United States v. Estate of Schoenfeld

• Citation: 344 F.Supp.3d 1354
• Decision Date: 25 September 2018
• Docket Number: Case No. 3:16-cv-1248-J-34PDB
• Parties: UNITED STATES of America, Plaintiff, v. ESTATE OF Steven SCHOENFELD and Robert Schoenfeld, a Distributee of the Estate of Steven Schoenfeld, Defendants.
• Court: United States District Courts. 11th Circuit. United States District Court of Middle District of Florida

344 F.Supp.3d 1354

UNITED STATES of America, Plaintiff,

v.ESTATE OF Steven SCHOENFELD and Robert Schoenfeld, a Distributee of the Estate of Steven Schoenfeld, Defendants.

Case No. 3:16-cv-1248-J-34PDB

United States District Court, M.D. Florida, Jacksonville Division.

Signed September 25, 2018

Kari A.R. Powell, Robert Scott Silverblatt, US Department of Justice - Tax Division, Washington, DC, for Plaintiff.

Harris L. Bonnette, Jr., Scott St. Amand, Fisher, Tousey, Leas & Ball, PA, Jacksonville, FL, for Defendants.

O R D E R

MARCIA MORALES HOWARD, United States District Judge

THIS CAUSE is before the Court on Defendants' Second Motion to Dismiss Amended Complaint or in the Alternative for Summary Judgment and Incorporated Memorandum of Law (Doc. 46; Motion), filed on October 24, 2017. Plaintiff, United States of America (the "Government"), filed the Response in Opposition to Defendants' Second Motion to Dismiss or in the Alternative for Summary Judgment and Incorporated Memorandum of Law (Doc. 51; Response) on December 11, 2017. Accordingly, this matter is ripe for review.

I. Background¹

This action arises out of the Government' efforts to collect a penalty assessed against Steven Schoenfeld pursuant to 31 U.S.C. § 321 (" Section 5321") based on his failure to file a Foreign Bank Account Report ("FBAR"). See generally Amended Complaint (Doc. 6). Thus, before summarizing the factual background of this case, the Court will provide an overview of the FBAR filing requirement.

A. FBAR Filing Requirement

In 1970, Congress enacted the Currency and Foreign Transactions Reporting Act, commonly referred to as the Bank Secrecy Act ("BSA"), 31 U.S.C. §§ 5311 - 5314, 5316 - 5332, in order to combat money laundering in the United States. See Internal Revenue Serv., Bank Secrecy Act, available at https://www.irs.gov/businesses/small-businesses-self-employed/bank-secrecy-act (last accessed May 6, 2018) ("BSA Guide"); Internal Revenue Manuals § 4.26.16 (2017), available at https://www.irs.gov/irm/part4/irm_04-026-016 (last accessed May 6, 2018) ("IRS Manual"). "The BSA requires businesses to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax, and regulatory matters." See BSA Guide at 2. These reports "are heavily used by law enforcement agencies, both domestic and international[,] to identify, detect and deter money laundering whether it is in furtherance of a criminal enterprise, terrorism, tax evasion or other unlawful activity." Id. Congress authorized the Department of Treasury (the "Treasury") to implement the BSA. See 31 U.S.C. § 5311.

Pursuant to the BSA, United States "persons"² are required to file an FBAR indicating their financial interests in and/or signatory authority over a foreign account if certain conditions are met. See 31 U.S.C. § 5314(a) ; 31 C.F.R. §§ 1010.350(a). Specifically, such persons must file an FBAR by June 30 "of each calendar year with respect to foreign financial accounts exceeding $10,000 maintained during the previous calendar year." See 31 C.F.R. § 1010.306(c).

Congress authorized the Secretary of the Treasury (the "Secretary") to assess penalties against those who fail to satisfy the FBAR filing requirement. See Section 5321 ; 31 U.S.C. § 5322. The Secretary delegated authority to the Internal Revenue Service ("IRS") to impose criminal penalties, and to the Director of the Financial Crimes Enforcement Network ("FinCEN"), a bureau of the Treasury, to impose civil penalties. See IRS Manual. In April 2003, FinCEN delegated its FBAR duties to the IRS. See IRS Reference Guide at 2. Thus, the IRS is responsible for "[i]nvestigating possible civil violations," "[a]ssessing and collecting civil penalties"; and "[i]ssuing administrative rulings." Id.

The IRS may impose civil penalties based on negligence, see Section 5321(a)(6)(A), a pattern of negligent activity, see Section 5321(a)(6)(B), a non-willful violation, see Section 5321(a)(5)(A), (B), and a willful violation, see Section 5321(a)(5)(C). For willful violations, the IRS may impose a criminal penalty and/or a civil penalty. See Section 5321 ; 31 U.S.C. § 5322. The civil penalty for a willful violation may not exceed the greater of $100,000, or 50% of the amount in the unreported account. See Section 5321(a)(5)(C).

The IRS must assess a civil penalty within six years of the violation. See Section 5321(b)(1). To collect the assessment, the Government must commence a civil action within two years of the later of "(A) the date the penalty was assessed; or (B) the date any judgment becomes final in any criminal action under section 5322 in connection with the same transaction with respect to which the penalty is assessed." See Section 5321(b)(2).

B. Factual Background

In 1993, Steven Schoenfeld, a citizen of the United States, established a foreign account with UBS AG in Switzerland with funds he acquired from the sale of a New York apartment. See Amended Complaint ¶ 11; Deposition of Robert Andrew Schoenfeld (Doc. 52; Schoenfeld Dep.) at 9, 30; Schoenfeld Dep. Exhibits (Doc. 53) at 1. The account "generated income from interest, dividends, and Passive Foreign Investment Company Gains." See Amended Complaint ¶ 14.

The Government asserts that Steven Schoenfeld did not "report his income from, or financial interest in, his foreign account on his federal tax returns for any year of the account's existence," even though he "reported interest and investment income from domestic sources." See Amended Complaint ¶¶ 15-16.

In 2009, "UBS AG notified account holders that it might provide their account information to the" IRS. Id. ¶ 18; Schoenfeld Dep. Exhibits at 11. In response, Steven Schoenfeld told his tax representative that he would not authorize UBS AG to release such information. See Amended Complaint ¶ 19. On August 4, 2010, the tax representative informed Robert Schoenfeld of his father's position. Id.; Schoenfeld Dep. Exhibits at 25.

On July 14, 2010, UBS AG closed Steven Schoenfeld's account, id. ¶ 12; Schoenfeld Dep. at 53; Schoenfeld Dep. Exhibits at 3, and later "wired its funds to a U.S.-based brokerage firm, Raymond James Financial Services," to an account in the name of Steven Schoenfeld, with his son, Robert Schoenfeld, designated as "the sole beneficiary and trading agent." See Amended Complaint ¶ 13; Schoenfeld Dep. at 37, 54. During this time period and thereafter, Robert Schoenfeld "assisted in his father's financial affairs." See Amended Complaint ¶ 19; Schoenfeld Dep. at 22-24.

"On September 30, 2014, the [IRS] assessed a civil penalty against Steven Schoenfeld pursuant to Section 5321(a)(5) for willfully failing to file an FBAR for calendar year 2008." Id. ¶ 24. Between January 1, 2008, and June 30, 2009, the balance of Steven Schoenfeld's account exceeded $10,000. Id. ¶ 20. Thus, the IRS assessed a penalty against Steven Schoenfeld in the amount of $614,300—50 percent of the account's $1,228,600 balance. Id. ¶¶ 20, 25. Although the IRS notified Steven Schoenfeld of the assessment and demanded payment, Steven Schoenfeld did not pay the amount demanded. Id. ¶¶ 26-27. As of August 16, 2016, the amount sought by the Government had grown to $690,188.69, consisting of the FBAR penalty and interest and penalties for late payment under 31 U.S.C. § 3717(e)(2). Id. ¶ 28.

Unbeknownst to the Government, Steven Schoenfeld died on August 21, 2015. See Motion, Ex A: Certificate of Death; see generally Declaration of Kari Powell (Powell Decl.) ¶ 4. He died testate and appointed Robert Schoenfeld as the personal representative of his estate. See Last Will & Testament of Steven William Schoenfeld (Doc. 28-3; Will) at p.3, Art. VI. However, Robert Schoenfeld did not present the Will for probate. See Schoenfeld Dep. at 29-30.

On September 29, 2016, the Government initiated this action against Steven Schoenfeld to reduce its assessed penalty to judgment. See generally Complaint (Doc. 1). The Government sent the Complaint and a request for waiver of service to Steven Schoenfeld's address, where Robert Schoenfeld resides. See Powell Decl. ¶¶ 3-4. On October 27, 2016, an attorney representing the Schoenfeld family wrote a letter to the Government advising that Steven Schoenfeld had died. See Letter from Defense Counsel (Doc. 51-2; Letter). Accordingly, on December 14, 2016, the Government filed the Amended Complaint as of right pursuant to Rule 15(a). See generally Amended Complaint. In the Amended Complaint, the Government named the Estate of Steven Schoenfeld (the "Estate") as a defendant pursuant to 28 U.S.C. § 2404 (" Section 2404"), and Robert Schoenfeld as a defendant based on his status as distributee of the Estate. See generally id. A process server submitted proofs of service attesting that he served the Amended Complaint on both Defendants personally at Robert Schoenfeld's home on December 15, 2016. See Powell Decl. ¶ 6; Proof of Service (Doc. 8).

On January 5, 2017, Defendants moved to dismiss the Amended Complaint or, in the alternative, for summary judgment. See Defendants' Motion to Dismiss Amended Complaint or in the Alternative for Summary Judgment and Incorporated Memorandum of Law (Doc. 9; First Motion). After review of the briefing,³ the Court set the First Motion for a hearing on September 22, 2017. See Order (Doc. 33). At the hearing, the court denied the First Motion, without prejudice, and gave Defendants until November 9, 2017, to file a renewed motion to dismiss or for summary judgment. See Clerk's Minutes (Doc. 40).

In response to the Court's directive, Defendants filed the Motion on October 24, 2017. See generally Motion. In the Motion, Defendants contend that the original Complaint was a legal nullity that could be not be cured by amendment or relation-back principles. Id. at 7-14. Additionally, Defendants assert that the Government may not rely on Section 2404 to pursue its claim, that the Estate lacks the capacity to be sued under Rule 17, and that the Government's claim abated upon Steven...