Kimble v. United States

Case: 19-1590   Document: 44     Page: 1   Filed: 03/22/2021

   United States Court of Appeals
       for the Federal Circuit

                    ALICE KIMBLE,


                   UNITED STATES,


     Appeal from the United States Court of Federal Claims
 in No. 1:17-cv-00421-SGB, Senior Judge Susan G. Braden.

                 Decided: March 22, 2021

     PAULA SCHWARTZ FROME, Garden City, NY, argued for

     GEOFFREY KLIMAS, Tax Division, United States Depart-
 ment of Justice, Washington, DC, argued for defendant-ap-
 pellee. Also represented by TRAVIS A. GREAVES, GILBERT

    Before NEWMAN, LINN, and HUGHES, Circuit Judges.
 HUGHES, Circuit Judge.
Case: 19-1590    Document: 44     Page: 2    Filed: 03/22/2021

 2                                  KIMBLE   v. UNITED STATES

     This case stems from Alice Kimble’s failure to comply
 with the requirements of the Bank Secrecy Act with respect
 to her Swiss bank account. After paying a penalty assessed
 by the IRS, Ms. Kimble brought a claim against the United
 States for refund of the penalty in the Court of Federal
 Claims on March 24, 2017. On December 27, 2018, the
 Court of Federal Claims granted the government’s motion
 for summary judgment. Ms. Kimble timely appealed. For
 the reasons stated below, we affirm.
     The relevant factual background of this appeal is un-
 disputed. Ms. Kimble, née Green, is a citizen of the United
 States. Ms. Kimble’s parents, Harold and Frances Green,
 opened an investment account at the Union Bank of Swit-
 zerland (UBS) around or before 1980 and designated
 Ms. Kimble as a joint owner. According to Ms. Kimble,
 some of her father’s family had been killed in the Holocaust
 and his parents had fled to the United States to escape per-
 secution. Ms. Kimble avers that her father, Mr. Green,
 opened the UBS account and maintained it in secret be-
 cause he feared being persecuted in the United States and
 needing to flee to another country as his parents had.
     Around 1983, Ms. Kimble married Michael Kimble, an
 investment analyst. About the same time, Mr. Green ap-
 prised Michael Kimble of the existence of the UBS account
 and his desire to preserve its secrecy, and Michael Kimble
 agreed to respect his wishes. Michael Kimble subsequently
 advised Mr. Green and—after Mr. Green’s death in 1997—
 Ms. Kimble on the management of the UBS account until
 at least 2008. Following her father’s death, Ms. Kimble
 signed various agreements directing UBS to, among other
 things, maintain the account as a numbered account—an
 account associated with a number rather than a name—
 and to retain all correspondence about the account at the
Case: 19-1590      Document: 44      Page: 3     Filed: 03/22/2021

 KIMBLE   v. UNITED STATES                                      3

     While he was married to Ms. Kimble, Michael Kimble
 prepared the couple’s joint federal tax returns. Those tax
 returns did not report any income derived from the UBS
 account nor did they disclose the existence of the foreign
 account. After the couple divorced in 2000, Ms. Kimble
 hired Steven Weinstein, a certified public accountant, to
 prepare her income tax returns. Mr. Weinstein never asked
 Ms. Kimble if she had a foreign bank account, and Ms. Kim-
 ble did not volunteer that she owned the UBS account. Ac-
 cordingly, from at least 2003 to 2008, Ms. Kimble’s tax
 forms did not disclose her ownership of the UBS account or
 the income she derived from it. Those forms, which Ms.
 Kimble signed under penalty of perjury, represented that
 she did not have a foreign bank account and that she had
 reviewed the tax form. Nonetheless, according to Ms. Kim-
 ble, she did not review the accuracy of any federal income
 tax returns filed on her behalf from 2003 through 2008.
      In 2008, Ms. Kimble read an article in the New York
 Times reporting on the Treasury Department’s investiga-
 tion into UBS for abetting tax fraud with respect to its
 numbered accounts. Ms. Kimble testified that this was the
 first time she learned of her obligation to disclose her for-
 eign bank accounts. Ms. Kimble later retained counsel to
 comply with the foreign reporting requirements. In 2009,
 UBS entered into a deferred prosecution agreement with
 the United States that required UBS to unmask its num-
 bered accounts held by United States citizen clients. That
 same year, Ms. Kimble applied for and was accepted into
 the Offshore Voluntary Disclosure Program (OVDP), a pro-
 gram designed for taxpayers exposed to potential criminal
 or substantial civil liability due to a willful failure to report
 foreign financial assets and pay taxes due stemming from
 those assets. In 2012, Ms. Kimble and the IRS negotiated
 an agreement resolving the matter of her undisclosed for-
 eign bank account, which required her to pay a penalty of
 $377,309. In 2013, Ms. Kimble withdrew from the OVDP
 and declined to pay the penalty.
Case: 19-1590    Document: 44      Page: 4    Filed: 03/22/2021

 4                                   KIMBLE   v. UNITED STATES

      After completing its examination of Ms. Kimble’s tax
 filings and her foreign accounts, 1 the IRS determined that
 Ms. Kimble’s failure to report the UBS account was willful
 and the examiner therefore assessed a penalty of $697,299,
 representing 50% of the account. Ms. Kimble paid the pen-
 alty but sued in the Court of Federal Claims seeking a re-
     The Court of Federal Claims granted summary judg-
 ment against Ms. Kimble. In holding that Ms. Kimble vio-
 lated 31 U.S.C. § 5314, the court found undisputed that,
 until 2008, Ms. Kimble never disclosed the account to her
 accountant nor inquired about any need to report foreign
 income, that she indicated on her tax returns that she had
 no foreign accounts, and that she did not review her tax
 returns but signed that she had reviewed them and that
 they were correct under penalty of perjury. The court held
 that these actions constituted a “reckless disregard” for the
 legal duty to disclose foreign bank accounts and that Ms.
 Kimble’s conduct was therefore “willful” under
 § 5321(a)(5). The Court of Federal Claims also found no dis-
 pute of material fact that the IRS did not abuse its discre-
 tion in setting a 50% penalty and noted that Ms. Kimble
 had waived any Eighth Amendment arguments by failing
 to plead them.
     Ms. Kimble appeals.
      We review de novo the Court of Federal Claims’ grant
 of the government’s motion for summary judgment and the
 court’s denial of Ms. Kimble’s cross-motion. Premier Off.
 Complex of Parma, LLC v. United States, 

916 F.3d 1006

 1011 (Fed. Cir. 2019). We review a Court of Federal Claims

     1  Ms. Kimble also maintained an undisclosed bank
 account in France with the Hong Kong and Shanghai
 Banking Corporation which is not relevant to this appeal.
Case: 19-1590     Document: 44     Page: 5    Filed: 03/22/2021

 KIMBLE   v. UNITED STATES                                   5

 willfulness determination for clear error. Norman v.
 United States, 

942 F.3d 1111

, 1115 (Fed. Cir. 2019). We set
 aside an agency’s penalty selection only if it was arbitrary,
 capricious, an abuse of discretion, or otherwise not in ac-
 cordance with the law. See, e.g., Ninestar Tech. Co. v. Int’l
 Trade Comm’n, 

667 F.3d 1373

, 1379 (Fed. Cir. 2012).
     Congress enacted the Bank Secrecy Act (BSA) to en-
 sure that citizens paid taxes on income earned abroad. See
 Pub. L. No. 91-508, 84 Stat. 1114 (1970). The regulations
 implementing 31 U.S.C. § 5314, a codification of the BSA,
 require any U.S. citizen “having a financial interest in, or
 signature or other authority over, a bank, securities or
 other financial account in a foreign country” to report cer-
 tain details about the account to the Treasury Department.
 31 C.F.R. § 1010.350(a). This report must be made each
 year by filing a Form TD F 90-22.1, Report of Foreign Bank
 and Financial Accounts (FBAR).

Id. § 1010.306(c). An

 FBAR must be filed “with respect to foreign financial ac-
 counts exceeding $10,000 maintained during the previ-
 ous calendar year.”

Id. The familiar Form

1040, used by
 every United States resident filing a personal federal in-
 come tax return, includes Schedule B, which contains a
 check-the-box question that puts a taxpayer on notice as to
 this obligation. See United States v. Williams, 489 F. App’x
 655, 659 (4th Cir. 2012) (holding that failure to read this
 question does not change that a taxpayer is on inquiry no-
 tice). Schedule B’s instructions direct taxpayers to check
 “Yes” if they had authority over or an interest in a foreign
 account and provide instruction for taxpayers to file an
 FBAR if so.
      The Secretary of the Treasury may impose a civil pen-
 alty for violations of 31 U.S.C. § 5314. See 31 U.S.C. § 5321.
 If the failure to file an FBAR is “willful,” the Secretary may
 impose a penalty up to the greater of either $100,000 or 50
 percent of the balance of the account at the time of the vio-
 lation. 31 U.S.C. § 5321(a)(5).
Case: 19-1590     Document: 44       Page: 6    Filed: 03/22/2021

 6                                     KIMBLE   v. UNITED STATES

     Here, the parties do not dispute that Ms. Kimble failed
 to disclose a foreign bank account that she was required to
 disclose. Rather, Ms. Kimble argues that her violation was
 not “willful.” We hold that, based on the undisputed facts,
 it was not clear error for the Court of Federal Claims to find
 Ms. Kimble’s violation willful.
     Contrary to Ms. Kimble’s argument that a taxpayer
 cannot commit a willful violation without “actual
 knowledge of the obligation to file an FBAR,” Appellant’s
 Br. 32, we have held that “willfulness in the context of
 § 5321(a)(5)(C) includes recklessness,” 

Norman, 942 F.3d
at 1115

. Accordingly, a taxpayer signing their returns can-
 not escape the requirements of the law by failing to review
 their tax returns.

Id. at 1116

(“[W]hether [the taxpayer]
 ever read her . . . tax return is of no import because ‘[a] tax-
 payer who signs a tax return will not be heard to claim in-
 nocence for not having actually read the return, as . . . she
 is charged with constructive knowledge of its contents.’”)
 (quoting Greer v. Comm’r, 

595 F.3d 338

, 347 n.4 (6th Cir.
     The undisputed facts show that Ms. Kimble knew
 about the numbered account and took efforts to keep it se-
 cret by, among other things, not disclosing the account to
 her accountant. She did not review her tax returns for
 2003-2008, but she represented under penalty of perjury
 that she had reviewed her tax returns and had no foreign
 accounts. J.A. 17. In other words, Ms. Kimble had a secret
 foreign account, she had constructive knowledge of the re-
 quirement to disclose that account, and she falsely repre-
 sented that she had no such accounts. Under these facts, it
Case: 19-1590     Document: 44     Page: 7    Filed: 03/22/2021

 KIMBLE   v. UNITED STATES                                   7

 was not clear error for the Court of Federal Claims to hold
 that she committed a willful violation. 2
     Ms. Kimble argues that, even if she committed a willful
 violation, she should not have been assessed such a sub-
 stantial penalty. We now affirm the Court of Federal
 Claims’ holding that the IRS did not abuse its discretion in
 assessing the statutory maximum civil penalty of 50% of
 the bank account’s value. 3
     Ms. Kimble argues that the severity of the penalty vio-
 lates the maximum allowed by 31 C.F.R. § 1010.820 and
 that the Court of Federal Claims erred in holding that the
 regulation was superseded by 31 U.S.C. § 5321(a)(5)(C).
 Appellant’s Br. 18–19. However, we conclusively resolved
 this issue in 

Norman, 942 F.3d at 1117

(“Because the 1987
 regulation [§ 1010.820] sets forth a maximum willful
 FBAR penalty that is inconsistent with the maximum pen-
 alty mandated by statute [§ 5321(a)(5)], the 1987

     2    Ms. Kimble’s reasons for the violation (her subjec-
 tive belief about the need for secrecy, advice from her ex-
 husband, etc.) do not alter our inquiry. A taxpayer can be
 “willful” even if her violation has good reason. See Bed-
 rosian v. United States, 

912 F.3d 144

, 153 (3d Cir. 2018)
 (inquiring into “subjective motivations and the overall
 ‘egregiousness’ of [the taxpayer’s] conduct . . . [is] not re-
 quired to establish willfulness in this context”); 

942 F.3d at 1116

(“Actions can be willful even if taken on
 the advice of another.”). And there is no “reasonable cause”
 exception     for    willful     violations.   31      U.S.C.
 § 5321(a)(5)(C)(ii).
     3    While the penalty is the maximum civil penalty un-
 der 31 U.S.C. § 5321, it is not the harshest enforcement
 mechanism in our tax system. See, e.g., 26 U.S.C. § 7201.
Case: 19-1590     Document: 44     Page: 8     Filed: 03/22/2021

 8                                    KIMBLE   v. UNITED STATES

 regulation is no longer valid.”). The trial court correctly
 held that 31 U.S.C. § 5321(a)(5)(C) sets the penalty for will-
 ful violations.
     Ms. Kimble also contends that the IRS abused its dis-
 cretion by issuing the maximum civil penalty of 50%, but
 we affirm the Court of Federal Claims’ holding that the IRS
 was within its discretion.
     Ms. Kimble argues that, because the IRS applied the
 maximum penalty under the statute, the IRS failed to mit-
 igate her penalty. To the contrary, here, the IRS used the
 mitigation guidelines to determine that the maximum pen-
 alty should apply. The Internal Revenue Manual recom-
 mends a “Level IV” 50% penalty for willful violations where
 the account balance is over $1,000,000. I.R.M. § 4.26.16-2;
 J.A. 512–13. Those criteria were met here.
     The IRS guidelines allow for deviation from the recom-
 mendations, but the IRS did not find that other circum-
 stances warranted straying from the guidelines.

Id. We
find unpersuasive

Ms. Kimble’s arguments that the IRS re-
 lied on improper facts in making this determination. One
 factor considered was the individual’s connection to a for-
 eign country. Ms. Kimble contends that the account gave
 her a connection to Switzerland, but we see no error in the
 Court of Federal Claims’ assessment that a property inter-
 est in a bank account is not sufficient on its own to estab-
 lish a significant contact with a foreign country. J.A. 20.
     Despite her meetings with bank representatives and
 the frequency of her transactions with the account,
 Ms. Kimble argues that she was not an active manager of
 the account because she followed the advice of her ex-hus-
 band. Whether a party follows the advice of another is ir-
 relevant to whether she manages an account, so the IRS
 did not abuse its discretion in determining that Ms. Kimble
 actively managed the account. Ms. Kimble also argues that
Case: 19-1590     Document: 44     Page: 9    Filed: 03/22/2021

 KIMBLE   v. UNITED STATES                                  9

 the IRS improperly determined her to be the sole benefi-
 ciary of the account. The IRS made this determination
 based on her stipulation, but even assuming she was not
 the sole beneficiary, it is undisputed that she had a direct
 interest in the account, and Ms. Kimble provides no reason
 why one must be the sole beneficiary in order to receive the
 penalty stated in the guidelines.
     Given the undisputed facts, the penalty was suggested
 by the IRS’s nonbinding guidelines and was within the
 statutory authorization. See J.A. 512–13; 31 U.S.C.
 § 5321(a)(5)(C). The Court of Federal Claims did not err in
 holding that the IRS did not abuse its discretion.
     Finally, Ms. Kimble argues that the penalty violates
 the Eighth Amendment as an excessive fine, but this claim
 was waived. The Court of Federal Claims held that it did
 not need to address this argument because the Plaintiff did
 not raise it in her complaint. Ms. Kimble contends that
 page 45 of her complaint raised the Eighth Amendment by
 seeking a return of the “excess penalty,” but, rather than
 invoking the Eighth Amendment, this wording fits with
 her other arguments that the penalty either should have
 been mitigated or violated IRS regulations. Appellant’s
 Br. 50. The “traditional rule is that once a federal claim is
 properly presented, a party can make any argument in sup-
 port of that claim.” Lebron v. Nat’l R.R. Passenger Corp.,

513 U.S. 374

, 379 (1995) (citations omitted). But distinct
 claims are waived if not pled in a complaint. See Casa de
 Cambio Comdiv S.A., de C.V. v. United States, 

291 F.3d

, 1366 (Fed. Cir. 2002) (“[W]e need not address Casa’s
 agency theory because . . . [n]o mention of this theory ap-
 pears in Casa’s complaint.”). Accordingly, we will not con-
 sider this claim on appeal.
Case: 19-1590   Document: 44     Page: 10     Filed: 03/22/2021

 10                                 KIMBLE   v. UNITED STATES

     Because we agree with the Court of Federal Claims
 that Ms. Kimble’s conduct was willful and that the IRS did
 not abuse its discretion in assessing a 50% penalty, we af-

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