COURT ORDERS REPATRIATION OF FOREIGN ASSETS TO AID IN FBAR PENALTY COLLECTIONS
The issue of whether the Government can repatriate a taxpayer’s foreign assets for purposes of satisfying a taxpayer’s outstanding FBAR penalty judgment has not been extensively reported on or discussed. However, the issue was recently addressed by the U.S. District Court for the Southern District of Florida in United States v. Schwarzbaum (S.D. Fla. Dkt # 18-CV-81147-BLOOM/Reinhart). The decision signals the Biden Administration’s intent to become more aggressive in the collection of outstanding FBAR penalty judgments.
Taxpayers, who have offshore assets, but have yet to report them, should be concerned. In particular, those who are contemplating expatriation or those who no longer reside in the United States may find themselves subject to FBAR penalties, extradition, criminal prosecution, and the imposition of additional civil fines. Likewise, U.S. persons against whom FBAR penalties have been assessed, who continue to reside in the United States and who have parked their assets overseas as a means of preventing the Government from collecting need to rethink this strategy.
In Schwarzbaum, the Government commenced an FBAR collection suit against the taxpayer in August of 2018. At the conclusion of a five day bench trial in May of 2021, the Court entered an FBAR penalty judgment in favor of the Government in the amount of $12,555,813. The judgment was based upon Schwarzbaum’s willful failure to file FBARs in compliance with 31 U.S.C. § 5314.
The Government’s post judgment discovery revealed that the taxpayer lacked sufficient assets in the United States from which the outstanding judgment could be satisfied. However, the discovery did make clear that the taxpayer had sufficient assets located in Switzerland from which the judgment could be satisfied.
Consequently, the Government filed a Motion with the Court for an Order directing Schwarzbaum to repatriate sufficient funds to the United States in order to satisfy the judgment, by depositing such amounts in the form of an appeal bond.
In its Motion, the Government maintained that authority for such an Order exists under, the Fair Debt Collection Procedures Act of 1990 (“FDCPA”), 28 U.S.C. § 3001 et seq.
Judge Bloom referred the Motion to a Magistrate for purposes of issuing a Report and Recommendations (“R&R”). On June 30, 2021 the Magistrate issued his R&R, recommending that the Government’s Motion be granted. The taxpayer filed Objections to the R&R and the Government filed a Response to the Objections. On October 26, 2021, the Court, adopting the Magistrate’s R&R, entered an Order in favor of the Government.
Prior to the Courts October 26, 2021 Order, the Taxpayer filed an appeal to the U.S. District Court for the Eleventh Circuit.
The Magistrate’s R&R concluded that the Court has authority under the FDCPA by virtue of its express incorporation of the All Writs Act, 28 U.S.C. § 1651 to Order the Taxpayer to repatriate $18,227,465.89 in addition to any additional post judgment interest accrued since May 31, 2021.
The Court rejected the Schwarzbaum’s argument that the All Writs Act does not provide an independent collection remedy and that the FDCPA provides the sole remedy for collections.
The footnotes to the Order provide some context with respect to the taxpayer’s scheme. Specifically, Schwarzbaum took steps to render himself judgment proof in the U.S. including selling his home in Palm Beach County Florida, and moving from Florida to Switzerland, where he maintained three Swiss accounts totaling in excess of $49 million. The footnotes also reveal the taxpayer transferred the bulk of his liquid assets from the United States to Switzerland, prior to the Complaint being filed by the Government.
The Court adopted the R&R and held that the FDCPA incorporates the All Writs Act. Quoting from the language in 28 U.S.C. § 1651, the Court noted that that the “All Writs Act empower federal courts to ‘issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usage and principles of law.’ “
The Court further noted that the FDCPA provides for issuance of various writs including writs of execution and writs of garnishment. Judge Bloom, citing United States v. Ross, 302 F.2d 831, 834 (2d Cir. 1962) and United States v. McNulty, 446 F. Supp. 90, 90 (N.D. Cal. 1978), pointed out that the cases supporting the Courts interpretation of the interplay between the FDCPA and the All Writs Act rely upon the Court having personal jurisdiction over the defendant to reach assets overseas in cases where the defendant has an outstanding judgment or tax liability to the Government.
The takeaway from this Decision is that an individual who is subject to the assessment of FBAR penalties, and who has not otherwise challenged the assessment, can certainly expect the Government to file a collection action. Any attempt to place assets outside of the reach of the Government, by maintaining or otherwise transferring assets overseas, will be dealt with by the Government in short order. One can reasonably expect that the Government will utilize post judgment Orders of Repatriation to assist in the collection of an outstanding FBAR penalty judgment. The foregoing is true whether a taxpayer expatriates moves overseas or continues to reside in the U.S.
Some may be wondering why Scwarzbaum was not indicted and extradited. Although the U.S. has an extradition treaty with Switzerland, Switzerland does not typically honor such requests. Moreover, such an indictment may have been sealed.
It is noteworthy that the number of extraditions to the U.S. in tax and FBAR related cases is on the rise. Consequently, as the saying goes: “No matter where you go, there you are.”
