), (D)(ii). The
Secretary of Treasury has delegated the authority to investigate and assess such
Bank Secrecy Act violations to the IRS. 31 C.F.R. § 1010.810(g). Although an
FBAR is not a tax form, the IRS alerts individuals on their tax forms—specifically,
on Form 1040, Schedule B, Line 7a—to their potential obligations to file an FBAR.
See Joint App’x 632.
The IRS is responsible for collecting any civil penalties assessed for
violations of the FBAR reporting requirement. 31 C.F.R. § 1010.810(g). The
Federal Claims Collection Act (FCCA) governs the interest rates and penalties
that attach to debts owed by persons to the federal government. It clarifies that
as to penalties for late payment, the “head of an executive, judicial, or legislative
agency shall assess on a claim owed by a person . . . a penalty charge of not more
than 6 percent a year for failure to pay a part of a debt more than 90 days past
due.” 31 U.S.C. § 3717(e)(2). The Treasury Department, which houses the IRS
and is therefore tasked with assessing and collecting FBAR penalties, has set the
penalty rate at six percent per year. 31 C.F.R. § 5.5(a).
5 II. Factual Background
Dr. Juan Reyes was born in Nicaragua and moved to the United States in
1960, where he has lived since. He is a surgeon. He became a United States
citizen in 1982 but maintained his Nicaraguan citizenship. His wife, Catherine
Reyes, is a United States citizen born in the United States. During the relevant
period, Dr. Reyes worked as a surgeon in private practice and Mrs. Reyes
assisted him with some business-related aspects of the job.
In 1972, Dr. Reyes’ parents opened an account in his name at Banco de
Londres y America del Sur (which later became Lloyds Bank) in Managua,
Nicaragua. His parents added approximately $200,000 dollars to the account.
No other money was added to the account, but the total amount continued to
grow “on its own through market gains.” Joint App’x 160. In the 1990s, the
account was transferred to Lloyds Bank PLC in London, and Mrs. Reyes was
added as a joint owner. As a result, both parties had signature authority over
the account. The joint account was at some point transferred to Lloyds TSB
Bank in Switzerland.
The Reyeses made withdrawals of approximately a few thousand dollars a
month both in cash and using credit cards while the money was held in the
account in Switzerland, beginning in around 2003. The couple had these credit
card statements mailed to a friend in Spain. Mrs. Reyes also applied for another
linked credit card from Madrid, although the couple never lived or resided there.
Dr. Reyes communicated by mail, fax, telephone, and occasionally in person
about the foreign account with a representative of Lloyds Bank named Bernard
Gaughran. In 1994, the Reyeses instructed the bank “to retain in future all
6 my/our correspondence” (i.e., not send mail related to the account to their
address in the United States), a service for which they paid a fee. Joint App’x
196, 198. A few years later, in 2000, the Reyeses each signed declarations stating
that they did “not authorize” the bank to “make any disclosure in connection
with the US withholding tax,” and that they prohibited the bank from
“invest[ing] in further US securities on [their] account.” Joint App’x 624–25.
They selected that option on a form specific to persons with U.S. tax liability,
where the only other option was one under which the Bank would “deliver the
W-9 form to its US Securities Custodian.” Id.
In the years relevant to this litigation, the Reyeses’ Swiss bank account
contained just over two million U.S. dollars ($2,053,423.00 in 2012). Joint App’x
618. That value comprised at least 75%, and up to 90%, of the couple’s total
assets.
The Reyeses had their accountant Sidney Yoskowitz prepare their tax
returns and, upon completion of the returns and after a review for accuracy, the
Reyeses signed them. Yoskowitz, as a matter of course, requested that his
clients fill out a “Client Organizer,” in which he asked if the filer had any interest
in a foreign bank account. The Reyeses nevertheless did not return the client
organizer, and never otherwise disclosed the Lloyds account to Yoskowitz. For
the years 2010, 2011, and 2012, the Reyeses reported to the IRS that they had no
interest in any foreign financial account. Joint App’x 632, 637, 645. 1 Nor did
1 The record is silent as to all other years for which the Reyeses possessed the foreign bank account.
7 their tax forms for those three years report any interest or other income from the
Lloyds account. Dr. Reyes testified that it was his understanding, based on an
article that he read, that as a Nicaraguan citizen he was not required to report the
foreign income.
Eventually, the Reyeses requested that the funds be transferred from
Lloyds Bank to their J.P. Morgan account in the United States. Dr. Reyes
testified that he first became aware of the FBAR requirement when he brought
the money from Switzerland into the United States in late 2013. After
consulting with a U.S. lawyer, the Reyeses filed amended tax returns for 2010,
2011, and 2012. Initially, the Reyeses considered participating in the IRS’s
Offshore Account Voluntary Disclosure Initiative, which would have permitted
them to “regularize” their accounts and “resolve any and all reporting issues in
the United States” by filing amended returns for the years in question and
paying associated penalties. Joint App’x 217. They ultimately decided to
withdraw from the program because the penalty of approximately $600,000 was
“too high.” Joint App’x 299–300.
The IRS contacted the Reyeses in July of 2018 and informed them that they
were liable for civil penalties under 31 U.S.C. § 5321 for willfully failing to report
their ownership of the foreign bank account. The IRS concluded that the
conduct of each was willful on the basis that they held a “significant amount of
[their] financial assets” in the foreign bank account in a country with which they
have no ties, used credit cards linked to that account, and neither informed their
accountant nor reported to the IRS that they had any interest in a foreign bank
account. Joint App’x 740, 758. As to Dr. Reyes, the IRS noted also that he is
8 “highly educated and has been in the U.S. for more than 40 years.” Joint App’x
740.
The IRS calculated a penalty based on the statutory maximum civil penalty
for willful violations, which in this case was fifty percent of the balance in the
account at the date of the violation, applied to each defendant. 31 U.S.C. §
5321(a)(5)(C). The IRS concluded, however, that this penalty would be “too
severe,” and accordingly assessed a mitigated penalty of $516,065 each for all
three years ($172,022 each for 2010, $177,022 each for 2011, and $172,021 each for
2012). Joint App’x 748, 766. The Reyeses successfully protested the proposed
penalties to the IRS Independent Office of Appeals, which reduced them by
twenty percent to $420,051 each. Appellee’s Brief at 16. In 2019, both Dr. and
Mrs. Reyes signed forms agreeing to the assessment and collection of that
reduced penalty. Joint App’x 783–87. The IRS explained that there would be a
late payment penalty charge of six percent per year for any amount unpaid
within ninety days of November 21, 2019. Joint App’x 778, 781.
As of February 21, 2023, the Reyeses had not made the required payments.
They each owed the amounts in full plus a late payment penalty calculated by
the IRS under Treasury Regulations of $84,102. Joint App’x 70–71.
III. District Court Proceedings
Following the Reyeses’ failure to pay according to the agreement signed in
2019, the United States initiated suit under 31 U.S.C. §§ 3711(g)(4)(C) and
5321(b)(2) to obtain a money judgment in the amount of the penalties. The
latter section gives the Secretary of the Treasury authority to commence a civil
action to recover a civil penalty assessed for not filing an FBAR. Id. § 5321(b)(2).
9 At the conclusion of discovery, the United States moved for summary judgment
against the Reyeses on the basis that the undisputed evidence proved that their
FBAR violations were at least reckless, thereby establishing willfulness as a
matter of law. Joint App’x 29. The Reyeses opposed the United States’ motion
by arguing that recklessness is insufficient to establish willfulness under 31
U.S.C. § 5321(a)(5)(C), and that there remained a dispute of material fact as to
whether they were reckless, thereby precluding summary judgment. Joint
App’x 794.
The district court granted the United States’ motion for summary
judgment. The court held first that “[c]onsistent with all the courts that have
considered this issue, the [c]ourt finds that a showing that Defendants recklessly
failed to [file] FBARs would result in civil penalties under Section 5321(a)(5)(C).”
United States v. Reyes, No. 21-cv-5578, 2024 WL 437096, at *6 (E.D.N.Y. Jan. 10,
2024). In doing so, it rejected the Reyeses’ argument that civil willfulness is a
subjective standard that requires a showing of an intentional violation. Under
the objective recklessness standard, the district court found that even
“[c]onstruing the evidence in Defendants’ favor,” there was no genuine issue of
material fact as to their liability. Id. In sum, it determined that the Reyeses’
“undisputed failure to review their incorrect tax returns in advance of the filing
of the returns, as well as the additional undisputed evidence, demonstrates that
they acted, at a minimum, recklessly when they failed to file FBARs in 2010, 2011,
and 2012, and they are therefore subject to enhanced penalties for a willful
violation” of the statute. Id. at *7.
10 Before the district court entered final judgment, the Reyeses also
challenged the court’s calculation of a six percent late payment penalty under 31
U.S.C. § 3717(e)(2) and 31 C.F.R. § 5.5(a). They argued that the statute leaves the
calculation to the court’s discretion, and that a lower percentage should be
applied. The court rejected that argument, holding that because the
Department of Treasury set the minimum rate to be applied at six percent per
year, the court did not have discretion to reduce the amount of the penalty. See
United States v. Reyes, No. 21-cv-5578, 2024 WL 2293750, at *2–3 (E.D.N.Y. May 21,
2024).
DISCUSSION
Defendants-Appellants Dr. and Mrs. Reyes argue that the district court
incorrectly held that willfulness under 31 U.S.C. § 5321(a)(5)(C) encompasses
reckless conduct, and that there remained genuine issues of material fact fit for
resolution by trial. They also argue that the district court was incorrect in
holding that it did not have discretion to depart from the six percent late
payment penalty set by the Department of Treasury.
This Court reviews a district court’s grant of summary judgment de novo,
“construing the evidence in the light most favorable to the party against whom
summary judgment was granted and drawing all reasonable inferences in that
party’s favor.” Horn v. Med. Marijuana, Inc., 80 F.4th 130, 135 (2d Cir. 2023).
Questions of statutory and regulatory interpretation are also reviewed de novo.
See Monti v. United States, 223 F.3d 76, 81 (2d Cir. 2000).
11 I. Summary Judgment Under 31 U.S.C. § 5321(a)(5)(C)
The Bank Secrecy Act permits the United States to impose a civil penalty of
up to fifty percent of the balance of an unreported account against persons who
“willfully” fail to file an FBAR. 31 U.S.C. § 5321(a)(5)(C). The district court
held that the term “willfully” as used in the statute incorporates reckless conduct
and is not limited to knowing infractions. It next held that there was no
genuine dispute of material fact as to whether the Reyeses’ conduct met that
standard and it therefore granted summary judgment to the United States. The
district court committed no error on either front.
A. “Willful” in 31 U.S.C. § 5321(a)(5)(C) Encompasses Recklessness
The Bank Secrecy Act imposes harsher civil penalties for “willful”
violations of the statute than it does for other violations. Compare 31 U.S.C. §
5321(a)(5)(B), with id. § 5321(a)(5)(C). The Supreme Court has recognized that
“willful” “is a ‘word of many meanings’ and ‘its construction is often influenced
by its context.’” Ratzlaf v. United States, 510 U.S. 135, 141 (1994) (quoting Spies v.
United States, 317 U.S. 492, 497 (1943)) (alterations omitted). When willfulness is
a “condition of civil liability,” however, the Supreme Court has “generally taken
it to cover not only knowing violations of a standard, but reckless ones as well.”
Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 57 (2007). Such a construction “reflects
common law usage, which treated actions in ‘reckless disregard’ of the laws as
‘willful’ violations.” Id. (quoting W. Keeton, D. Dobbs, R. Keeton & D. Owen,
Prosser and Keeton on the Law of Torts § 34, at 212 (5th ed. 1984)). Statutory
interpretation of the term “willful” in the civil context stands in sharp contrast to
its construction in the criminal context, where it is understood “as limiting
12 liability to knowing violations,” i.e., the violation of a “known legal duty.” Id.
at 57 n.9 (citing Cheek v. United States, 498 U.S. 192, 200–01 (1991)).
Although “‘the term recklessness is not self-defining,’ the common law has
generally understood it in the sphere of civil liability as conduct violating an
objective standard: action entailing ‘an unjustifiably high risk of harm that is
either known or so obvious that it should be known.’” Id. at 68 (quoting Farmer
v. Brennan, 511 U.S. 825, 836 (1994)). In Safeco, the Supreme Court cited with
approval the formulation of the Second Restatement of Torts that conduct is
reckless where the actor “does an act or intentionally fails to do an act which it is
his duty to the other to do, knowing or having reason to know of facts which
would lead a reasonable man to realize, not only that his conduct creates an
unreasonable risk . . . but also that such risk is substantially greater than that
which is necessary to make his conduct negligent.” Id. at 69 (quoting
Restatement (Second) of Torts § 500 (1963)); see also Restatement (Second) of Torts
§ 500 cmt. g (1965) (explaining that whereas negligence denotes “mere
inadvertence, incompetence, [or] unskillfulness,” recklessness “requires a
conscious choice of a course of action.”).
As a matter of course, Congress’ use of “willful” in a civil statute is
presumed to carry with it the “common law meaning” that encompasses
recklessness, “absent anything pointing another way.” Safeco, 551 U.S. at 58; see
also Beck v. Prupis, 529 U.S. 494, 500–01 (2000) (“[W]hen Congress uses language
with a settled meaning at common law,” it “‘presumably knows and adopts the
cluster of ideas that were attached to each borrowed word in the body of
learning from which it was taken.’”) (quoting Morissette v. United States, 342 U.S.
13 246, 263 (1952)); Felix Frankfurter, Some Reflections on the Reading of Statutes,
47 Colum L. Rev. 527, 537 (1947) (“[I]f a word is obviously transplanted from
another legal source, whether the common law or other legislation, it brings the
old soil with it.”). Here, as in Safeco, “[t]here being no indication that Congress
had something different in mind, we have no reason to deviate from the common
law understanding in applying the statute.” 551 U.S. at 69. For the same
reason, the Supreme Court has frequently reiterated that a statute creating civil
liability for “willful” conduct encompasses reckless conduct as well. See id. at 60
(Fair Credit Reporting Act); McLaughlin v. Richland Shoe Co., 486 U.S. 128, 132–33
(1988) (Fair Labor Standards Act); Trans World Airlines, Inc. v. Thurston, 469 U.S.
111, 125–26 (1985) (Age Discrimination in Employment Act).
Every court of appeals to consider the construction of “willful” in Section
5321 of the Bank Secrecy Act has determined that civil liability lies where the
United States proves the defendant acted at least recklessly. In United States v.
Hughes, the Ninth Circuit held that “Safeco’s reasoning applies equally to civil
FBAR penalties.”. 113 F.4th 1158, 1161 (9th Cir. 2024). Similarly, the Third
Circuit has determined that willfulness in 31 U.S.C. § 5321 encompasses
recklessness, joining the “general consensus among courts.” Bedrosian v. U.S.
Dep’t of Treas., IRS, 912 F.3d 144, 152 (3d Cir. 2018). The Ninth and Third
Circuits are joined by the Fourth, Sixth, Eleventh, and Federal Circuits. See
United States v. Horowitz, 978 F.3d 80, 88 (4th Cir. 2020); United States v. Kelly, 92
14 F.4th 598, 603 (6th Cir. 2024); United States v. Rum, 995 F.3d 882, 889 (11th Cir.
2021) (per curiam); Kimble v. United States, 991 F.3d 1238, 1242 (Fed. Cir. 2021). 2
This Court has not previously addressed the proof necessary to satisfy the
“willfulness” requirement under Section 5321. But the Court now holds, in line
with the uniform decisions of the circuit courts that have addressed the issue,
that “willfully” as used in 31 U.S.C. § 5321(a)(5)(C) encompasses both intentional
and reckless conduct. That is, a person who recklessly fails to report a foreign
account as required is liable for the heightened civil penalties for “willful”
violations of the statute. This result follows naturally from the Supreme Court’s
decision in Safeco, as the use of “willfully” in the Fair Credit Reporting Act is not
materially distinguishable from its use in the Bank Secrecy Act.
The Reyeses’ contrary arguments are unconvincing. To support their
theory that “willful” in 31 U.S.C. § 5321(a)(5)(C) refers only to intentional
conduct, they point to United States v. Granda, in which the Fifth Circuit
addressed the use of “willfully” in a statute imposing criminal penalties for the
illegal transport of monetary instruments and determined that the term required
“proof of the defendant’s knowledge of the reporting requirement and his
specific intent” to commit a violation. 565 F.2d 922, 926 (5th Cir. 1978). The
Fifth Circuit’s construction of a criminal statute has little persuasive weight in
this context given the Supreme Court’s guidance in Safeco regarding the meaning
2 The Supreme Court has also denied four successive petitions for a writ of certiorari on this very question. See Rum v. United States, 142 S. Ct. 591 (2021); Kimble v. United States, 142 S. Ct. 98 (2021); Bedrosian v. United States, 143 S. Ct. 2636 (2023); Collins v. United States, 143 S. Ct. 489 (2023).
15 of the term “willful” in the civil context. As the Supreme Court explained in
Safeco, the common-law meaning of the term willful “is different in the criminal
law,” where courts “have regularly read the modifier as limiting liability to
knowing violations.” 551 U.S. at 57 n.9. The stricter construction of the term
in the criminal context follows from the fact that there, the term is
“characteristically used to require a criminal intent beyond the purpose
otherwise required for guilt.” Id. By contrast, the use of the term in the
context of civil liability “presents neither the textual nor substantive reasons for
pegging the threshold of liability at knowledge of wrongdoing.” Id.
The Reyeses argue that because 31 U.S.C. § 5321(a)(5)(B)(ii) excuses
violations committed “due to reasonable cause,” willful should not be
understood here to apply to non-intentional conduct. That conclusion does not
follow from the structure of the statute. Subsection (5)(A), which permits the
Secretary of Treasury to “impose a civil money penalty on any person who
violates” a provision of Section 5314, contains no mens rea requirement. 31
U.S.C. § 5321(a)(5)(A). Subsection (B)(ii) clarifies, however, that “no penalty
shall be imposed under subparagraph A with respect to any violation if such
violation was due to reasonable cause,” and if “the amount of the transaction or
the balance in the account at the time of the transaction was properly reported.”
Id. § 5321(a)(5)(B)(ii). Subparagraph (B) thus creates a defense to what
otherwise might be read as a strict liability provision. That is confirmed by the
fact the reasonable cause exception applies “except as provided in subparagraph
(C),” which authorizes elevated penalties for willful violations. Id. §
5321(a)(5)(B)(i). In effect, Congress created a sliding scale: (i) violations
16 committed with reasonable cause but where the balance or transaction is
properly reported are not penalized; (ii) violations committed without
reasonable cause or without a contemporaneous report are subject to the
standard penalty; and (iii) violations committed recklessly or knowingly are
subject to an enhanced penalty.
That Congress created an exception to the penalty provision where there
was “reasonable cause” for the violation and the amount of the transaction or the
balance in the account was properly reported is in no way inconsistent with an
enhanced penalty when a violation was reckless. In fact, it would be
incongruous to hold that Congress’ exception of certain actions taken for
reasonable cause would encompass actions taken recklessly, which definitionally
are not reasonable.
B. There Is No Genuine Issue of Material Fact
Having concluded that the district court applied the proper legal standard
in Section 5321(a)(5)(C), this Court further holds that the district court did not err
in ruling that the standard was met. Based on the undisputed factual record,
there is no “evidence on which the jury could reasonably find” that the Reyeses
were not reckless in failing to disclose their foreign bank account. See Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). It was therefore appropriate for
the district court to grant summary judgment to the United States.
The standard for recklessness in the civil context is an objective one, which
imposes civil liability for conduct entailing “an unjustifiably high risk of harm
that is either known or so obvious that it should be known.” Safeco, 551 U.S. at
17 68 (quoting Farmer, 511 U.S. at 836). “It is this high risk of harm, objectively
assessed, that is the essence of recklessness at common law.” Id. at 69; see
Restatement (Second) of Torts § 500 cmt. a (noting that a defendant “is held to
the realization of the aggravated risk which a reasonable man in his place would
have, although he does not himself have it”). The standard is similar to the
standard that this Court has adopted for violations of securities laws, pursuant to
which we define recklessness as “conduct which is ‘highly unreasonable’ and
which represents ‘an extreme departure from the standards of ordinary care to
the extent that the danger was either known to the defendant or so obvious that
the defendant must have been aware of it.’” Novak v. Kasaks, 216 F.3d 300, 308
(2d Cir. 2000) (quoting Rolf v. Blyth Eastman Dillon & Co., Inc., 570 F.2d 38, 47 (2d
Cir. 1978)) (alterations omitted). The Court in Novak explained that “an
egregious refusal to see the obvious, or to investigate the doubtful, may in some
cases give rise to an inference of recklessness.” Id. (quoting Chill v. General Elec.
Co., 101 F.3d 263, 269 (2d Cir. 1996)) (alterations omitted).
Other circuits to address the recklessness standard in the FBAR context
have explained the concept similarly. Drawing on prior cases addressing civil
penalties under the Tax Code, the Third Circuit held that recklessness in not
filing an FBAR is established where the defendant “(1) clearly ought to have
known that (2) there was a grave risk that the filing requirement was not being
met and if (3) he or she was in a position to find out very easily.” Bedrosian, 912
F.3d at 153 (quoting United States v. Carrigan, 31 F.3d 130, 134 (3d Cir. 1994)).
That articulation of the standard has been widely adopted. See Horowitz, 978
18 F.3d at 89 (adopting the Bedrosian formulation of recklessness); Kelly, 92 F.4th at
603–04 (same); Hughes, 113 F.4th at 1162 (same); Rum, 995 F.3d at 889–90 (same).
The district court correctly determined that the Reyeses failed to offer
evidence creating a genuine issue of fact that they acted recklessly with respect to
reporting their foreign bank account. The undisputed evidence before the
district court included that during the years in question, the Reyeses had over
two million dollars in their Swiss bank account and that the account made up
between 75% and 90% of their wealth. Joint App’x 56, 800. The account
generated substantial income—over the years from 1972 to 2012, it grew from the
$200,000 that was initially deposited to $2,101,330. It was undisputed that the
Reyeses were aware of the wealth they kept abroad in Switzerland, as they
regularly drew on the funds in the amount of “a few thousand dollars a month”
using credit cards linked to the foreign account. See Joint App’x 159, 178–85.
The record is replete with further undisputed evidence that the Reyeses
acted with an unjustifiably high risk of harm that was either known to them or so
obvious that it should be known. See Safeco, 551 U.S. at 68. The Reyeses took
several steps that ensured the foreign bank account, and their domestic use of its
funds, would not be reported to U.S. tax authorities. First, the Reyeses had the
credit cards they used to spend the foreign money registered and picked up in
Spain, despite never having lived there and visiting only occasionally. Joint
App’x 57, 800–01. They set up payments for those cards to be automatically
deducted from the foreign account. Joint App’x 213. Second, the Reyeses
specifically instructed Lloyds Bank not to send mail related to the account to
their address in the United States, a service for which they paid a fee. Joint
19 App’x 55–56, 621, 799. Third, they directed the Swiss bank not to invest in any
U.S. securities. Joint App’x 56, 800. The document the Reyeses signed
instructing as much, provided to them by the bank, clarified that “[i]n connection
with US Withholding Tax and the holding of US securities through a US
custodian, I, the account holder declare that . . . I hold American Citizenship (sole
or dual citizenship).” The form then provided the account holder with just two
options to select from: (1) “I enclose a validly signed and completed W-9 form.
I understand that the Bank will deliver the W-9 form to its US Securities
Custodian,” and (2) “I do not authorize you to make any disclosure in connection
with the US Withholding Tax. I therefore authorize you to sell all my US
Securities with you,” and “you will not invest in further US Securities on my
account.” Joint App’x 624–25. Both Dr. and Mrs. Reyes selected the second
option. Id.
The Reyeses were specifically asked by the IRS and by their accountant
whether they possessed a foreign account. That question, as posed by a trusted
professional with responsibility for reporting the requested information to the
federal government, would have alerted a reasonable person that the possession
of a foreign account was relevant to federal reporting. Yet the Reyeses failed to
report the Swiss bank account. The Reyeses filed their taxes through an
accountant, Mr. Yoskowitz, whose standard practice was to request a “client
organizer” and ask whether his clients had any foreign income. But the Reyeses
never answered that question, instead sending their accountant completed 1099
forms to inform him of only their domestic income. Joint App’x 58, 628, 801.
Nor did they inform Mr. Yoskowitz that they had a foreign bank account at any
20 other point in the tax filing process. Joint App’x 59, 801. The tax forms he
prepared on their behalf contain a question under “Part III Foreign Accounts and
Trusts” inquiring: “[a]t any time during [the past year], did you have an interest
in or a signature or other authority over a financial account in a foreign country,
such as a bank account, securities account or other financial account?” Joint
App’x 632. The forms submitted by the Reyeses to the U.S. government falsely
answered that question “No.” Joint App’x 802; see Joint App’x 632, 637, 645.
They were submitted after Dr. Reyes “probably” reviewed them. Joint App’x
802.
The amount of funds, particularly relative to the rest of the Reyeses’
wealth, and the fact that they used the money to cover domestic expenses using
foreign cards shows that it was “obvious” and “should have been known” that
such income needed to be reported in the United States. See Farmer, 511 U.S. at
836. Put differently, a “reasonable [person] in [their] place” would have
thought it necessary to investigate whether such a large sum that generated
income and was used domestically should be reported to the IRS. Restatement
(Second) of Torts § 500 cmt. a. It is important, too, that the Reyeses were
presented with multiple documents—including the bank form instructing Lloyds
to divest from U.S. securities, the client organizer sent by Mr. Yarowitz, and the
tax forms submitted by the Reyeses to the IRS—all making explicit that U.S.
reporting obligations might attach to foreign bank accounts. It was not
reasonable for the Reyeses to ignore these indicators of potential liability.
This Circuit has also “found allegations of recklessness to be sufficient
where plaintiffs alleged facts demonstrating that defendants failed to review or
21 check information that they had a duty to monitor, or ignored obvious signs of
fraud.” Novak, 216 F.3d at 308. Even a “cursory glance” at the document
instructing Lloyds to divest from U.S. securities, or the section on their tax forms
inquiring whether they had a foreign account, would have “brought the
[requirement] to [their] attention.” Hayman v. Comm'r, 992 F.2d 1256, 1262 (2d
Cir. 1993).
Other circuits agree. In Horowitz, the Fourth Circuit determined that the
defendants’ repeated failure “to review the returns with the care sufficient at
least to discover the misrepresentation of foreign bank accounts, while
nonetheless stating that the returns were accurate, was again an aspect of their
recklessness.” 978 F.3d at 90. The Federal Circuit similarly held that “a
taxpayer signing their returns cannot escape the requirements of the law by
failing to review their tax returns.” Kimble, 991 F.3d at 1242. 3 In sum, the
Reyeses were in possession of information that gave rise to a substantial risk that
they needed to report their foreign account to the IRS, and they easily could have
ascertained whether in fact they were required to do so, but they neither
informed their accountant of their foreign account nor asked whether they had
3 On appeal, as below, the Reyeses argue that the absence of a signature on their tax forms is indicative of a lack of willfulness. Appellants’ Brief at 21. As explained in a declaration by IRS Revenue Agent Kimberly Nguyen, tax forms like the Reyeses’ submitted electronically do not contain a taxpayer’s handwritten signature. Joint App’x 825. The important point is that the Reyeses do not dispute that they authorized the filing of their tax returns. Contra Rocha v. Bakhter Afghan Halal Kababs, Inc., 44 F. Supp. 3d 337, 348 (E.D.N.Y. 2014) (questioning the authenticity of unsigned and unsworn tax forms where the plaintiffs had “sufficiently challenged the reliability of the information contained in the tax returns”).
22 any reporting obligations. See Bedrosian, 912 F.3d at 153. They were therefore
reckless as to the requirement to file an FBAR.
The Reyeses do not dispute that the Swiss account held the majority of
their wealth, that the obligation to report a foreign account was noted in multiple
documents sent to them, or that they took actions that would reasonably be
understood to conceal the Swiss account from the attention of the United States
authorities. They resist the compelling force of the evidence by arguing that
they subjectively believed they had no legal duty to report their foreign account.
Dr. Reyes points to his testimony that he declined to report his foreign income
based on a newspaper column and conversations with international lawyers.
But that testimony, even if credited, as it must be, does not create a genuine issue
of material fact. It goes only to whether the Reyeses themselves subjectively
believed that their foreign account was subject to the FBAR requirements, rather
than to whether a reasonable person in their position should have been aware of
the high risk that they had an obligation to report the account. As one court in
this Circuit has explained, “a defendant’s subjective belief does not negate a
finding of recklessness or willful blindness, particularly where, as here, a
defendant could easily have determined whether his belief was accurate by
speaking with a longtime tax preparer.” United States v. Gentges, 531 F. Supp. 3d
731, 750 (S.D.N.Y. 2021). In fact, the Reyeses’ contention cuts the other way, for
if “the question of whether they had to pay taxes on foreign interest income was
significant enough” that Dr. Reyes read up on it or discussed it with
international lawyers, he was “reckless in failing to discuss the same question
with [his] accountant at any point.” Horowtiz, 978 F.3d at 89.
23 The Reyeses posit that the undisputed facts do not clearly establish
recklessness because they were not sophisticated businesspeople, and that
someone in their position would not have known to report the foreign income.
Dr. Reyes is a surgeon in private practice and Mrs. Reyes assists him in running
that business. In any event, there is no support for the notion that the penalty
assessment under 31 U.S.C. § 5321 turns upon a taxpayer’s station in life. The
inquiry turns on whether a “reasonable man” would have realized “not only that
his conduct creates an unreasonable risk . . . but also that such risk is
substantially greater than that which is necessary to make his conduct
negligent.” Safeco, 551 U.S. at 69 (quoting Restatement (Second) of Torts § 500,
p. 587 (1963)). In other words, the recklessness inquiry turns upon whether a
reasonable person, not the Reyeses specifically, would have been aware of the
high risk of not reporting the foreign account given the information in their
possession and nonetheless failed to take action (i.e., whether the risk was known
or obvious). 4
The Reyeses rely also on United States v. Bittner, in which the court noted
that the taxpayer was a “sophisticated businessman” in rejecting a reasonable-
cause defense under 31 U.S.C. § 5321(a)(5)(B)(ii)(I). 19 F.4th 734, 743 (5th Cir.
2021). The Reyeses argue that they are not sophisticated businesspeople and
thus must be held to a lesser standard. But Bittner is inapposite. For one, the
4 Other circuits have upheld findings of willfulness against a schoolteacher, see United States v. Hammers, 942 F.3d 1001, 1113 (10th Cir. 2019), an anesthesiologist, Horowitz, 978 F.3d at 82; Kelly, 92 F.4th at 605, a businessman in the pharmaceutical industry, Bedrosian, 912 F.3d at 147, and the owner of a delicatessen, pet store, and supply store, see Rum, 995 F.3d at 884.
24 court was construing and applying the “reasonable cause” standard rather than
the recklessness standard. Id. at 741. For another, it is not clear that the
reference to the taxpayer’s business sophistication was intended to establish a
test whereby a judge or a jury would assess penalty liability based on their
assessment of business acumen. The taxpayer in Bittner claimed that he spoke
little English and, despite being a United States citizen, had spent little time in
the United States; he instead lived in Romania, where he complied with
Romanian tax laws. Id. at 743. It thus was responsive for the court to note that
he was not unsophisticated. It hardly follows that the Reyeses are not subject to
a willfulness penalty despite all the information in their possession because they
are in medicine rather than in business.
Even viewing the evidence in the light most favorable to the Reyeses, there
is no genuine issue of material fact as to whether they acted in reckless disregard
of the FBAR reporting requirements.
II. Late Payment Interest
The Reyeses’ second argument on appeal is that the district court
committed reversible error in adopting the penalty interest rate of six percent
established by Treasury Department regulations. Under the FCCA, agencies of
the federal government must assess interest rates and penalty charges owed to
them by individual debtors. See 31 U.S.C. § 3717. As to penalty charges for
late payments specifically, the FCCA mandates that “[t]he head of an executive,
judicial, or legislative agency shall assess on a claim owed by a person . . . a
penalty charge of not more than 6 percent a year for failure to pay a part of a
25 debt more than 90 days past due.” Id. § 3717(e)(2). 5 An “executive, judicial, or
legislative agency” is defined by the statute as “a department, agency, court,
court administrative office, or instrumentality in the executive, judicial, or
legislative branch of Government, including government corporations.” Id.
§ 3701(a)(4). By the statute’s plain terms, the executive, legislative, and judicial
branches all have the authority, within limits, to establish the penalty charge on
debts owing to them.
The Reyeses owed a debt to the IRS, which sits within the Treasury
Department and is charged with “assess[ing] and collect[ing] civil penalties
under 31 U.S.C. § 5321.” 31 C.F.R. § 1010.810(g). As the “executive agency”
charged with assessing and collecting the relevant penalty through the IRS, the
Treasury Department has determined via an agency rulemaking that “[p]enalties
shall accrue at the rate of 6% per year, or such other higher rate as authorized by
law.” Id. § 5.5(a). Those Treasury regulations apply “to the Treasury
Department when collecting a Treasury debt [and] to persons who owe Treasury
debts.” Id. § 5.2(b)(1). Accordingly, the district court committed no error in
applying the penalty rate set by the Treasury Department regulations.
The Reyeses’ contrary argument conflates the terms “executive, judicial, or
legislative.” In their reading, because they did not pay the amounts assessed by
the IRS but chose to allow the IRS to sue them for those funds, they earned the
5 The FCCA originally permitted assessment and collection by only “the head of an executive or legislative agency.” It was amended in 1996 by the Debt Collection Improvement Act to include “judicial” agencies. Pub. L. No. 104–134, § 31001(c)(1), 110 Stat. 1321, 1321–59 (1996). The Act was amended with the intent to “maximize collections of delinquent debts owed to the Government.” Id. § 31001(b)(1).
26 ability to have the interest rate determined by a member of the judicial “agency.”
But that reading would lead to absurd results. The FCCA refers to the “head”
of the relevant “executive, judicial, or legislative agency,” and not to an
individual district judge. And the FCCA is a general statute that applies to all
debts owed by individuals to the federal government. It directs the head of any
given federal agency—be it executive, judicial, or legislative—to “collect a claim
of the United States Government for money or property arising out of the
activities of, or referred to, the agency.” 31 U.S.C. § 3711(a)(1). It does not
contemplate the head of an agency in one branch of government determining the
penalty charge for a debt owing to another branch of government. And it
certainly does not permit a court to override the considered judgment of an
executive agency regarding the penalty rate, within statutory limits, to be
applied when a debt is incurred to that executive agency. Id. § 3717(e)(2). Had
Congress intended that result, it could simply have specified that a penalty was
to be determined in the discretion of the court in an amount no greater than six
percent.
The Reyeses specifically negotiated the payment of their civil penalty
arising from their failure to file an FBAR with the IRS. See Joint App’x 735–52,
753–70. They agreed to the assessment and to the collection of penalties on that
basis. Joint App’x 783, 785. Upon making that agreement, the IRS informed
the Reyeses that “[a] late payment penalty charge of 6% each year will be
assessed on any amount of the penalty that remains unpaid 90 days from the
date of this letter.” Joint App’x 778, 781. The Reyeses, unhappy with that
result, do not get an opportunity to challenge the Treasury Department’s
27 assessment of the appropriate penalty by the mere contrivance of not paying and
waiting for a lawsuit. 6
The district court committed no error in applying a six percent late
payment penalty for the Reyeses’ failure to make timely payment.
CONCLUSION
The judgment of the district court is AFFIRMED.
6 The Reyeses have not argued that Treasury’s regulations are themselves contrary to law or that they contravene the governing statute. Their citation to Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024) is therefore inapposite.