Flint v. United States

In the United States Court of Federal Claims

No. 21-1202T

Filed: August 23, 2022

* * * * * * * * * * * * * * * * * **

STEPHANIE L. FLINT AND DAVID J. *

JONES, AS EXECUTORS OF THE *

ESTATE OF MARGARET J. JONES, *

*

Plaintiffs, *

*

v.

*

UNITED STATES, *

*

Defendant. *

*

* * * * * * * * * * * * * * * * * **

Patrick W. Martin, Law Offices of Procopio, Cory, Hargreaves & Savitch LLP, San

Diego, CA, for plaintiffs.

Jason S. Selmont, Court of Federal Claims Section, Tax Division, United States

Department of Justice, Washington, D.C., for defendant. With him was G. Robson

Stewart, Assistant Chief, Court of Federal Claims Section, David I. Pincus, Chief, Court

of Federal Claims Section, and David A. Hubbert, Deputy Assistant Attorney General,

Tax Division.

OPINION

HORN, J.

In the complaint filed in this court, plaintiffs Stephanie L. Flint and David J. Jones,

as executors of the estate of Margaret J. Jones, assert two causes of action, “COUNT I

– BREACH OF CONTRACT,” and “COUNT II – ILLEGAL EXACTION.” (capitalization

and emphasis in original). For both alternative counts, in total plaintiffs seek $156,795.26,

the amount paid by Mrs. Jones to the United States Internal Revenue Service (IRS) as a

“Miscellaneous Offshore Penalty” (MOP), recovery of “pre and post-judgment interest as

allowed by law,” “attorneys’ fees and all costs of suit,” and “such other further relief as the

Court may deem just and proper.” Defendant filed a motion to dismiss Count One of

plaintiffs’ complaint for failure to state a claim pursuant to Rule 12(b)(6) of the Rules of

the United States Court of Federal Claims (RCFC) (2021) and to dismiss Count Two of

plaintiffs’ complaint for lack of subject matter jurisdiction pursuant to RCFC 12(b)(1). The

motion has been fully briefed and oral argument has been held.

BACKGROUND

This case challenges the application of an IRS program, which, according to the

IRS website, is available to United States taxpayers holding foreign accounts not

previously disclosed to the IRS, in order to promote voluntary disclosure of those

accounts and to resolve existing tax obligations, including certain penalties related to the

previous failure to disclose those foreign accounts. In particular, the case currently before

the court concerns the Streamlined Filing Compliance Procedures, also called just the

Streamlined Procedures. While the Streamlined Procedures are detailed on the relevant

pages of the IRS website, the Streamlined Procedures do not appear to be spelled out in

statute or regulation, a fact which both parties confirmed at oral argument. 1

The Streamlined Procedures, which are at issue in the current case, were first

available in 2012 and, following a revision in 2014, remain in operation at the time of the

issuance of this Opinion. According to the IRS website, the Streamlined Procedures:

are available to taxpayers certifying that their failure to report foreign

financial assets and pay all tax due in respect of those assets did not result

from willful conduct on their part. The streamlined procedures are designed

to provide to taxpayers in such situations with

• a streamlined procedure for filing amended or delinquent returns,

and

• terms for resolving their tax and penalty procedure for filing

amended or delinquent returns, and

• terms for resolving their tax and penalty obligations.

Streamlined Filing Compliance Procedures, INTERNAL REVENUE SERVICE,

https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-

procedures (last visited Aug. 23, 2022). To participate in the Streamlined Procedures,

taxpayers must:

certify, in accordance with the specific instructions set forth below, that the

failure to report all income, pay all tax and submit all required information

returns, including FBARs (FinCEN Form 114, previously Form TD F 90-

1 A second program for foreign account disclosure, the Offshore Voluntary Disclosure

Program (OVDP), also existed at the time the events giving rise to the case currently

before the court occurred. The OVDP is not at issue in the case currently before the court,

and was ended by the IRS in September 2018. See IRS to end offshore voluntary

disclosure program; Taxpayers with undisclosed foreign assets urged to come forward

now, INTERNAL REVENUE SERVICE, https://www.irs.gov/newsroom/irs-to-end-offshore-voluntary-

disclosure-program-taxpayers-with-undisclosed-foreign-assets-urged-to-come-forward-now

(last visited Aug. 23, 2022).

2

22,[sic]1)[2] was due to non-willful conduct. Non-willful conduct is conduct

that is due to negligence, inadvertence, or mistake or conduct that is the

result of a good faith misunderstanding of the requirements of the law[.]

Id. (alterations and footnote added). According to the IRS website, “the streamlined filing

process will not culminate in the signing of a closing agreement with the IRS,” resolving

all potential liability related to foreign accounts, but rather “returns submitted under the

streamlined procedures may be subject to IRS examination, additional civil penalties, and

even criminal liability, if appropriate.” Id.

The Streamlined Procedures are divided into two sets of procedures, distinguished

by the “residency” of the taxpayers eligible to participate: non-United States “residents”

are eligible to participate in the Streamlined Foreign Offshore Procedures, while United

States “residents” are able to participate in the Streamlined Domestic Offshore

Procedures. See id. Because the taxpayer with whom the above captioned case is

concerned, Margaret J. Jones, was a “resident” as well as a citizen of the United States

during the time at issue, the Streamlined Domestic Offshore Procedures are the

procedures relevant to the case currently before the court. On a different page, the IRS

website contains further information specific to the Streamlined Domestic Offshore

Procedures:

U.S. taxpayers (U.S. citizens, lawful permanent residents, and those

meeting the substantial presence test of IRC section 7701(b)(3)) eligible to

use the Streamlined Domestic Offshore Procedures must (1) for each of the

most recent 3 years for which the U.S. tax return due date (or properly

applied for extended due date) has passed (the “covered tax return period”),

file amended tax returns, together with all required information returns (e.g.,

Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621), (2) for each of the

most recent 6 years for which the FBAR due date has passed (the “covered

FBAR period”), file any delinquent FBARs (FinCEN Form 114, previously

Form TD F 90-22.1), and (3) pay a Title 26 miscellaneous offshore penalty.

The full amount of the tax, interest, and miscellaneous offshore penalty due

in connection with these filings should be remitted with the amended tax

returns.

The Title 26 miscellaneous offshore penalty is equal to 5 percent of the

highest aggregate balance/value of the taxpayer’s foreign financial assets

that are subject to the miscellaneous offshore penalty during the years in

the covered tax return period and the covered FBAR period. For this

purpose, the highest aggregate balance/value is determined by aggregating

the year-end account balances and year-end asset values of all the foreign

2 In the above citation, “FBAR” is an abbreviation for the “Report of Foreign Bank and

Financial Accounts,” including Form TD-F 90-22.1 and successor forms such as the

FinCEN Form 114 referenced above. Requirements of FBAR filings and penalties for

failure to file are discussed more fully below.

3

financial assets subject to the miscellaneous offshore penalty for each of

the years in the covered tax return period and the covered FBAR period and

selecting the highest aggregate balance/value from among those years.

A foreign financial asset is subject to the 5-percent miscellaneous offshore

penalty in a given year in the covered FBAR period if the asset should have

been, but was not, reported on an FBAR (FinCEN Form 114) for that year.

A foreign financial asset is subject to the 5-percent miscellaneous offshore

penalty in a given year in the covered tax return period if the asset should

have been, but was not, reported on a Form 8938 for that year. A foreign

financial asset is also subject to the 5-percent miscellaneous offshore

penalty in a given year in the covered tax return period if the asset was

properly reported for that year, but gross income in respect of the asset was

not reported in that year.

U.S. Taxpayers Residing in the United States, INTERNAL REVENUE SERVICE,

https://www.irs.gov/individuals/international-taxpayers/u-s-taxpayers-residing-in-the-

united-states (last visited Aug. 23, 2022). The IRS website additionally states that

if returns properly filed under these procedures are subsequently selected

for audit under existing audit selection processes, the taxpayer will not be

subject to accuracy-related penalties with respect to amounts reported on

those returns, or to information return penalties or FBAR penalties, unless

the examination results in a determination that the original return was

fraudulent and/or that the FBAR violation was willful.

Id.

In a separate section from, but on the same page as, the above-reproduced

instructions, the IRS website provides “Specific Instructions” for the Streamlined Domestic

Offshore Procedures, including the following:

Complete and sign a statement on the Certification by U.S. Person Residing

in the U.S. (Form 14654) certifying: (1) that you are eligible for the

Streamlined Domestic Offshore Procedures; (2) that all required FBARs

have now been filed (see instruction 9 below); (3) that the failure to report

all income, pay all tax, and submit all required information returns, including

FBARs, resulted from non-willful conduct; and (4) that the miscellaneous

offshore penalty amount is accurate (see instruction 5 below). You must

maintain your foreign financial asset information supporting the self -certified

miscellaneous offshore penalty computation and be prepared to provide it

upon request. You must submit an original signed statement and attach

copies of the statement to each tax return and information return being

submitted through these procedures. You should not attach copies of the

statement to FBARs. Failure to submit this statement, or submission of an

incomplete or otherwise deficient statement, will result in returns being

4

processed in the normal course without the benefit of the favorable terms

of these procedures.

Id.

The “miscellaneous offshore penalty” identified by the Streamlined Domestic

Offshore Procedures instructions is relevant to the case currently before the court, as

plaintiffs only seek the return of the Miscellaneous Offshore Penalty paid by Mrs. Jones

upon application to the Streamlined Procedures. According to defendant’s motion to

dismiss, payment of the Miscellaneous Offshore Penalty for the Streamlined Procedures

could only “‘serve as a compromise for all penalties not involving willfulness for the three

years covered by the program,’” and the IRS could still pursue participating taxpayers “for

fraud-related penalties for all years and for willful FBAR penalties for all years, as well as

for other penalties from the years prior to the three years submitted under the Streamlined

Procedures.”3 (emphasis in original) (quoting Maze v. United States, 206 F. Supp. 3d 1,

7 (D.D.C. 2016)).

In addition to the Miscellaneous Offshore Penalty associated with the Streamlined

Procedures, discussed above, this case concerns a second, separate category of penalty,

what are referred to as willful FBAR penalties. Under the Bank Secrecy Act, 31 U.S.C. §§

5311 et seq. (2018),

the Secretary of the Treasury shall require a resident or citizen of the United

States or a person in, and doing business in, the United States, to keep

records, file reports, or keep records and file reports, when the resident,

citizen, or person makes a transaction or maintains a relation for any person

with a foreign financial agency.

31 U.S.C. § 5314(a). The regulation at 31 C.F.R. § 1010.350 (2021), promulgated

pursuant to the Bank Secrecy Act, prescribes the use of “the Report of Foreign Bank and

Financial Accounts [FBAR] (TD-F 90-22.1), or any successor form,” for reports required

under 31 U.S.C. § 5314. 31 C.F.R. § 1010.350(a) (2021). “FBAR” is an acronym for the

report required under the Bank Secrecy Act, and penalties assessed for failure to comply

with FBAR reporting requirements are referred to as “FBAR penalties.”

3 By contrast, participation in the OVDP, which is not at issue in this case, afforded the

following benefits: a compromise of all penalties owed by the taxpayer, including FBAR

penalties, except accuracy-related and failure-to-file penalties; not to “recommend

criminal prosecution to the Department of Justice for any issue relating to tax

noncompliance or failure to file Report of Foreign Bank and Financial Accounts [FBARs];”

and a closing agreement settling tax obligations relating to the disclosed period and prior

years. Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers

2014, INTERNAL REVENUE SERVICE, https://www.irs.gov/individuals/internation al-

taxpayers/offshore-voluntary-disclosure-program-frequently-asked-questions-and-

answers-2014 (last visited Aug. 23, 2022).

5

FBAR penalties are assessed pursuant to 31 U.S.C. § 5321 against United States

citizens and residents who fail to report their interest in any foreign accounts they hold,

as required by the statute at 31 U.S.C. § 5314 and the implementing regulation, 31 C.F.R.

§ 1010.350. In general, FBAR penalties “shall not exceed $10,000.” 31 U.S.C. §

5321(a)(5)(B)(i). The statute at 31 U.S.C. § 5321(a)(5)(C), however, provides that “[i]n the

case of any person willfully violating, or willfully causing any violation of, any provision of

section 5314,” the FBAR penalty shall be assessed at the greater of $100,000.00, id. §

5321(a)(5)(C)(i)(I), or, as relevant to the above captioned case, “50 percent of the

amount” of “the balance in the account at the time of the violation.” Id. §§

5321(a)(5)(C)(i)(II), 5321(a)(5)(D)(ii).4

According to plaintiffs’ complaint, Margaret J. Jones was a citizen of Canada and

of the United States at the time of her death on March 11, 2021. According to plaintiffs’

complaint, “Mrs. Jones was born in Canada in 1928 and lived there for the first 26 years

of her life.” Jeffrey L. Jones, Mrs. Jones’ late husband, “was born in New Zealand in 1919

and lived there for the first thirty years of his life.” Mrs. Jones and her husband met and

were married in Canada and in 1954 Mrs. Jones and her husband moved to the United

States, to California. According to plaintiffs’ complaint, Mrs. Jones and her husband

became citizens of the United States in 1969. According to plaintiffs’ complaint, Mrs.

Jones and her husband both possessed a high school education and neither attended

college, “[n]or did either of them ever have any formal tax, accounting, financial, or legal

training.” Mr. Jones died on March 11, 2013. Margaret Jones died on March 11, 2021.

While living in the United States, Mrs. Jones and her husband maintained foreign

bank accounts in Canada and New Zealand. According to plaintiffs’ Proposed Statement

of Uncontroverted Facts originally filed in support of a summary judgment motion in one

of the actions filed by or against Mrs. Jones, in her own capacity or as executor of Mr.

Jones’ estate, in the United States District Court for the Central District of California,

Jones v. United States, No.19-00173-JVS(RAO),5 which was attached to plaintiffs’ current

4The statute at 31 U.S.C. § 5321(a)(5)(C)(ii) additionally states that, for willful violations

of the FBAR reporting requirement, “subparagraph (B)(ii),” which prescribes that “[n]o

penalty shall be imposed” when “such violation was due to reasonable cause” and the

amount in question “was properly reported,” 31 U.S.C. § 5321(a)(5)(B)(ii)(I)-(II), “shall not

apply.” Id. § 5321(a)(5)(C)(ii).

5 As discussed further below, three cases regarding the tax obligations of Mr. and Mrs.

Jones were filed in the Central District of California prior to the filing of the above

captioned case in this court: Margaret Jones, as Executor, Estate of Jeffrey Jones v.

United States, Case No. 19-00173-JVS(RAO), brought by Mrs. Jones, on behalf of the

estate of her husband, to recover a partial payment made on a penalty assessed against

the estate; Margaret Jones v. United States, Case No. 19-04950-JVS(RAO), brought by

Mrs. Jones, in her individual capacity, to recover a partial payment made on a penalty

assessed against her individually; and United States v. Margaret Jones, Individually, and

Margaret Jones, as Executor, Estate of Jeffrey Jones, Case No. 20-06173-JVS(RAO),

6

complaint in this court, Mrs. Jones and her husband had eleven foreign accounts during

the period of time at issue in this case: “three in Canada and eight in New Zealand.”

According to the same Proposed Statement of Uncontroverted Facts, of the eleven

foreign accounts, “[f]our of the New Zealand accounts were solely in the name of Mr.

Jones,” “[t]hree of the foreign accounts (two in Canada and one in New Zealand) were

solely in the name of Mrs. Jones,” and Mrs. Jones and her husband “jointly held four

foreign accounts,” one in Canada and three in New Zealand. From the record before the

court, it appears that prior to the death of Mr. Jones, Mrs. Jones and her husband did not

report or otherwise disclose the existence of the foreign accounts to the IRS in their tax

returns or to their tax return preparer, Mr. William Burke, a certified public accountant.

According to plaintiffs’ complaint in this court, on July 7, 2014, more than one year

after her husband’s death, Mrs. Jones completed two “Forms 1040X, for each of the tax

years 2011 and 2012, reporting all unreported income from all the foreign accounts . . .

paying outstanding income taxes, and checking the ‘yes’ box on the Schedule B

acknowledging the ownership of foreign accounts.” The Forms 1040X are titled “Amended

U.S. Individual Income Tax Return,” (capitalization in original), and Mrs. Jones filed the

Forms 1040X for both 2011 and 2012 jointly with the estate of her husband, filling in the

names of Jeffrey L. Jones and of Margaret J. Jones, as well as including their respective

Social Security numbers, on both Forms 1040X. Both Forms 1040X are referenced in

plaintiffs’ complaint in this court. The Forms 1040X completed by Mrs. Jones appear to

be the first acknowledgement to the IRS by Mrs. Jones, both in her individual capacity

and as the executor of her husband’s estate, regarding ownership of the foreign accounts.

Each Form 1040X provides, in relevant part, amended information regarding Mr. and Mrs.

Jones’ adjusted gross income, taxable income, and tax liability for the relevant tax year.

Attached to each Form 1040X is an amended Schedule B, “Interest and Ordinary

Dividends,” for the relevant year, which, like the Forms 1040X they accompany, were

referenced in plaintiffs’ complaint and filed with this court.

The Form 1040X for tax year 2011 notes corrections to what was originally

reported for the adjusted gross income, taxable income, and tax liability for Mr. and Mrs.

Jones for tax year 2011. Mr. and Mrs. Jones’ adjusted gross income, originally reported

as $445,691.00, should have been reported as $696,900.00, a difference of $251,209.00

for tax year 2011; Mr. and Mrs. Jones’ taxable income, originally reported as $395,847.00,

should have been reported as $647,056.00, also a difference of $251,209.00 for tax year

2011; and Mr. and Mrs. Jones’ tax liability, originally reported as $120,931.00, should

have been $172,035.00, a difference of $51,104.00 for tax year 2011.

As noted above, attached to the Form 1040X for 2011 is an amended Schedule B

for the same tax year. The amended Schedule B for tax year 2011, which is titled “Interest

and Ordinary Dividends,” and which states “[a]ttach to Form 1040A or 1040,” includes

three parts, “Part I Interest,” “Part II Ordinary Dividends,” and “Part III Foreign Accounts

brought by the government to recover the balance due on the penalties assessed against

Mrs. Jones and against the estate of Mr. Jones.

7

and Trusts.”6 For Parts I and II, Mrs. Jones listed the interest and dividends, respectively,

from financial institutions, including ANZ Bank, Bell Gully, Chase, County Commerce

Bank, Heartland Bank, Morgan Stanley, New Zealand Inland Revenue, Royal Bank of

Canada, US Bank, and Wells Fargo, in Part I, and Morgan Stanley, in Part II. “Part III

Foreign Accounts and Trusts” asks the following questions, to which Mrs. Jones provided

the following answers:

You must complete this part if you (a) had over $1,500 of Yes No

taxable interest or ordinary dividends; (b) had a foreign

account; or (c) received a distribution from, or were a grantor

of, or a transferor to, a foreign trust.

7a At any time during 2011, did you have a financial interest X

in or signature authority over a financial account (such as a

bank account, securities account, or brokerage account)

located in a foreign country? See instructions

…………………………………………………………………….

If ‘Yes,’ are you required to file Form TD F 90-22.1 [FBAR] X

to report that financial interest or signature authority? See

Form TD F 90-22.1 and its instructions for filing requirements

and exceptions to those requirements

…………………………………................................................

b If you are required to file Form TD F 90-22.1, enter the

name of the foreign country where the financial account is

located. SEE STATEMENT 8

8 During 2011, did you receive a distribution from, or were X

you the grantor of or, or transferor to, a foreign trust? If ‘Yes,’

you may have to file Form 3520. See instructions

…………………………………………………………………….

(capitalization and emphasis in original). Mrs. Jones also attached to the Form 1040X

amended tax return for 2011 an “Explanation of Changes” which references Part III of the

amended Schedule B for 2011 and states:

6 Plaintiffs’ filings frequently refer to “Part IV” of the amended Schedule B form. The

amended Schedule B forms included in the record currently before this court do not

contain a “Part IV,” although plaintiffs state in their response to defendant’s motion to

dismiss that Mrs. Jones “check[ed] the ‘yes’ box on the Part IV of Schedule B, reflecting

ownership of these foreign accounts.” Plaintiffs’ references to “Part IV” and “the ‘yes’ box”

therein appear, therefore, to be references to “Part III Foreign Accounts and Trusts” of

Schedule B, which does contain a “‘yes’ box” that Mrs. Jones checked in her amended

tax returns, Forms 1040X, for the tax years 2011 and 2012.

8

MRS. MARGARET JOSEPHINE JONES IS A CANADIAN CITIZEN AND A

U.S. TAX RESIDENT.[7 ] SHE IS 85 YEARS OLD AND HAS BEEN

RESIDING IN THE U.S. FOR MANY YEARS AS A NATURALIZED

CITIZEN.

MR. JEFFREY LEWIS JONES, THE LATE HUSBAND OF MRS. JONES,

PASSED AWAY IN MARCH 2013 AT AGE 93. HE WAS A NEW ZEALAND

CITIZEN AS WELL AS A U.S. TAX RESIDENT AND NATURALIZED

CITIZEN.

MRS. JONES’S UNDERSTANDING WAS THAT THE TAXES WITHHELD

IN THE FOREIGN COUNTRIES, SUCH AS NEW ZEALAND’S 10%

WITHHOLDING TAX, WERE THE FINAL TAXES DUE ON THOSE

INCOME AMOUNTS UNTIL SUCH TIME AS THE UNDERLYING FUNDS

WERE BROUGHT INTO THE U.S.

THIS FORM 1040X IS BEING FILED TO INCLUDE IN INCOME THE

AMOUNTS OF INTEREST INCOME GENERATED BY THE BANK

ACCOUNTS FOR THE RELEVANT YEAR AND TO REVISE THE

AMOUNT OF FOREIGN TAX CREDIT CLAIMED FOR ANY

WITHHOLDING TAXES PAID.

THE ADDITIONAL INTEREST INCOME INCREASES ADJUSTED GROSS

INCOME BY $251,209 (LINE 8A, FORM 1040). IN ADDITION, A FOREIGN

TAX CREDIT OF $22,699 IS BEING CLAIMED (LINE 47, FORM 1040).

THE COMBINED CHANGES INCREASE TAX BY $51,104.

(capitalization in original).

Mrs. Jones also completed a Form 1040X amended tax return for tax year 2012

on behalf of herself and her deceased husband, which defendant filed with the court. The

Form 1040X for tax year 2012 notes corrections to what was originally reported for the

adjusted gross income, taxable income, and tax liability for Mr. and Mrs. Jones for tax

year 2012. Mr. and Mrs. Jones’ adjusted gross income, originally reported as

$376,066.00, should have been reported as $621,258.00, a difference of $245,192.00 for

tax year 2012; Mr. and Mrs. Jones’ taxable income, originally reported as $334,380.00,

should have been reported as $579,572.00, also a difference of $245,192.00 for tax year

7 Mrs. Jones referred to herself as a “U.S. tax resident” on the Explanation of Changes

form, presumably because as a “resident” of the United States, she was eligible to

participate in the Streamlined Domestic Offshore Procedures, which are reserved for

“residents” of the United States. In other documents in the record before the court, Mrs.

Jones or the executor plaintiffs in this court refer to Mrs. Jones as a Canadian citizen, and

to Mr. Jones as a New Zealand citizen. According to plaintiffs’ complaint, however, “Mr.

and Mrs. Jones became citizens of the United States in 1969.”

9

2012; and Mr. and Mrs. Jones’ tax liability, originally reported as $96,264.00, should have

been $148,577.00, a difference of $52,313.00 for tax year 2012.

As with the Form 1040X for 2011, attached to the Form 1040X for 2012 is an

amended Schedule B, which includes the same three parts as the Schedule B for tax year

2011, “Part I Interest,” “Part II Ordinary Dividends,” and “Part III Foreign Accounts and

Trusts.” The financial institutions listed under Parts I and II on the Schedule B for tax year

2012 are identical to those listed on the Schedule B for tax year 2011. Similarly, the

questions and answers included in Part III of the Schedule B for tax year 2012 are

identical to the questions and answers included in Part III of the Schedule B for tax year

2011, except that all references to 2011 in the questions instead refer to 2012 and Mrs.

Jones’ answer to question 7b read “SEE STATEMENT 7.” (capitalization and emphasis

in original).

As she had done for the Form 1040X for tax year 2011, Mrs. Jones attached to the

Form 1040X for tax year 2012 an “Explanation of Changes” which references Part III and

which was identical to the “Explanation of Changes” attached to the Form 1040X for 2011,

except for the last paragraph of the Form 1040X for tax year 2012, which reads: “THE

ADDITIONAL INTEREST INCOME INCREASES ADJUSTED GROSS INCOME BY

$245,192 (LINE 8A, FORM 1040). IN ADDITION, A FOREIGN TAX CREDIT OF $22,986

IS BEING CLAIMED (LINE 47, FORM 1040). THE COMBINED CHANGES INCREASE

TAX BY $52,313.” (capitalization in original).

According to the copies of the Forms 1040X filed with the court by defendant, Mrs.

Jones does not appear to have signed either the Form 1040X for 2011 or for 2012, nor

was either form signed by a tax preparer of the forms. Instead, the signature portions of

both Forms 1040X note in the space “Spouse’s signature” that Mrs. Jones was “FILING

AS SURVIVING SPOUSE,” and the sections labeled “Paid Preparer Use Only” indicate

that Andrew W. Gardner of Vance Thrift & Biller LLP CPAs was the preparer of the Forms

1040X, without a signature. (capitalization in original). While the Forms 1040X in the

record currently before the court are not signed by Mrs. Jones or the preparer of the

forms, neither plaintiffs nor defendant have contested the accuracy or operative validity

of the Forms 1040X as presented to the court in this case.

After filing her amended tax returns for 2011 and 2012, Mrs. Jones applied to

participate in the Streamlined Procedures to resolve her outstanding tax liability with

respect to the foreign bank accounts. According to plaintiffs’ complaint,

[o]n March 16, 2015, Mrs. Jones filed a Domestic Streamlined Submission

[SDO][8 ] with the IRS which included (i) amended joint income tax returns

8 Plaintiffs frequently use “SDO” in relation to the Streamlined Procedures, including in

their complaint, which refers to “the ‘streamlined filing compliance procedures’ for

domestic individuals (‘SDO’),” (capitalization in original), as well as in plaintiffs’ response

to defendant’s motion to dismiss, which states that “Mrs. Jones filed a Domestic

Streamlined Submission (‘SDO’),” (capitalization and emphasis in original). Although

10

(Forms 1040X for 2011 and 2012 that had been previously filed on July 7,

2014 and an original form 1040 for 2013 that was filed April 15, 2014); (ii)

filed outstanding FBARs for 2008 through 2013; (iii) submitted a certificate

of non-willfulness, and (iv) paid a miscellaneous penalty of $156,795.26

[5%MOP] (the “Streamlined Submission”).

(emphasis in original; alterations in original except “[o]n;” footnote added). Plaintiffs’

complaint alleges that as part of the Streamlined Procedures, Mrs. Jones completed a

Form 14654 and paid a Miscellaneous Offshore Penalty in the amount of $156,795.26,

which was calculated based on five percent of “the highest account balance of” the foreign

accounts held by Mrs. Jones alone and by Mr. and Mrs. Jones jointly during the years

2008 through 2013. Plaintiffs’ complaint further alleges that on the Form 14654, “[t]o meet

the eligibility requirements for a streamlined submission, Mrs. Jones submitted a

certification under penalty of perjury certifying that her failure to report her foreign

accounts did not result from willful conduct.”

The record currently before the court contains two versions of the Form 14654

completed by Mrs. Jones. The first version was submitted by plaintiffs as an attachment

to their complaint, but while the form was filled out, the form was unsigned and undated.

The first version of the Form 14654 also is accompanied by no attachments. The second

version was submitted by defendant as an attachment to the motion to dismiss currently

before the court, and the second version was signed by Mrs. Jones, dated April 13, 2015,

and accompanied by two attachments, Attachment A and Attachment B. Otherwise the

two versions of the Form 14654 are identical. Neither party has controverted the contents

of the Form 14654 or Attachments A and B. Although Mrs. Jones also was acting as the

executor of her late husband’s estate at the time that she completed the Form 14654,

Mrs. Jones completed the Form 14654 and entered the Streamlined Procedures only with

respect to her individual capacity, and not jointly for the estate of Mr. Jones.9

Attachment A consists of six pages, each corresponding to a tax year from 2008

to 2013 and each stating it contains “[i]nformation regarding Foreign Financial Assets

Subject to the 5% Miscellaneous Offshore Penalty.” (capitalization in original). Attachment

A provides the year-end balance for each of the relevant tax years for the eleven bank

accounts distributed among three financial institutions, Belly Gully and ANZ Bank in New

plaintiffs do not define the acronym “SDO,” it appears to stand for “Streamlined Domestic

Offshore,” in reference to the subset of the Streamlined Procedures under which Mrs.

Jones applied.

9That Mrs. Jones only entered the Streamlined Procedures in her individual capacity is

confirmed by plaintiffs’ response to defendant’s motion to dismiss, which states that “the

estate did not enter into the program because it was not clear it was ever available for an

estate; which has since been corrected by the IRS in their later SFCP [Streamlined Filing

Compliance Procedures] rules.” (alteration added). The record currently before the court

does not indicate whether Mrs. Jones or her executors ever filed to enter the Streamlined

Procedures on behalf of the estate of Mr. Jones after the IRS issued its correction.

11

Zealand and Royal Bank of Canada in Canada. Attachment A provides that the total year-

end balance of the eleven foreign accounts was $1,557,423.37 in 2008, $1,997,024.69 in

2009, $2,908,403.63 in 2010, $2,948,375.11 in 2011, $3,135,905.24 in 2012, and

$3,001,106.12 in 2013. According to the Proposed Statement of Uncontroverted Facts

and Conclusions of Law, previously filed by Mrs. Jones in proceedings in the Central

District of California and attached to plaintiffs’ complaint in the above captioned case, all

the accounts listed in Attachment A to Mrs. Jones’ Form 14654 were held either in the

name of Mrs. Jones alone or jointly in the names of Mr. and Mrs. Jones.

In Attachment B, Mrs. Jones states the following:

As the attachment B of the IRS Form 14654, I, Mrs. Margaret J. Jones, am

providing the specific reasons why, due to non-willful conduct, I did not

report all income, pay all tax, and submit all required information returns

with respect to my foreign financial assets.

Based on the facts listed below, I will explain my misunderstandings

regarding the foreign financial assets belonging to my late husband and I,

going back to World War II; and why my misunderstanding was in good faith

and based upon what I have now learned was an erroneous belief about

U.S. taxation of foreign source income.

1. I am a Canadian citizen and a U.S. tax resident. I have been residing

in the U.S. for many years, where I became a naturalized citizen.

2. My late (deceased) husband, Mr. Jeffrey Lewis Jones, was born on

November 25, 1919, and passed away in March 2013. He was born in

New Zealand and was always a citizen as well as a U.S. tax resident

and naturalized citizen.

3. Around the time of World War II, and while a resident of New Zealand,

my husband established certain investment accounts in New Zealand.

I was not aware of these accounts until fairly recently, when he became

ill shortly before his death.

4. My husband also inherited various New Zealand assets from his

parents when they passed away in New Zealand several decades ago.

5. Prior to his death, my husband added me as a joint owner of some of

his New Zealand accounts. Neither my husband nor I ever used or

spent the funds in these accounts as it was our understanding that we

would be subject to U.S. taxation (in addition to New Zealand taxation)

if those assets were brought to the U.S.

6. I separately established savings accounts in Canada many decades

ago, when I was living in Canada. Similarly, these Canadian accounts

12

grew substantially over the years. Jointly, the Canadian and New

Zealand accounts will be referenced as the “Bank Accounts.”

7. Neither I, nor my late husband ever spent or withdrew funds from any

of the Bank Accounts.

8. The assets and funds were held under my name only, where I was

transparent and openly communicated with the foreign financial and

legal advisors regarding the ongoing investments and reinvestments.

9. I do not have specific training or a background in tax, finance, or

related accounting matters, although I consider myself an educated

and knowledgeable woman (now of an advanced age).

10. I was under the belief (which I now realize was a misunderstanding,

based upon subsequent legal advice I received) that unless assets are

brought to the United States, the income from those foreign assets are

not subject to U.S. income taxation and would only be taxed in the

foreign country where the income is earned.

11. My understanding was that the taxes withheld in the foreign countries,

such as New Zealand’s withholding tax, were the final taxes due on

those income amounts until such time as the underlying funds were

brought into the U.S. Such understanding was based on advice my

husband received from this New Zealand tax and legal counsel. Hence

the assets were left in the foreign accounts during our lifetimes.

12. My husband and I had been jointly filing U.S. federal income tax

returns for the last several years, but we never reported the interest

income generated by the Bank Accounts on those returns based upon

our erroneous understanding of how the U.S. tax laws apply to foreign

source income.

13. Neither my husband nor I filed Treasury Form TD F 90-22.1, Report of

Foreign Bank and Financial Accounts reporting our interests in the

Bank Accounts (the “FBAR”), prior to doing so for the 2013 tax year

because we were never advised of the requirement to file such FBAR

form.

14. My husband and I always hired a professional tax return preparer (who

was a U.S. CPA), to prepare our U.S. federal and California income

tax returns.

15. My husband’s and my U.S. CPA, who prepared our U.S. income tax

returns, knew that I am from Canada and that my husband was from

New Zealand. He was aware that I am a Canadian citizen and

13

immigrant to the U.S. and that my late husband was a New Zealand

citizen and immigrant to the U.S.

16. My husband’s and my U.S. CPA never asked the two of us if we had

assets in either of our native countries of New Zealand or Canada. He

also never asked my husband or me if we had foreign accounts that

would need to be reported.

17. None of the U.S. tax return preparers of my husband and I ever

advised us of the requirements: (i) to file annual FBAR forms, and (ii)

report our interest income earned from the Bank Accounts on our

annual Form 1040.

18. I started to become aware of various reporting requirements of foreign

bank accounts after contacting my current U.S. tax attorney, who

specializes in international tax and reporting matters.

19. I have otherwise complied with my U.S. tax reporting and compliance

responsibilities under the law and have been meticulous and detailed

about complying with all laws and taxation laws.

In short, the facts presented above demonstrate that my understanding of

the law was a good faith misunderstanding of how United States taxation

law applies to assets located in the country of origin of immigrants, such as

is my case since I am from Canada and my late (deceased) husband who

was from New Zealand.

As a result, the consequence of my actions was non-willful.

(capitalization and emphasis in original). At the bottom of Attachment B is the following

certification: “Under penalties of perjury, I declare that I have examined this document, all

attachments, and accompanying statements, and to the best of my knowledge and belief,

they are true, correct, and complete.” Mrs. Jones signed and certified Attachment B.

On the Form 14654, Mrs. Jones provided the following certification:

I am providing amended income tax returns, including all required

information returns, for each of the most recent 3 years[10] for which the

10 The references on the Form 14654 to “3 years” and to the years 2011, 2012, and 2013

in the context of amended tax returns appear to relate to the requirement, stated on the

IRS website, noted above, that participants in the Streamlined Domestic Offshore

Procedures are required to, “for each of the most recent 3 years for which the U.S. tax

return due date (or properly applied for extended due date) has passed (the ‘covered tax

return period’), file amended tax returns . . . .” U.S. Taxpayers Residing in the United

States, Internal Revenue Service, https://www.irs.gov/individuals/internation al -

14

U.S. tax return due date (or properly applied for extended due date) has

passed. I previously filed original tax returns for these years. The tax and

interest I owe for each year are as follows[.]

(alterations added). On the Form 14654, Mrs. Jones entered “$0.00” as the “Amount of

Tax I Owe” for each of the tax years 2011, 2012, and 2013. (capitalization in original).

Mrs. Jones further certified on the Form 14654 that:

I failed to report income from one or more foreign financial assets during the

above period.

I meet all the eligibility requirements for the Streamlined Domestic Offshore

procedures.

If I failed to timely file correct and complete FBARs for any of the last 6

years, I have now filed those FBARs.

During each year in either my 3-year covered tax return period or my 6-year

covered FBAR period, my foreign financial assets subject to the 5%

miscellaneous offshore penalty were as follows[.]

(capitalization in original; alterations added). According to the Form 14654, rather than

using the spaces provided on the form, Mrs. Jones wrote for each of the tax years 2008

through 2013, “[p]lease find all accounts information in Page 1[-6] of Attachment A[.]”

(alterations added). The Form 14654 states at the conclusion of the certification: “The

assets listed in this certification are my only foreign financial assets subject to the

5% miscellaneous offshore penalty.” (emphasis in original).

Following the certification, the Form 14654 provides for the taxpayer completing

the form to compute the Miscellaneous Offshore Penalty. The Form 14654 directs Mrs.

Jones to “enter the highest total balance/asset value among the years listed above,”

referring to the years 2008 through 2013. (emphasis in original). Mrs. Jones entered

“$3,135,905.24 for tax year 2012” in the space provided. The Form 14654 then provides

that the Miscellaneous Offshore Penalty would be equal to the “Highest Account

Balance/Asset Value from above multiplied by 5%,” which on Mrs. Jones’ form equaled

$156,795.26. (emphasis in original). The Form 14654 also states: “Note: Your payment

should equal the total tax and interest due for all three years [2011, 2012, and 2013] plus

the miscellaneous offshore penalty. You may receive a balance due notice or a refund if

the tax, interest, or penalty is not calculated correctly.” Mrs. Jones indicated that she owed

nothing aside from the Miscellaneous Offshore Penalty, and for this reason in the space

labeled “Total Payment” on the Form 14654, Mrs. Jones entered an amount equal to the

Miscellaneous Offshore Penalty.

taxpayers/u-s-taxpayers-residing-in-the-united-states (last visited Aug. 23, 2022). For

Mrs. Jones, the three years would have been 2011, 2012, and 2013, because the “tax

return due date” for 2014, April 15, 2015, had not yet passed.

15

Following the calculation section of the Miscellaneous Offshore Penalty to be paid

by Mrs. Jones, Mrs. Jones’ Form 14654 includes the following:

In consideration of the Internal Revenue Service’s agreement not to assert

other penalties with respect to my failure to report foreign financial assets

as required on FBARs or Forms 8938 or my failure to report income from

foreign financial assets, I consent to the immediate assessment and

collection of a Title 26 miscellaneous offshore penalty for the most recent

of the three tax years for which I am providing amended income tax returns.

I waive all defenses against and restrictions on the assessment and

collection of the miscellaneous offshore penalty, including any defense

based on the expiration of the period of limitations on assessment or

collection. I waive the right to seek a refund or abatement of the

miscellaneous offshore penalty.

I agree to retain all records (including, but not limited to, account

statements) related to my assets subject to the 5% miscellaneous offshore

penalty until six years from the date of this certification. I also agree to retain

all records related to my income and assets during the period covered by

my amended income tax returns until three years from the date of this

certification. Upon request, I agree to provide all such records to the Internal

Revenue Service.

My failure to report all income, pay all tax, and submit all required

information returns, including FBARs, was due to non-willful conduct. I

understand that non-willful conduct is conduct that is due to negligence,

inadvertence, or mistake or conduct that is the result of a good faith

misunderstanding of the requirements of the law.

I recognize that if the Internal Revenue Service receives or discovers

evidence of willfulness, fraud, or criminal conduct, it may open an

examination or investigation that could lead to civil fraud penalties, FBAR

penalties, information return penalties, or even referral to Criminal

Investigation.

Provide specific reasons for your failure to report all income, pay all tax, and

submit all required information returns, including FBARs. If you relied on a

professional advisor, provide the name, address, and telephone number of

the advisor and a summary of the advice. If married taxpayers submitting a

joint certification have different reasons, provide the individual reasons for

16

each spouse separately in the statement of facts. The field below[11 ] will

automatically expand to accommodate your statement of facts.

The Form 14654 concludes with a declaration by Mrs. Jones that the information

contained in the Form 14654 and “all accompanying schedules and statements” was

“true, correct, and complete.”

It is the Form 14654, with the terms contained therein and the accompanying

payment of the Miscellaneous Offshore Penalty, which plaintiffs claim, in Count One of

their complaint filed in this court, constituted a contract between Mrs. Jones and the IRS.

According to plaintiffs’ complaint, Mrs. Jones paid the Miscellaneous Offshore Penalty to

the IRS as calculated by Mrs. Jones on the Form 14654, in the amount of $156,795.26.

After Mrs. Jones submitted her Form 14654 and paid the Miscellaneous Offshore

Penalty, Internal Revenue Agent Keli Stelmar informed Mrs. Jones, in a letter dated

September 13, 2016, which was attached to defendant’s motion to dismiss, that her

“federal return for the period(s) shown above was selected for examination” with respect

to the “Tax period(s)” “December 31, 2013.” The letter instructed Mrs. Jones to “call me

on or before the response date” of September 27, 2016 to discuss five matters: (1) “[i]tems

on your return that I will be examining;” (2) “[t]ypes of documents I will ask you to provide;”

(3) “[t]he examination process;” (4) “[a]ny concerns or questions you may have;” and (5)

“[t]he date, time and agenda for our first meeting.” The letter referred to “preliminary items

identified for examination,” and listed only one, “[i]ncome,” although the letter stated that

“[d]uring the course of the examination, it may be necessary to add or reduce the list of

items.”

According to the record before the court, in 2018, the IRS commenced an

examination of the Joneses’ failure to report their foreign accounts. In a letter dated May

11, 2018, Internal Revenue Agent Keli Kim (formerly Keli Stelmar) informed Mrs. Jones

that, “[a]s the executrix of the Estate of Jeffrey L. Jones, we are notifying you of an

examination of Jeffrey L. Jones’ compliance with the filing of FinCEN Report 114 (formerly

Form TD F 90-22.1) Report of Foreign Bank and Financial Accounts (FBAR).” The letter

informed Mrs. Jones that

Section 5314[12 ] of Title 31 of the United States Code (U.S.C.) requires U.S.

persons, including U.S. citizens, U.S. residents, and certain entities formed

11 Rather than filling in the field referred to in the Form 14654’s instructions, Mrs. Jones

inserted the statement, “[p]lease see Attachment B as the statement with respect to the

specific reasons for the Taxpayer,” (capitalization in original), which is discussed above.

12 31 U.S.C. § 5314 (2018) provides:

(a) Considering the need to avoid impeding or controlling the export or

import of monetary instruments and the need to avoid burdening

unreasonably a person making a transaction with a foreign financial agency,

17

under U.S. law, to report their financial interest in or authority over any

foreign financial accounts if the total value of these financial accounts

exceeds $10,000[13 ] during a calendar year.

the Secretary of the Treasury shall require a resident or citizen of the United

States or a person in, and doing business in, the United States, to keep

records, file reports, or keep records and file reports, when the resident,

citizen, or person makes a transaction or maintains a relation for any person

with a foreign financial agency. The records and reports shall contain the

following information in the way and to the extent the Secretary prescribes:

(1) the identity and address of participants in a transaction or

relationship.

(2) the legal capacity in which a participant is acting.

(3) the identity of real parties in interest.

(4) a description of the transaction.

(b) The Secretary may prescribe—

(1) a reasonable classification of persons subject to or exempt from

a requirement under this section or a regulation under this section;

(2) a foreign country to which a requirement or a regulation under

this section applies if the Secretary decides applying the requirement

or regulation to all foreign countries is unnecessary or undesirable;

(3) the magnitude of transactions subject to a requirement or a

regulation under this section;

(4) the kind of transaction subject to or exempt from a requirement

or a regulation under this section; and

(5) other matters the Secretary considers necessary to carry out this

section or a regulation under this section.

(c) 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.

31 U.S.C. § 5314.

13 The $10,000 requirement stated in the May 11, 2018 letter and in later correspondence

from the IRS appears to be a reference to 31 C.F.R. § 1010.306(c), a regulation

promulgated pursuant to the Bank Secrecy Act, 31 U.S.C. §§ 5311 et seq., which

18

An FBAR examination is not an income tax examination. However, you may

be liable for penalties for failure to comply with 31 U.S.C. Section 5314. If

you’re required to file, you should report information about these foreign

bank and financial accounts on FinCEN Report 114. You must file the form

electronically with the Financial Crimes Enforcement Network (FinCEN) on

or before June 30 of the subsequent year. For example, the FBAR for

calendar year 2013 was due by June 30, 2014. If you’re required to file an

FBAR, you must keep certain records for five years.

According to plaintiffs’ complaint, following the May 11, 2018 letter notifying Mrs.

Jones of the FBAR examination, Mrs. Jones received two assessment letters from the

IRS. Each assessment letter purported to assess a “willful FBAR penalty,” the first letter

assessing a penalty against Mr. Jones, through his estate, and the second letter

assessing a penalty against Mrs. Jones. While the two assessment letters appear in the

same format and reach the same conclusion with respect to willfulness for Mr. Jones and

Mrs. Jones, respectively, the two assessment letters consider different facts or “factors”

as relevant to their respective determinations of willfulness, consider the balances of

different accounts in their calculation of the willful FBAR penalties, calculate different

FBAR penalties, and cover different years of FBAR violations. Moreover, the assessment

letters were received by Mrs. Jones on different dates, months apart, and, as a result,

Mrs. Jones took different approaches to challenging the willful FBAR penalties asserted

in the assessment letters.

As an initial matter, both assessment letters refer to Keli Kim as the “[p]erson to

contact.” Both assessment letters also include the following information with respect to

appealing the FBAR penalty assessment:

If you agree

If you agree to the assessment and collection of the proposed penalties,

please sign, date, and return the enclosed Form 13449, Agreement to

Assessment and Collection of Penalties Under 31 USC 5321 (a)(5) and

5321 (a)(6), in the envelope provided by the response due date, which is 30

days from the date of this letter. Make your check or money order payable

to the United States Treasury for the amount indicated on the agreement

form. If you agree but can’t pay in full, pay what you can with the Form

13449 by the response due date and we'll send you a bill for the remaining

amount with information on your payment options. We enclosed Notice

1330, Information on Making FBAR Penalty Payment by Check.

provides: “Reports required to be filed by § 1010.350 [FBAR reports] shall be filed with

FinCEN on or before June 30 of each calendar year with respect to foreign financial

accounts exceeding $10,000 maintained during the previous calendar year.” 31 C.F.R. §

1010.306(c) (2021) (alteration added).

19

If you disagree

If you don’t agree to the assessment and collection of the proposed

penalties, you can request a conference with our Appeals Office. To do so,

mail your written protest to the address shown at the top of this letter. Direct

your letter to the attention of the person listed as the “Person to contact” at

the top of this letter. We must receive your protest by the response due

date, which is 30 days from the date of this letter. Include the following in

your written protest:

1. A request for conference;

2. Your name, address, and daytime telephone number;

3. Your social security number, individual taxpayer identification

number, or employer identification number;

4. The date and number of this letter;

5. The calendar years involved;

6. The penalties you’re contesting;

7. An explanation of why you contest those penalties, including

any reasonable cause explanation;

8. All information pertinent to your position;

9. If applicable, a statement of law or other authority that you relied

on, and how that law or other authority applies to your case; and

10. The following signed statement: “Under penalties of perjury, I

declare that I have examined the facts presented in this

statement and any accompanying information, and, to the best

of my knowledge and belief, they are true and complete.”

Note: If you’re a representative submitting a protest on behalf of

another person, you should substitute a statement that you prepared

the protest, and that you know personally the statement of facts

contained in the protest are true and correct. Generally, you can rely

in good faith on information your client provides. However, you must

ask reasonable questions if the information appears to be incorrect,

inconsistent, or incomplete.

(capitalization and emphasis in original).

20

In addition, each assessment letter was accompanied by a Form 886-A,

“EXPLANATION OF ITEMS,” (capitalization in original), which set forth the facts and

analysis in support of the willful14 FBAR penalty assessments for the taxpayers and tax

years which are the subjects of their respective assessment letters. Plaintiffs identify each

Form 886-A by the name “Revenue Agent Report,” or the acronym “RAR.” The Forms

886-A for Mr. and Mrs. Jones present the same format for analyzing the conduct

concerning their respective accounts. Both Forms 886-A are addressed “[t]o determine

the taxpayer’s willful FBAR penalty pursuant to 31 U.S.C. § 5321(a)(5).” Both Form s 886-

A determine that Mr. and Mrs. Jones “had an FBAR filing requirement,” because Mr. and

Mrs. Jones each “was a U.S. person;” “had a financial account in a foreign country;” “had

a financial interest in the account or signature or other authority over the foreign financial

account; and” because “[t]he aggregate amount in the foreign financial accounts

exceeded $10,000 in U.S. currency at any time during the year.” Both Forms 886-A,

moreover, conclude that Mr. and Mrs. Jones, respectively, do not qualify for a “reasonable

cause” defense because they failed to disclose their foreign accounts to their tax return

preparer and “thereby eliminated a good-faith reliance defense.”

The first assessment letter, dated July 26, 2018, and accompanying Form 886-A,

were sent by the IRS to the “Estate of Jeffrey L. Jones” and to “Margaret Jones, Executor.”

The first assessment letter states that the IRS was “proposing a penalty” on the estate of

Mr. Jones “for violating the reporting or record keeping requirements for foreign financial

accounts.” The first assessment letter and Form 886-A sent to Mr. Jones’ estate concern

only calendar year 2011. The Form 886-A attached to the first assessment letter analyzes

the values of foreign bank accounts held by Mr. Jones alone and calculates a willful FBAR

penalty based on account values in 2011 only.

The Form 886-A for Mr. Jones lists the foreign accounts held by Mr. Jones alone

and by Mr. and Mrs. Jones jointly, and identifies two accounts at ANZ Bank, one account

at Heartland Bank, and one account at Morrison Kent as being owned by Mr. Jones alone,

and two accounts at Royal Bank of Canada, three accounts at Bell Gully, and two

accounts at ANZ Bank as being owned by Mr. and Mrs. Jones jointly during the tax year

2011. Despite listing accounts held jointly by Mr. and Mrs. Jones, however, the Form 886-

A for Mr. Jones only considers the accounts owned by Mr. Jones alone in calculating Mr.

Jones’ penalty assessment, as explained below. The Form 886-A for Mr. Jones lists

several factors that “were considered in evaluating the type and extent of FBAR penalties

that are appropriate,” for Mr. Jones alone, including “Knowledge of Foreign Accounts;”

“Foreign Accounts Concealed from US Tax Return Preparer;” “Foreign Accounts

Concealed from Internal Revenue Service;” and “Additional Acts of Concealment.”

14 The parties in their filings with the court use various labels to refer to the IRS’s

determination with respect to the assessment of FBAR penalties against Mrs. Jones and

her late husband, including “willfulness,” “willful blindness,” “recklessness,” and “reckless

disregard.” As discussed below, these ideas are broadly encompassed within the

common law definition of “willfulness” employed by courts when reviewing IRS willfulness

determinations. See, e.g., Landa v. United States, 153 Fed. Cl. 585, 597 (2021).

21

(capitalization and emphasis in original). The Form 886-A for Mr. Jones states, with

respect to “Knowledge of Foreign Accounts:”

Mr. Jones has a number of foreign bank accounts. Some are believed to

have been opened by Mr. Jones when he was residing in New Zealand prior

to moving to Canada in 1952 at the age of 33. Other foreign accounts were

inherited when his parents died in New Zealand at least 30 years ago. Mr.

Jones was completely aware of these foreign accounts and their account

balances as confirmed through statements made by his wife [Mrs. Jones]

and his property manager/friend [Mrs. Guzman].

Also, his foreign account statements and documents were mailed either to

his U.S. residence or to the address of a separate property he owned (Mrs.

Guzman's address).

(capitalization and emphasis in original; alterations added). With respect to “Foreign

Accounts Concealed from US Tax Return Preparer,” the Form 886-A for Mr. Jones states:

Mr. Jones has gone to the same US tax preparer for 28 years. During each

of those years, Mr. Jones failed to initiate any discussion with his US tax

return preparer, Mr. Burke, regarding the existence of his foreign accounts.

The New Zealand non-resident tax deduction certificates for at least one of

Mr. Jones' New Zealand accounts was mailed to the Jones' residence.

These certificates revealed interest income and New Zealand taxes

withheld. Those certificates were not disclosed to Mr. Burke.

With respect to “Foreign Accounts Concealed from Internal Revenue Service,” the Form

886-A for Mr. Jones states:

Mr. Jones' failure to make full disclosure of relevant facts to his return

preparer directly resulted in causing his return preparer to prepare false US

tax returns and falsely believe that he (Mr. Jones) did not have an FBAR

filing requirement.

Specifically, Mr. Jones caused his return preparer to check the box “No” in

preparing Part Ill of Form 1040 Schedule B for the year at issue, indicating

that Mr. Jones did not have an interest in or signature or other authority over

a foreign financial account. Mr. Jones signed each of the tax returns under

penalty of perjury.

(capitalization and emphasis in original). With respect to “Additional Acts of

Concealment,” the Form 886-A for Mr. Jones states:

Mr. Jones knew or at least should have known that he needed to seek

advice from knowledgeable tax professionals in the United States. Mr.

22

Jones clearly did not seek such advice from his U.S. income tax preparer,

Mr. Burke. It is not known whether he sought advice from any other

knowledgeable U.S. tax professional. However, Mr. Jones knew that by not

seeking such advice, he (Mr. Jones) was responsible for the risks and

consequences for his willful blindness.

Also, Mr. Jones not only concealed his foreign accounts from his return

preparer and the IRS, but he also concealed his foreign accounts from his

wife, children, and the attorney who drafted the Jones Family Living Trust.

Both Mrs. Jones and their daughter stated that the Jones Family Living

Trust only included US bank account and properties.

Also, per the interview with Mrs. Guzman:

• Mr. Jones' New Zealand bank documents were mailed to Mrs.

Guzman's house from sometime in 1980s to 2005. The large

envelopes came every 6 months.

• The New Zealand account representative also left phone messages

for Mr. Jones at Mrs. Guzman's house. Mr. Jones returned the calls

from Mrs. Guzman's house.

• Mr. Jones told Mrs. Guzman “this is between you and me.”

(capitalization and emphasis in original). Based on these factors, the Form 886-A for Mr.

Jones provides the following analysis:

Mr. Jones never disclosed to his return preparer of 28 years the fact that he

had foreign bank accounts. Mr. Jones also never disclosed to his return

preparer that he had foreign investment income.

As a direct result of Mr. Jones concealing this information from his return

preparer, a tax return was prepared that excluded this relevant information.

Mr. Jones signed the tax return, acknowledging under penalty of perjury that

the tax return was true, correct and complete.

Mr. Jones failed to make relevant disclosures to or inquiries of his tax return

preparer. These actions prevented his return preparer from either providing

advice on these issues or assisting with finding a more qualified and

experienced tax professional.

At best, Mr. Jones was willfully blind regarding his FBAR filing requirements.

In the “CONCLUSION ” section, the Form 886-A assesses against Mr. Jones a willful

FBAR penalty which, as noted above, is distinct from the Miscellaneous Offshore Penalty

23

already paid by Mrs. Jones. (capitalization and emphasis in original). The Form 886-A for

Mr. Jones states that, because the “Max. Aggregate Balance for ALL Accounts,”

meaning the accounts owned by Mr. Jones alone, was greater than $1,000,000.00, the

“Willful Penalty is the GREATER of” “$100,000 / violation” or “50% of balance at time

of violation.” (capitalization and emphasis in original). The Form 886-A calculates the

willful FBAR penalty at “the statutory maximum of $1,890,074 . . . .” (emphasis in original).

The Form 886-A for Mr. Jones bases this assessment on the “June 30, 2012 Balance” 15

of all foreign bank accounts held by Mr. Jones in 2011, as $3,780,662.00.

The record before the court indicates that, after Mrs. Jones received the first

assessment letter against Mr. Jones from the IRS, Mrs. Jones sent a pair of letters, at

first challenging and seeking to appeal the IRS’s assessment of a willful FBAR penalty

against Mr. Jones, and ultimately withdrawing any administrative appeal with the intent of

challenging the willful FBAR penalty assessment against Mr. Jones in court. The letters

were filed with the court by the parties. On August 27, 2018, approximately one month

after the first assessment letter, Mrs. Jones sent a letter to the IRS filing an appeal of the

willful FBAR penalty assessed against Mr. Jones, arguing that Mr. Jones’ failure to meet

his FBAR reporting requirements “was unintentional and inadvertent, a good faith

misunderstanding, and certainly not ‘willful’ (under any definition or construction of the

term ‘willfulness’).” According to the record before the court, one month later, on

September 27, 2018, Mrs. Jones, through her attorney, sent a second letter, stating that

her “physical and mental health is deteriorating rapidly,” and for that reason, the letter

stated,

we hereby withdraw the Protest [with respect to Mr. Jones] and ask that you

treat the Protest as if it were never submitted. More specifically, we request

that you proceed with assessing the 50% FBAR Penalty at issue as soon

as possible so that Mrs. Jones, one of the primary witnesses in this case,

can contest this matter in a fair, impartial, and hopefully more expeditious

forum while she is still alive.

(emphasis in original; alteration added).

The second of the two assessment letters, dated October 22, 2018, and

accompanying Form 886-A, were sent by the IRS to “Margaret J. Jones” in her individual

capacity after Mrs. Jones withdrew her administrative challenge of the willful FBAR

penalty against Mr. Jones. The second assessment letter states that the IRS was

“proposing a penalty” on Mrs. Jones “for violating the reporting or record keeping

requirements for foreign financial accounts.” The assessment letter sent to Mrs. Jones

15 The Forms 886-A for both Mr. and Mrs. Jones appear to base their assessed penalties

on the balance of the accounts concerned on June 30 of the year following the year at

issue; for Mr. Jones, 2011, and for Mrs. Jones, both 2011 and 2012. The use of June 30

appears to be a reference to 31 C.F.R. § 1010.306(c), which requires FBAR reports to

“be filed with FinCEN on or before June 30 of each calendar year with respect to foreign

financial accounts exceeding $10,000 maintained during the previous calendar year.”

24

concerns two “Calendar years,” “2011 & 2012.” The Form 886-A attached to the second

assessment letter analyzes the values of foreign bank accounts held by Mrs. Jones alone

and by Mr. and Mrs. Jones jointly,16 and calculates a willful FBAR penalty based on

account values in both 2011 and 2012.

The Form 886-A directed to Mrs. Jones states that it covers both tax years 2011

and 2012. The Form 886-A for Mrs. Jones lists the foreign accounts held by Mrs. Jones

alone as well as by Mr. and Mrs. Jones jointly, and identifies two accounts at Royal Bank

of Canada and one account at Bell Gully as being owned by Mrs. Jones individually, and

one account at Royal Bank of Canada, one account at Bell Gully, and two accounts at

ANZ Bank as being owned by Mr. and Mrs. Jones jointly during the tax years 2011 and

2012.17 The Form 886-A for Mrs. Jones lists several factors that “were considered in

evaluating the type and extent of FBAR penalties that are appropriate,” including

“Knowledge of Foreign Accounts;” “Mrs. Jones’ Background, Knowledge & Experience;”

“Foreign Accounts Concealed from US Tax Return Preparer;” “Mrs. Jones’ Selection of

US Tax Return Preparer;” “Foreign Accounts Concealed from Internal Revenue Service;”

and “Certifying Statements made by Mrs. Jones on Streamlined Application.”

(capitalization and emphasis in original). The Form 886-A for Mrs. Jones considers three

factors not considered in the Form 886-A for Mr. Jones, namely “Mrs. Jones’ Background,

Knowledge & Experience,” “Mrs. Jones’ Selection of US Tax Return Preparer;” and

“Certifying Statements made by Mrs. Jones on Streamlined Application.” The Form 886-

A for Mrs. Jones, however, does not consider a factor which was considered by the Form

886-A for Mr. Jones, “Additional Acts of Concealment.” The Form 886-A for Mrs. Jones

states, with respect to “Knowledge of Foreign Accounts:”

Mrs. Jones has a number of individual and joint foreign bank accounts.

Some are believed to have been opened by Mr. & Mrs. Jones while residing

in New Zealand and Canada prior to moving to U.S. Additional New Zealand

accounts were opened when their son studied in New Zealand in 1973.

Mrs. Jones was completely aware of these foreign accounts and their

account balances. She knew that her foreign investments performed “very

well.” Mrs. Jones also approved and directed foreign investment activities,

which were communicated via email with account representatives at Bell

Gully in New Zealand.

16 Neither the Forms 886-A nor the assessment letters indicate why, with respect to Mr.

Jones, only the balances of the accounts held solely in Mr. Jones’ name were used to

calculate the willful FBAR penalty, while with respect to Mrs. Jones, the accounts held

solely in Mrs. Jones’ name and those held jointly by her and Mr. Jones were used to

calculate the willful FBAR penalty.

17 The Forms 886-A do not explain why the Form 886-A for Mr. Jones identifies seven

accounts held jointly by Mr. and Mrs. Jones, while the Form 886-A for Mrs. Jones only

identifies four accounts held jointly by Mr. and Mrs. Jones.

25

(capitalization and emphasis in original). With respect to “Mrs. Jones’ Background,

Knowledge & Experience,” the Form 886-A for Mrs. Jones states:

By her own admission, Mr. Jones is an educated and knowledgeable

woman. She worked as a legal secretary for an estate planning law firm for

many years. She maintained the books and gathered tax records for their

multiple rental properties. She also made investment decisions and took the

initiative to have the family trust amended to include herself as a co-trustee.

(emphasis in original). With respect to “Foreign Accounts Concealed from US Tax Return

Preparer,” the Form 886-A for Mrs. Jones states:

Mrs. Jones has gone to the same US tax preparer for 28 years. During each

of those years, Mrs. Jones failed to initiate any discussion with her US tax

return preparer, Mr. Burke, regarding the existence of her foreign accounts.

The New Zealand non-resident tax deduction certificates for at least one of

Mrs. Jones’ New Zealand accounts was mailed to the Jones’ residence.

These certificates revealed interest income and New Zealand taxes

withheld. Those certificates were not disclosed to Mr. Burke.

The Canadian statement of amounts paid or credited to non-residents of

Canada was also mailed to the Jones’ residence. These statements

reported gross income and zero Canadian taxes withheld. Those

statements were also not disclosed to Mr. Burke.

In her Streamline application, Mrs. Jones states that she was “transparent

and openly communicated with the foreign financial and legal advisors

regarding the ongoing investments and reinvestments. However, she was

clearly NOT transparent or open in her communications with her US CPA.

Additionally, she stated during her interview that the [sic] she did not

disclose the foreign accounts to her CPA because it was “none of his

business.” In other words, Mrs. Jones made a deliberate and conscious

decision to NOT be transparent or open about her foreign accounts.

(capitalization and emphasis in original). With respect to “Mrs. Jones’ Selection of US Tax

Return Preparer,” the Form 886-A for Mrs. Jones states:

According to Mrs. Jones, her selection of Mr. Burke as the US tax return

preparer was based on a referral from a co-worker at the law firm where

she worked. The fact that Mrs. Jones never mentioned the foreign accounts

to Mr. Burke because they were “none of his business” indicates that Mrs.

Jones' selection of Mr. Burke as the return preparer was not based on his

knowledge and experience of the U.S. tax consequences of foreign issues.

This is further reinforced by the fact that Mr. Burke is indeed not familiar

with FBAR or foreign income reporting requirements.

26

(emphasis in original). With respect to “Foreign Accounts Concealed from Internal

Revenue Service,” the Form 886-A for Mrs. Jones states:

Mrs. Jones' failure to make full disclosure of relevant facts to her return

preparer directly resulted in causing her return preparer to prepare false US

tax returns and falsely believe that she (Mrs. Jones) did not have an FBAR

filing requirement.

Specifically, Mrs. Jones caused her return preparer to check the box “No”

in preparing Part Ill of Form 1040 Schedule B for the years at issue,

indicating that Mrs. Jones did not have an interest in or signature or other

authority over a foreign financial account.

The ability to respond accurately to that simple, straightforward question on

Schedule B does not require a background in tax, finance or accounting

matters. Regardless of what Mrs. Jones may have believed regarding

foreign taxes withheld or taxability of foreign income to US citizens, she

cannot dispute the fact that she knew the correct response to this question

was “Yes.”

Mrs. Jones admitted that at the completion of the U.S. tax preparation, Mr.

Burke would go over everything on the return. He would go through the tax

return page by page, line by line, all income and expenses. Mrs. Jones

signed each of the tax returns under penalties of perjury, declaring that she

examined the return and accompanying schedules and statements, and “to

the best of her knowledge and belief, they are true, correct, and complete.”

(capitalization and emphasis in original). With respect to “Certifying Statements made by

Mrs. Jones on Streamlined Application,” the Form 886-A for Mrs. Jones states:

“I am a Canadian citizen and a U.S. tax resident. I have been residing in the

U.S. for many years.”

• Mrs. Jones moved to the U.S. on a full time-basis in 1954. At the time

she made this statement, she had been living in the U.S. for

approximately 60 years, or approximately 70% of her life.

“I was under the belief (which I now realize was a misunderstanding, based

upon subsequent legal advice I received) that unless assets are brought to

the United States, the income from those foreign assets are not subject to

U.S. income taxation and would only be taxed in the foreign country where

the income is earned.”

• Mrs. Jones received statements of amounts paid or credited to non-

resident of Canada on her three Canadian accounts. The statements

27

indicate gross income was earned but ZERO taxes were withheld.

Mr. and Mrs. Jones did not file foreign income tax returns. Income

earned was not taxed in the foreign country where the income was

earned.

“Neither I, nor my late husband ever spent or withdrew funds from any of

the Bank Accounts.”

• According to Mrs. Jones' bank records, funds maintained in the

Royal Bank of Canada accounts were used to pay expenses incurred

in Canada. Royal Bank of Canada statements also reveal cash

withdrawals.

“My husband and I had been filing U.S. federal income tax returns for the

last several years, but we never reported the interest income generated by

the Bank Accounts on those returns based upon our erroneous

understanding of how the U.S. tax laws apply to foreign income.”

• Canada, New Zealand and United States residents are all required

to pay taxes on worldwide income.

“In short, the facts presented above demonstrate that my understanding of

the law was a good faith misunderstanding of how United States taxation

law applies to assets located in the country of origin of immigrants.”

• There is no evidence that Mrs. Jones made any "good faith" effort to

understand US tax laws. She did not tell her US return preparer or

any other qualified US tax professional.

(capitalization and emphasis in original). Based on these factors, the Form 886-A for Mrs.

Jones provides the following analysis:

Mrs. Jones never disclosed to her return preparer of 28 years the fact that

she had foreign bank accounts. Mrs. Jones also never disclosed to her

return preparer that she had foreign investment income, stating it was “none

of his business.” In reality, knowing such facts IS a tax return preparer's

business.

Mrs. Jones was asked why she checked the box “No” on Schedule B

regarding foreign accounts. Mrs. Jones replied, “I must have lied.”

As a direct result of Mrs. Jones intentionally concealing this information from

her return preparer, a tax return was prepared that excluded this relevant

information. Mrs. Jones signed the tax return, acknowledging under penalty

of perjury that the tax return was true, correct and complete.

28

As a direct result of Mrs. Jones intentionally concealing this information from

her return preparer, a tax return was prepared that excluded this relevant

information. Mrs. Jones signed the tax return, acknowledging under penalty

of perjury that the tax return was true, correct and complete.

There is no available evidence that Mrs. Jones knew about FBAR filing

requirements. However, the foreign account balances and foreign income

were clearly significant enough that the risk of harm for NOT making those

disclosures was either known or so obvious that it should have been known.

At best, Mrs. Jones' actions were reckless.

(capitalization and emphasis in original).

In the “CONCLUSION ” section, the Form 886-A for Mrs. Jones assesses against Mrs.

Jones a willful FBAR penalty which, as noted above, is distinct from the five-percent

Miscellaneous Offshore Penalty which had been already paid by Mrs. Jones.

(capitalization and emphasis in original). The Form 886-A for Mrs. Jones states that,

because the “Max. Aggregate Balance for ALL Accounts,” meaning both the accounts

Mrs. Jones held in her name alone, and also those accounts Mrs. Jones held jointly with

Mr. Jones, is greater than $1,000,000.00, the “Willful Penalty is the GREATER of”

“$100,000 / violation” or “50% of balance at time of violation.” (capitalization and emphasis

in original). The Form 886-A calculates the willful FBAR penalty at “the statutory maximum

of $1,521,940. Prorated, $751,685 for tax year 2011 and $770,255 for tax year 2012.”

(emphasis in original). The Form 886-A bases this assessment on the “June 30, 2012

Balance” on all foreign accounts held by Mrs. Jones alone or jointly with her husband,

$2,970,499.00, and the “June 30, 2013 Balance” of those same accounts, $3,043,880.00.

On November 21, 2018, Mrs. Jones sent a letter in response to the IRS’s

assessment of a willful FBAR penalty against her. Rather than protesting the willful FBAR

penalty assessment, however, Mrs. Jones stated in her letter a request “that you proceed

as soon as possible with assessing the 50% Willful FBAR Penalty you have proposed

against Mrs. Jones.” The request for an expedited assessment in Mrs. Jones’ November

21, 2018 letter was based on the same concerns for Mrs. Jones’ health as the September

27, 2018 letter requesting an expedited assessment of the willful FBAR penalty against

Mr. Jones. Accordingly, as of November 21, 2018, Mrs. Jones had requested expedited

assessment of both willful FBAR penalties assessed against Mr. Jones and herself.

Following Mrs. Jones’ letters requesting expedited assessments of the willful

FBAR penalties, Mrs. Jones made a partial payment on each of the two willful FBAR

penalties, and shortly after making each partial payment, requested a refund thereof.

According to plaintiffs’ complaint, “[o]n or around December 10, 2018, the Estate of

Jeffrey L. Jones submitted a FBAR penalty payment of $4,878.95 for the calendar year

2011, and then on December 11, 2018, a claim for a full refund of the same penalty

29

payment.”18 Both letters, one enclosing “a check in the amount of $4,878.95” as partial

payment of the FBAR penalty assessed against Mr. Jones, (emphasis in original), and

one seeking a refund of the same amount, are included in the record before the court.

Plaintiffs further allege that “[o]n or around April 18, 2019, Mrs. Jones submitted a FBAR

penalty payment of $4,972.00 for the calendar years 2011 and 2012, and then on April

19, 2019, a claim for a full refund of the same penalty payment.” 19 Both letters, one

enclosing “a check in the amount of $4,972.00,”20 which Mrs. Jones explained “one half

of which amount is allocable to each of the calendar years at issue (i.e., $2,486 allocable

to calendar year 2011, and $2,486 allocable to calendar year 2012),” (emphasis in

original), and one seeking a refund of the same amount, are included in the record before

the court. In total, Mrs. Jones made partial payments amounting to $9,850.95, against the

$3,412,014.00 which Mr. and Mrs. Jones, combined, owed in willful FBAR penalties.

Following the assessment and partial payment of the willful FBAR penalties

against Mr. and Mrs. Jones, Mrs. Jones filed complaints in two cases in the United States

District Court for the Central District of California. The first complaint was filed on behalf

of the estate of Jeffrey L. Jones, Jones v. United States, 19-00173-JVS(RAO), and the

parties disagree as to when the complaint was filed, with plaintiffs alleging the complaint

was filed on January 1, 2019, and defendant claiming the complaint was filed on January

8, 2019. On the District Court’s electronic docket, the complaint in the California District

18While plaintiffs’ complaint identifies the estate of Mr. Jones as having “submitted” the

partial payment on the FBAR penalty assessed against Mr. Jones, the check making that

partial payment, which appears in the record before the court, is signed by Mrs. Jones,

and the letter accompanying the check identifies Mrs. Jones, “in her capacity as the

executor of the above-referenced Estate of Jeffrey L. Jones,” as the client of the attorney

who drafted the letter on her behalf.

19 Although the reason for making partial payments on the two willful FBAR penalties is

not stated in plaintiffs’ pleadings or briefs in the above captioned case, in Mrs. Jones’

complaints filed in the Federal District Court for the Central District of California, she

stated:

Plaintiff [Mrs. Jones] is informed and believes the “assessment” of an FBAR

penalty by the IRS for the failure to timely file an FBAR, and the payment of

a portion of such penalty, is a jurisdictional prerequisite for filing this action

pursuant to 28 U.S.C. § 1346(a)(2) to contest such determination (i.e., a

civil action against the United States to recover amounts erroneously or

illegally assessed or collected).

(alteration added).

20 According to the record before the court, the partial payment of $4,972.00 is not related

to a specific foreign account, but rather is a partial payment towards the FBAR penalty

assessed against Mrs. Jones for all foreign accounts owned by her alone or jointly with

her husband during the tax years 2011 and 2012.

30

Court case for the estate of Jeffrey Jones indicates filing on January 8, 2019. The second

complaint filed in the California District Court was filed by Mrs. Jones in her individual

capacity on April 15, 2019, Jones v. United States, 19-04950-JVS(RAO). According to

plaintiffs’ complaint and defendant’s motion to dismiss filed in this court in the above

captioned case, the complaints filed in the District Court for the Central District of

California sought to recover, on a theory of illegal exaction, the partial payments made on

the willful FBAR penalties assessed against Mr. Jones and Mrs. Jones.

The first complaint, in Jones v. United States, Case No. 19-00173, was filed by

Mrs. Jones as executor of the estate of Mr. Jones, and that complaint concerned the facts

that pertained to the assessment of the willful FBAR penalty against Mr. Jones. The

complaint with respect to Mr. Jones asserted one cause of action, a claim for illegal

exaction of the partial payment made towards Mr. Jones’ willful FBAR penalty. In support

of this claim, Mrs. Jones “allege[d] that Jeffrey’s failure to file an FBAR for the year 2011

was unintentional and inadvertent, a good faith misunderstanding, and certainly not

‘willful’ (under any definition or construction of the term ‘willfulness’)” and that “it was the

Joneses’ mistaken but good faith belief that they would be subject to U.S. income taxation

on such funds only if and when those assets were brought into the United States.”

The second complaint, in Jones v. United States, Case No. 19-04950, was filed by

Mrs. Jones in her individual capacity, and that complaint concerned the facts that

pertained to the assessment of the willful FBAR penalty against Mrs. Jones. The

complaint with respect to Mrs. Jones asserted one cause of action, a claim for illegal

exaction of the partial payment made towards Mrs. Jones’ willful FBAR penalty. In support

of her claim, Mrs. Jones made substantially the same allegations as she had with respect

to the complaint filed with regard to Mr. Jones, including that the IRS could not find that

Mrs. Jones “had actual knowledge of a duty to file an FBAR for certain investment

accounts she held individually as well as jointly with Jeffrey in Canada and New Zealand

during 2011.” Mrs. Jones further alleged, specifically with respect to herself only, that Mrs.

Jones “timely mailed an individual FBAR for the year 2012” to satisfy her FBAR

requirements for that year. In the complaint with respect to Mrs. Jones, she “allege[d] that

her failure to file an FBAR for the year 2011 was unintentional and inadvertent, a good

faith misunderstanding, and certainly not ‘willful’ (under any definition or construction of

the term ‘willfulness’),” and reiterated that “it was the Joneses’ mistaken but good faith

belief that they would be subject to U.S. income taxation on such funds only if and when

those assets were brought into the United States.”

As plaintiffs recount in their current complaint filed in the United States Court of

Federal Claims, “[t]he government filed answers and brought counterclaims” in the cases

filed in the Federal District Court in California, defending the assessment of the willful

FBAR penalties and seeking judgment on the unpaid balance of the FBAR penalties

assessed against Mr. and Mrs. Jones. Thereafter, cross-motions for summary judgement

were filed in both plaintiff-initiated cases in the California District Court by Mrs. Jones and

the government. In both of those California District Court cases, Mrs. Jones moved for

summary judgment on the theory that the evidence did not support the determination by

the IRS of willfulness for Mr. or Mrs. Jones. Mrs. Jones argued that the IRS’s determination

31

had been arbitrary and capricious. See Jones v. United States, No. 19-00173, 2020 WL

4390390, at *6 (C.D. Cal. May 11, 2020); Jones v. United States, No. 19-04950, 2020 WL

2803353, at *6 (C.D. Cal. May 11, 2020). The government also moved for summary

judgment in those two California District Court cases, on the grounds that the IRS’s

willfulness determinations for Mr. and Mrs. Jones had been correct and that the assessed

FBAR penalties had been within the statutory maximum. See Jones v. United States,

2020 WL 4390390, at *8-10; Jones v. United States, 2020 WL 2803353, at *9-11. With

respect to both Mr. and Mrs. Jones, the District Court determined that the “evidence

create[d] a genuine dispute of material fact as to whether” Mr. and Mrs. Jones “engaged

in a willful violation,” and, therefore, the District Court denied Mrs. Jones’ motions for

summary judgment with respect to the issue of willfulness. Jones v. United States, 2020

WL 4390390, at *8; Jones v. United States, 2020 WL 2803353, at *8. The District Court

denied in full Mrs. Jones’ motion for summary judgment in the case regarding Mr. Jones,

and granted in part and denied in part Mrs. Jones’ motion for summary judgment in the

case regarding Mrs. Jones. See Jones v. United States, 2020 WL 4390390, at *8; Jones

v. United States, 2020 WL 2803353, at *9. The District Court denied the government’s

cross-motions for summary judgment on the issue of willfulness because a genuine

dispute of material fact existed, see Jones v. United States, 2020 WL 4390390, at *10;

Jones v. United States, 2020 WL 2803353, at *10, but the District Court granted the

government’s cross-motions for summary judgment on the issue of whether the willful

FBAR penalties were assessed within the statutory maximum. See Jones v. United

States, 2020 WL 4390390, at *10; Jones v. United States, 2020 WL 2803353, at *11. In

the case concerning the IRS’s assessment of a willful FBAR penalty against Mrs. Jones

the District Court granted summary judgment to Mrs. Jones on one issue: that the IRS

had arbitrarily and capriciously calculated the willful FBAR penalty against Mrs. Jones by

considering both tax years 2011 and 2012. See Jones v. United States, 2020 WL

2803353, at *8. The Federal District Court in California concluded that since “Mrs. Jones

filed a timely, but incomplete FBAR for 2012,” the FBAR penalty “should have been

calculated with only the 2011 year as the base,” and including the year 2012, therefore,

had been arbitrary and capricious. Id. Whether the IRS had arbitrarily and capriciously

calculated Mr. Jones’ FBAR penalty was not at issue, because the IRS had only assessed

an FBAR penalty against Mr. Jones with respect to 2011.

Following the California Federal District Court’s rulings on the cross-motions for

summary judgment, the United States filed its own complaint, United States v. Jones,

Case No. 2:20-cv-06173-JVS(RAO), seeking to bring to judgment the willful FBAR

penalties assessed against Mr. and Mrs. Jones. According to defendant, the United

States’

affirmative suit was filed to ensure that the district court properly had

jurisdiction given the possibility under Bedrosian v. United States that the

FBAR penalty might be subject to the Flora full-payment rule, see Bedrosian

v. United States, 912 F.3d 144, 149-50 and n.1 (3d Cir. 2018), and the Ninth

Circuit’s decision in Boynton v. United States, which provides that the

government should initiate suits when there has not been full payment of

the taxes, see Boynton v. United States, 566 F.2d 50, 56 (9th Cir. 1977).

32

According to defendant’s supplemental brief, “[t]his third suit [in the Federal District Court

in California] did not involve any new issues beyond those raised in the suits filed by Mrs.

Jones.” (alterations added).

The three District Court cases were subsequently consolidated, and jury trials of

the cases were twice scheduled before the orders for trial were vacated at the onset of

the coronavirus pandemic. Thereafter, Mrs. Jones and the government entered into an

agreement to settle all three District Court cases, and according to plaintiffs’ complaint in

this court, “Mrs. Jones ultimately made a large settlement payment in excess of $1M in

December 2020” to resolve Mr. and Mrs. Jones’ FBAR liabilities. Defendant’s

supplemental brief filed in the above captioned case indicates that Mrs. Jones settled the

FBAR penalties assessed against both Mr. and Mrs. Jones for “$1.3 million,” although

defendant indicates that “[a]t the time of the settlement, the total FBAR penalties owned

[sic], including interest and penalties, was $2,967,365.” According to defendant’s motion

to dismiss in the case currently before this court, on December 21, 2020, Mrs. Jones and

the government filed stipulations to dismiss the complaints filed in the California District

Court, as well as the government’s counterclaims. The three California District Court suits

were terminated on December 21, 2020.

Only after defendant’s motion to dismiss in the United States Court of Federal

Claims was under consideration, did the court uncover the settlement of, and the potential

relationship of, the District Court proceedings to the more recent case filed in this court.

The parties were asked to address the significance of the three cases filed in the

California District Court, including any overlap between the cases in the District Court and

the issues presented in the above captioned case. Both defendant and plaintiffs assert

that the issues presented in the California District Court cases were distinct from the

issues currently presented in the above captioned case in the United States Court of

Federal Claims. In its supplemental brief, defendant argues that “[t]he issue in the suits

filed in the Central District of California was whether Mr. and Mrs. Jones were willful in

their failure to file FBARs reporting their foreign bank accounts to the Department of the

Treasury.” Defendant argues that the above captioned case is limited to the question of

“whether plaintiffs are entitled to a refund of the Title 26 Miscellaneous Offshore Penalty

(‘MOP’), which is a penalty assessed and collected by the IRS separate from the FBAR

penalty.” Defendant argues that in the above captioned case, “neither Mr. Jones’s nor

Mrs. Jones’s willfulness is relevant or material to the Court’s resolution of this case,” and

states “to the extent Form 14654 constitutes a contract between Mrs. Jones and the

United States, the only issue for this Court to determine is whether the IRS had evidence

of willful conduct to open an examination of FBAR compliance.” (emphasis in original). In

their supplemental brief in this court, plaintiffs also differentiate between the issues

presented in the California Federal District Court cases and the issues in the above

captioned case. Plaintiffs describe the issue presented in the California District Court

cases as “whether the penalties of $3,411,984 were correctly assessed by the

government against Mrs. Jones and the Estate of Mr. Jones. Including the analysis of

whether there was or there was no willful blindness in the Jones’ failure to file FBARs

reporting foreign bank accounts.” By contrast, plaintiffs describe the issue in the above

33

captioned cases as whether the “contract was later breached by the government when it

subsequently assessed other penalties in a total amount of $3,411,984 without a

determination of whether Mrs. Jones had a ‘good faith misunderstanding of the law.’”

Plaintiffs state that “[t]he [California District] Court never made a determination of

willfulness by Mrs. Jones. Nor did the District Court made [sic] a determination whether

Mrs. Jones had a ‘good faith misunderstanding of the law,’ which is the crux of this current

case.” (alterations added). Plaintiffs further state with respect to the above captioned

case:

the plaintiff [sic] seeks to get a refund of the $156,795 paid to the

government in accordance with the contract entered into with the

government. This, because of a breach by the government since at no time

was there a finding that Mrs. Jones did not have a “good faith

misunderstanding of the law.”

DISCUSSION

Margaret J. Jones died on March 11, 2021. Plaintiffs, the executors of her estate,

filed their complaint in this court on April 13, 2021, seeking recovery of the Miscellaneous

Offshore Penalty amounts paid by Mrs. Jones “which have no statutory authority and do

not exist in the law and were illegally exacted or taken from the Plaintiff, and more

specifically Margaret J. Jones prior to her death, in contravention of statutes of the United

States.” The executor plaintiffs were not parties to the three earlier California Federal

District Court cases since Margaret Jones had passed on March 11, 2021, after the three

California Federal District Court cases had been settled. In the case currently before this

court, it appears that plaintiffs seek only to recover the $156,795.26 Miscellaneous

Offshore Penalty paid by Mrs. Jones as part of her participation in the IRS Streamlined

Procedures described above.21 Plaintiffs allege: “the 5% MOP was collected and illegally

exacted without any authority in the law or any statute. Such a penalty does not exist in

any statute; not Title 26 and not Title 31.”

Plaintiffs’ complaint seeks recovery of the Miscellaneous Offshore Penalty on two

distinct theories, each expressed as alternative causes of action. The first, “COUNT I –

BREACH OF CONTRACT,” alleges that

[t]he IRS made an offer to Mrs. Jones, she accepted the offer and paid the

IRS consideration of $156,795.26 along with signing a verified statement of

21As discussed below, in support of their breach of contract claim, plaintiffs challenge the

IRS’s assessment of a willful FBAR penalty against Mrs. Jones. Plaintiffs do not seek to

recover the amount of the willful FBAR penalty paid by Mrs. Jones, however, which Mrs.

Jones previously sought to recover in her suit brought in her individual capacity against

the United States in the Federal Central District of California, Jones v. United States,

Case No. 19-4590. Instead, the damages claimed in plaintiffs’ complaint reflects only the

amount paid by Mrs. Jones as the Miscellaneous Offshore Penalty.

34

non-willfulness. The government then breached the contract by assessing

FBAR penalties under a “willful blindness” theory, far above the 5% MOP

agreed to penalty amount.

(capitalization and emphasis in original). Plaintiffs argue that the Form 14654 contains

the terms of a contract between Mrs. Jones and the IRS, and that when the IRS assessed

willful FBAR penalties against Mrs. Jones, “the IRS breached the terms of their contract

not to assert other penalties which they did, in a total amount of $3,411,984; which cost

her [Mrs. Jones] dearly in attorney fees for litigation brought in the U.S. District Court.”

(alteration added). As noted, plaintiffs do not seek to recover the FBAR payments made

by Mrs. Jones; rather, as plaintiffs state, “[t]he remedy of the estate of the late Mrs. Jones

should be the recovery of the $156,795.”

Plaintiffs’ second cause of action, “COUNT II – ILLEGAL EXACTION,” alleges that

“[t]here is no legal or statutory authority for” the Miscellaneous Offshore Penalty paid by

Mrs. Jones upon entry into the Streamlined Procedures. (capitalization and emphasis in

original). Plaintiffs argue that while “[t]he IRS refers to the 5% MOP paid by Mrs. Jones

as a ‘Title 26 miscellaneous offshore penalty,’” the Miscellaneous Offshore Penalty “is

nowhere to be found in any statute, not in Title 26 or Title 31.” Accordingly, plaintiffs seek

the return of the $156,795.26 paid to the IRS by Mrs. Jones. Plaintiffs’ illegal exaction

claim, unlike the breach of contract claim, does not challenge the assessment of the willful

FBAR penalty against Mrs. Jones, but rather argues that the Miscellaneous Offshore

Penalty payment made by Mrs. Jones must be returned solely on the basis that no

statutory authority exists for the Miscellaneous Offshore Penalty.

Plaintiffs describe their request for relief as follows:

1. For judgment in the amount of $156,795.26 having been illegally

exacted from Plaintiff (and/or for a breach of contract by Defendant);

2. For pre and post-judgment interest as allowed by law;

3. For attorneys’ fees and all costs of suit herein occurred; and

4. For such other further relief as the Court may deem just and proper.

Count I – The Contract Claim

As noted above, defendant filed a motion to dismiss plaintiffs’ complaint pursuant

to RCFC 12(b)(1) and 12(b)(6), which has been fully briefed. With respect to Count One,

defendant argues that “plaintiffs have failed to state a claim for breach of contract

because Mrs. Jones’s submission of Form 14654 did not create a contract with the IRS,

and even if it had, the IRS did not breach the purported contract.” 22

22 Defendant also contends in a footnote that “Plaintiffs’ allegation that Mrs. Jones was

induced into paying the MOP to avoid an income tax or FBAR audit may be construed as

35

When examining what must be pled in order to state a claim, a plaintiff need only

state in the complaint “a short and plain statement of the claim showing that the pleader

is entitled to relief.” RCFC 8(a)(2) (2021); see also Bell Atl. Corp. v. Twombly, 550 U.S.

544, 555 (2007). The United States Supreme Court has stated:

While a complaint attacked by Rule 12(b)(6) motion to dismiss does not

need detailed factual allegations, ibid. [Conley v. Gibson, 355 U.S. 41, 47

(1957)]; Sanjuan v. American Bd. Of Psychiatry and Neurology, Inc., 40

F.3d 247, 251 (C.A.7 1994), a plaintiff’s obligation to provide the “grounds”

of his “entitlement to relief” requires more than labels and conclusions, and

a formulaic recitation of the elements of a cause of action will not do, see

Papasan v. Allain, 478 U.S. 265, 286 (1986) (on a motion to dismiss, courts

“are not bound to accept as true a legal conclusion couched as a factual

allegation”). Factual allegations must be enough to raise a right to relief

above the speculative level, see 5 C. Wright & A. Miller, Federal Practice

and Procedure §1216 pp. 235-236 (3d ed. 2004) (hereinafter Wright &

Miller) (“[T]he pleading must contain something more . . . than . . . a

statement of facts that merely creates a suspicion [of] a legally cognizable

right of action”), on the assumption that all the allegations in the complaint

are true (even if doubtful in fact), see, e.g., Swierkiewicz v. Sorema N.A.,

534 U.S. 506, 508 n.1 (2002); Neitzke v. Williams, 490 U.S. 319, 327 (1989)

(“Rule 12(b)(6) does not countenance . . . dismissals based on a judge’s

disbelief of a complaint’s factual allegations”); Scheuer v. Rhodes, 416 U.S.

232, 236 (1974) (a well-pleaded complaint may proceed even if it appears

“that a recovery is very remote and unlikely”) . . . . [W]e do not require

heightened fact pleading of specifics, but only enough facts to state a claim

that relief that is plausible on its face.

Bell Atl. Corp. v. Twombly, 550 U.S. at 555-56, 570 (footnote and other citations omitted;

omissions in original); see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl.

Corp. v. Twombly, 550 U.S. at 555-57, 570); First Mortg. Corp. v. United States, 1961

F.3d 1331, 1339 (Fed. Cir. 2020); Am. Bankers Ass’n v. United States, 932 F.3d 1375,

1380 (Fed. Cir. 2019); Frankel v. United States, 842 F.3d 1246, 1249 (Fed. Cir. 2016);

A&D Auto Sales, Inc. v. United States, 748 F.3d 1142, 1157 (Fed. Cir. 2014); Bell/Heery

v. United States, 739 F.3d 1324, 1330 (Fed. Cir.), reh’g and reh’g en banc denied, (Fed.

Cir. 2014); Kam-Almaz v. United States, 682 F.3d 1364, 1367 (Fed. Cir. 2012) (“The facts

as alleged ‘must be enough to raise a right to relief above the speculative level, on the

assumption that all the allegations in the complaint are true (even if doubtful in fact).’”

(quoting Bell Atl. Corp. v. Twombly, 550 U.S. at 557)); Totes-lsotoner Corp. v. United

States, 594 F.3d 1346, 1354-55 (Fed. Cir.), cert. denied, 562 U.S. 830 (2010); Bank of

Guam v. United States, 578 F.3d 1318, 1326 (Fed. Cir.) (“In order to avoid dismissal for

failure to state a claim, the complaint must allege facts ‘plausibly suggesting (not merely

one for promissory estoppel,” and that “the Court of Federal Claims lacks jurisdiction to

hear claims based on promissory estoppel.” (citing Durant v. United States, 16 Cl. Ct.

447, 450 (1988)). This argument is not further addressed in either party’s briefs.

36

consistent with)’ a showing of entitlement to relief.” (quoting Bell Atl. Corp. v. Twombly,

550 U.S. at 557)), reh’g and reh’g en banc denied (Fed. Cir. 2009), cert. denied, 561 U.S.

1006 (2010); Cambridge v. United States, 558 F.3d 1331, 1335 (Fed. Cir. 2009) (“[A]

plaintiff must plead factual allegations that support a facially ‘plausible’ claim to relief in

order to avoid dismissal for failure to state a claim.” (quoting Bell Atl. Corp. v. Twombly,

550 U.S. at 570)); Cary v. United States, 552 F.3d 1373, 1376 (Fed. Cir.) (“The factual

allegations must be enough to raise a right to relief above the speculative level. This does

not require the plaintiff to set out in detail the facts upon which the claim is based, but

enough facts upon which the claim is based, but enough facts to state a claim to relief

that is plausible on its face.” (citing Bell Atl. Corp. v. Twombly, 550 U.S. at 555, 570)),

reh’g denied (Fed. Cir.), cert. denied, 557 U.S. 937 (2009); Christen v. United States, 133

Fed. Cl. 226, 229 (2017); Christian v. United States, 131 Fed. Cl. 134, 144 (2017); Vargas

v. United States, 114 Fed. Cl. 226, 232 (2014); Fredericksburg Non-Profit Hous. Corp. v.

United States, 113 Fed. Cl. 244, 253 (2013), aff’d, 579 F. App’x 1004 (Fed. Cir. 2014);

Peninsula Grp. Capital Corp. v. United States, 93 Fed. Cl. 720, 726-27 (2010); Legal Aid

Soc’y of N.Y. v. United States, 92 Fed. Cl. 285, 292, 298 n.14 (2010).

When deciding a case based on a failure to state a claim, the court “must accept

as true the factual allegations in the complaint.” Engage Learning, Inc. v. Salazar, 660

F.3d 1346, 1355 (Fed. Cir. 2011); see also Erickson v. Pardus, 551 U.S. 89, 94 (2007)

(“In addition, when ruling on a defendant’s motion to dismiss, a judge must accept as true

all of the factual allegations contained in the complaint.” (citing Bell Atl. Corp. v. Twombly,

550 U.S. at 555–56 (citing Swierkiewicz v. Sorema N. A., 534 U.S. 506, 508 n.1 (2002))));

Scheuer v. Rhodes, 416 U.S. at 236 (“Moreover, it is well established that, in passing on

a motion to dismiss, whether on the ground of lack of jurisdiction over the subject matter

or for failure to state a cause of action, the allegations of the complaint should be

construed favorably to the pleader.”), abrogated on other grounds by Harlow v. Fitzgerald,

457 U.S. 800 (1982), recognized by Davis v. Scherer, 468 U.S. 183, 190 (1984); Am.

Bankers Ass’n v. United States, 932 F.3d at 1380 (“In reviewing a motion to dismiss, we

accept as true the complaint’s well-pled factual allegations; however, we are not required

to accept the asserted legal conclusions.” (citing Ashcroft v. Iqbal, 556 U.S. at 678));

Harris v. United States, 868 F.3d 1376, 1379 (Fed. Cir. 2017) (citing Call Henry, Inc. v.

United States, 855 F.3d 1348, 1354 (Fed. Cir. 2017)); United Pac. Ins. Co. v. United

States, 464 F.3d 1325, 1327–28 (Fed. Cir. 2006); Samish Indian Nation v. United States,

419 F.3d 1355, 1364 (Fed. Cir. 2005); Boise Cascade Corp. v. United States, 296 F.3d

1339, 1343 (Fed. Cir.), reh’g and reh’g en banc denied (Fed. Cir. 2002), cert. denied, 538

U.S. 906 (2003).

With respect to the question raised by plaintiffs in Count One regarding the

existence of a contract, defendant argues that “simply put, Form 14654 is not a contract

with the United States” and that “plaintiffs have failed to allege the basic elements of

contract formation.” Moreover, according to defendant, “the IRS did not intend to be

bound by Mrs. Jones’s self-certification of non-willfulness,” and “the IRS left open the

ability to conduct a complete examination and investigation of” Mrs. Jones. Privity of

contract between a plaintiff and the United States government is required to bring a cause

of action in the United States Court of Federal Claims for express and implied contracts.

See Cienega Gardens v. United States, 194 F.3d 1231, 1239 (Fed. Cir. 1998) (“Under

37

the Tucker Act, the Court of Federal Claims has jurisdiction over claims based on ‘any

express or implied contract with the United States.’ 28 U.S.C. § 1491(a)(1) (1994); We

have stated that ‘[t]o maintain a cause of action pursuant to the Tucker Act that is based

on a contract, the contract must be between the plaintiff and the government.’ Ransom v.

United States, 900 F.2d 242, 244 (Fed. Cir. 1990).”), cert. denied, 528 U.S. 820 (1999);

see also Authentic Apparel Grp., LLC v. United States, 989 F.3d 1008, 1012 (Fed. Cir.

2021); Estes Exp. Lines v. United States. 739 F.3d 689, 693 (Fed. Cir. 2014); Flexfab,

L.L.C. v. United States, 424 F.3d 1254, 1265 (Fed. Cir. 2005) (The “government consents

to be sued only by those with whom it has privity of contract.”); S. Cal. Fed. Sav. & Loan

Ass’n v. United States, 422 F.3d 1319, 1328 (Fed. Cir.) (“A plaintiff must be in privity with

the United States to have standing to sue the sovereign on a contract claim,” but noting

exceptions to this general rule (citing Anderson v. United States, 344 F.3d 1343, 1352

(Fed. Cir.), reh’g and reh’g en banc denied (Fed. Cir. 2003); United States v. Algoma

Lumber Co., 305 U.S. 415, 421 (1939))), reh’g and reh’g en banc denied (Fed. Cir. 2005),

cert. denied, 548 U.S. 904 (2006); Erickson Air Crane Co. of Wash. v. United States, 731

F.2d 810, 813 (Fed. Cir. 1984) (“The government consents to be sued only by those with

whom it has privity of contract.”).

To have privity of contract with the United States government, and, therefore, to

invoke jurisdiction in the United States Court of Federal Claims for an alleged breach of

contract claim, plaintiff “must show that either an express or implied-in-fact contract

underlies [the] claim.” Trauma Serv. Grp. v. United States, 104 F.3d 1321, 1325 (Fed. Cir.

1997); see also Park Props. Assocs., L.P. v. United States, 916 F.3d 998, 1002 (Fed. Cir.

2019), cert. denied, 140 S. Ct. 857 (2020). “An express contract “‘must be manifested by

words, either oral or written which contains agreement and/or mutual assent.”’” Frankel

v. United States, 118 Fed. Cl. 332, 335 (2014) (quoting Essen Mall Props. v. United

States, 21 Cl. Ct. 430, 439 (1990), aff’d, 842 F.3d 1246 (Fed. Cir. 2016) (quoting Webster

University v. United States, 20 Cl. Ct. 429, 433 (1990))).

The elements for both express and implied contracts with the United States are

identical. See Night Vision Corp. v. United States, 469 F.3d 1369, 1375 (Fed. Cir. 2006)

(“The elements of an implied-in-fact contract are the same as those of an oral express

contract.”), cert. denied, 550 U.S. 934 (2007); Hanlin v. United States, 316 F.3d 1325,

1328 (Fed. Cir. 2003) (“Thus, the requirements for an implied-in-fact contract are the

same as for an express contract; only the nature of the evidence differs.”); City of

Cincinnati v. United States, 153 F.3d 1375, 1377 (Fed. Cir. 1998). The required elements

to demonstrate an express or implied contract are: “(1) mutuality of intent to contract; (2)

consideration; and, (3) lack of ambiguity in offer and acceptance,” and (4) “[t]he

government representative whose conduct is relied upon must have actual authority to

bind the government in contract.” Id. (citing City of El Centro v. United States, 922 F.2d

816, 820 (Fed. Cir. 1990), cert. denied, 501 U.S. 1230 (1991)); see also Columbus Reg’l

Hosp. v. United States, 990 F.3d 1330, 1339 (Fed. Cir. 2021); Yifrach v. United States,

145 Fed. Cl. 691, 698 (2019), appeal filed, No. 20-1535 (Fed. Cir. Mar. 6, 2020); Bank of

Guam v. United States, 578 F.3d at 1326 (quoting Trauma Serv. Grp. v. United States,

104 F.3d at 1325); see also Chattler v. United States, 632 F.3d 1324, 1330 (2011) (citing

Trauma Serv. Grp. v. United States, 104 F.3d at 1325); Hanlin v. United States, 316 F.3d

38

at 1328 (citing City of Cincinnati v. United States, 153 F.3d at 1377)); Edwards v. United

States, 22 Cl. Ct. 411, 420 (1991) (citing Essen Mall Props. v. United States, 21 Cl. Ct. at

440; Pac. Gas & Elec. Co. v. United States, 3 Cl. Ct. 329, 339 (1983), aff’d, 738 F.2d 452

(Fed. Cir. 1984); and City of Klawock v. United States, 2 Cl. Ct. 580, 584 (1983), aff'd,

732 F.2d 168 (Fed. Cir. 1984)); see also Total Med. Mgmt., Inc. v. United States, 104

F.3d 1314, 1319 (Fed. Cir.) (“The requirements for a valid contract with the United States

are: a mutual intent to contract including offer, acceptance, and consideration; and

authority on the part of the government representative who entered or ratified the

agreement to bind the United States in contract.” (citations omitted)), reh’g and reh’g en

banc suggestion denied (Fed. Cir.), cert. denied, 522 U.S. 857 (1997); City of Cincinnati

v. United States, 153 F.3d at 1377; San Carlos lrr. & Drainage Dist. v. United States, 877

F.2d 957, 959 (Fed. Cir. 1989); Stanwyck v. United States, 127 Fed. Cl. 308, 312 (2016);

Huntington Promotional & Supply, LLC v. United States, 114 Fed. Cl. 760, 767 (2014);

Eden Isle Marina. Inc. v. United States, 113 Fed. Cl. 372, 492 (2013); Council for Tribal

Emp’t Rights v. United States, 112 Fed. Cl. 231, 243 (2013), aff’d, 556 F. App’x 965

(2014); Biofunction, L.L.C. v. United States, 92 Fed. Cl. 167, 172 (2010); Mastrolia v.

United States, 91 Fed. Cl. 369, 384 (2010) (citing Flexfab, L.L.C. v. United States, 424

F.3d 1254, 1265 (2005)); see also Trauma Serv. Grp. v. United States, 104 F.3d at 1325;

Weeks v. United States, 124 Fed. Cl. 630, 633 (2016); Vargas v. United States, 114 Fed.

Cl. 226, 233 (2014); Prairie Cnty., Mont. v. United States, 113 Fed. Cl. 194, 202 (2013),

aff'd, 782 F.3d 685 (Fed. Cir.), cert. denied, 136 S. Ct. 319 (2015); California Human Dev.

Corp. v. United States, 87 Fed. Cl. 282, 293 (2009), aff’d, 379 F. App’x 979 (Fed. Cir.

2010); Aboo v. United States, 86 Fed. Cl. 618, 629, aff’d, 347 F. App’x 581 (Fed. Cir.

2009); SGS-92-X003 v. United States, 74 Fed. Cl. 637, 653-54 (2007); Arakaki v. United

States, 71 Fed. Cl. 509, 514 (2006), aff’d, 228 F. App’x 1003 (Fed. Cir. 2007); Fincke v.

United States, 230 Ct. Cl. 233, 243-44, 675 F.2d 289, 295 (1982); Russell Corp. v. United

States, 210 Ct. Cl. 596, 608-09 (1976). It is key to contract formation with the government

that, “[t]he law requires that a Government agent who purports to enter into or ratify a

contractual agreement that is to bind the United States have actual authority to do so.”

Monarch Assurance P.L.C. v. United States, 244 F.3d 1356, 1360 (Fed. Cir.), reh’g and

reh’g en banc denied (Fed. Cir. 2001) (citing Trauma Serv. Grp. v. United States, 104

F.3d at 1325). “The corollary is that any party entering into an agreement with the

Government accepts the risk of correctly ascertaining the authority of the agents who

purport to act for the Government . . . .” Id. (citing Federal Crop Ins. Corp. v. Merrill, 332

U.S. 380, 384 (1947); see also Snyder & Assocs. Acquisitions LLC v. United States, 133

Fed. Cl. 120, 126 (2017).

In this court, plaintiffs allege that the Form 14654 constituted an offer from the

government to Mrs. Jones, which Mrs. Jones accepted by completing and submitting the

Form 14654, and for which Mrs. Jones allegedly paid consideration to the government in

the amount of $156,795.26, as a Miscellaneous Offshore Penalty. In return, plaintiffs

allege, the government promised “not to assert other penalties” against Mrs. Jones for

“failure to report foreign financial assets” on her prior tax returns.

According to defendant, the “Form 14654 is not a contract with the United States”

and that “[b]y leaving open the IRS’s ability to examine a taxpayer and impose penalties

39

beyond the MOP, the IRS did not intend to be bound by Mrs. Jones’s representations,”

with respect to willfulness. Defendant states, “a contract between Mrs. Jones and the IRS

was not formed,” and “the plain language of the form that Mrs. Jones signed and

submitted indicates that the [sic] Mrs. Jones’s self-certification of non-willfulness was

subject to the potential for examination and additional penalties,” including a later

determination as to whether or not Mrs. Jones’ failures to report had been willful. As stated

in the Form 14654, by her signature Mrs. Jones “recognize[d] that if the Internal Revenue

Service receives or discovers evidence of willfulness, fraud, or criminal conduct, it may

open an examination or investigation that could lead to civil fraud penalties,” including

regarding FBAR penalties. Defendant states that “following the submission of Form

14654, the IRS retained the discretion to examine a taxpayer and assess additional

penalties.” Therefore, defendant argues, “the IRS’s ability to change the terms or end it

at its own discretion, indicates that the IRS did not intend to be bound by the mere

submission of a Form.” (capitalization in original) (citing Landgraf v. United States, 151

Fed. Cl. 326, 334 (2020)).

Defendant argues that “[w]here the Streamlined Procedures leave open that a

taxpayer’s submissions are subject to review, examination, and potential penalties is

insufficient to constitute an offer.” In support, defendant quotes from a United States Court

of Claims case and two United States Claims Court cases, which were affirmed by the

United States Court of Appeals for the Federal Circuit: Cutler-Hammer, Inc. v. United

States, 441 F.2d 1179, 194 Ct. Cl. 788 (1971), Last Chance Mining Co. v. United States,

12 Cl. Ct. 551 (1987), aff’d, 846 F.2d 77 (Fed. Cir. 1988) (unpublished table decision),

and Girling Health Systems, Inc. v. United States, 22 Cl. Ct. 66 (1990), aff’d, 949 F.2d

1145 (Fed. Cir. 1991). In each of the cases cited by defendant, the claimants argued that

a government program constituted an offer to contract and that, by submitting

documentation required to participate in the programs at issue, the claimants had

accepted an offer from the government and created an enforceable contract. In Cutler-

Hammer, government regulation provided for an application process to purchase silver

from the United States. Despite completing the necessary applications, the claimants

were not approved to purchase silver. See Cutler-Hammer, Inc. v. United States, 194 Ct.

Cl. at 793-94. The Court of Claims in Cutler-Hammer found that “[p]urchasers are simply

invited to make ‘application’ to buy certain quantities of silver,” which “applications were

in turn subject to the approval of the Director of Domestic Gold and Silver Operations . . .

.” Id. at 794. The court determined that “[i]t requires a distortion of plain English to infer

that making an application in conformity with the terms of this Regulation would constitute

an acceptance of an offer whereby the United States intended to bind itself.” Id. at 795.

As the Court of Claims explained, “[t]he only effort to be expended by these plaintiffs was

to fill in the blanks of a Government prepared form. They were not invited to accept by

performance.” Id. at 796. In Girling Health Systems, a corporate plaintiff brought a claim

for breach of contract on the grounds that the plaintiff had completed an IRS application

to change corporate status in exchange for the government’s promise to notify plaintiff

within 60 days of the acceptance or rejection of the application, and the government failed

to meet that deadline. Girling Health Sys., Inc. v, United States, 22 Cl. Ct. at 69. The court

in Girling Health Systems stated “that mere solicitations, invitations or instructions from

the Government are not offers to contract that bind the Government upon plaintiff's

40

completion of a form, even when the solicitations, invitations or instructions are embodied

in a statute or regulation.” Id. at 72. In Last Chance Mining Co., a corporation which

“owned a fifty percent interest in unpatented lode mining claims” sought to comply with

the requirements of the Federal Land Policy and Management Act, 43 U.S.C. §§ 1701-

82, to record its interests in the mining claims. Last Chance Min. Co. v. United States, 12

Cl. Ct. at 552-53. Pursuant to the statutory requirements for recording its interests, the

corporation sent the Bureau of Land Management “(a) a statement of ownership; (b) a

plot or map delineating the claims; and (c) a supplemental claim map of the Pioneer

claims, Copper Basic Area in Bald Mountain.” Last Chance Min. Co. v. United States, 12

Cl. Ct. at 553. The plaintiff in Last Chance Mining sued for breach of contract when the

government’s alleged failure to file plaintiff’s documents resulted in the loss of plaintiff’s

interest to a competitor. See id. at 555. In Last Chance Mining, the court rejected plaintiff’s

argument that the filing requirements constituted an offer to contract, stating:

The statutes and regulations here in question do not purport, even by

implication, to constitute an offer. While in the broadest sense, the FLPMA

is an “offer” to allow proof of claims, it is certainly not an offer to contract. It

is more accurately characterized as a unilateral ultimatum on the part of the

Government. It would do violence to traditional contract theory, not to

mention the operation of government, to hold that any statute requiring

some action by a citizen to obtain a benefit or protect a right constituted an

open offer to contract. The court concludes that Last Chance does not state

facts upon which a contract can be predicated.

Last Chance Min. Co. v. United States, 12 Cl. Ct. at 556 (emphasis in original; footnote

omitted). Although instructive, the facts and conclusions of the cases relied upon by

defendant differ from Mrs. Jones’ dealings with the IRS. As noted above, the Form 14654

which Mrs. Jones signed, by its own terms, did not commit the IRS to accepting an

applicant’s representations of that person’s own determination of a lack of willfulness as

a final determination of liability and included a provision stating the IRS could conduct

further examination of Mrs. Jones regarding willfulness.

Plaintiffs, however, respond that all four elements required to allege a contract with

the government are present in the allegations in their complaint and the facts related to

Mrs. Jones’ participation in the IRS’s Streamlined Procedures. Plaintiffs state:

(1) both the government and the taxpayer intended to enter into this

agreement, the government set forth Form 14654 and Mrs. Jones agreed

to the specific terms; (2) with Form 14654 and the SFCP [Streamlined

Procedures] the government established an offer and by completing and

signing such Form, Mrs. Jones accepted the offer; (3) the agreement itself

states that “in consideration of the IRS’s agreement not to assert other

penalties” Mrs. Jones consented to immediate assessment and collection

of the MOP, she paid $156,795.26; and (4) the IRS issued Form 14654

under the powers the IRS has to “administer, manage, conduct, direct and

41

supervise the execution and application of the internal revenue laws,” to

create programs like the SFCP.

(quoting I.R.C. § 7803(a)(2)(A)). Further, plaintiffs, choosing to acknowledge only certain

words of the agreement and to ignore others, argue that “[w]hile it is true that Form 14654

subjects the agreement to the possibility that the IRS may conduct a full examination of

a taxpayer who used the procedure, this is merely another term of the contract.” According

to plaintiffs, rather than preventing proper consideration sufficient to support the contract,

the government’s reservation of examination “merely provides another condition of the

contract and as part of the consideration, the taxpayer is to not have committed willful,

fraudulent or criminal conduct,” which plaintiffs argue that Mrs. Jones did not do.

As stated above, contract formation “requires (1) mutuality of intent to contract; (2)

consideration; and, (3) lack of ambiguity in offer and acceptance,” City of Cincinnati v.

United States, 153 F.3d at 1377, as well as (4) “[t]he government representative whose

conduct is relied upon must have actual authority to bind the government in contract.” Id.

The language of the Form 14654, upon which plaintiffs rely to argue for the existence of

a contract, and which Mrs. Jones signed, explicitly states:

In consideration of the Internal Revenue Service’s agreement not to assert

other penalties with respect to my failure to report foreign financial assets

as required on FBARs or Forms 8938 or my failure to report income from

foreign financial assets, I consent to the immediate assessment and

collection of a Title 26 miscellaneous offshore penalty for the most recent

of the three tax years for which I am providing amended income tax returns.

The specific language of Form 14654 by its terms explicitly reserves the ability for the IRS

to conduct further examination and assess additional penalties if Mrs. Jones’ behavior

was found to be willful after examination. When Mrs. Jones signed the Form 14654, she

also agreed to the following language included in the Form 14654, which states: “I

recognize that if the Internal Revenue Service receives or discovers evidence of

willfulness, fraud, or criminal conduct, it may open an examination or investigation that

could lead to civil fraud penalties, FBAR penalties, information return penalties, or even

referral to Criminal Investigation.” (capitalization in original). Moreover, the Form 14654

explicitly reserves to the IRS the right to conduct such an examination and assess further

penalties without regard to the previous amount paid as the Miscellaneous Offshore

Penalty and without indicating in the Form 14654 the amount or extent as to which

penalties may be assessed following such an examination and finding of willfulness.

Moreover, while the Form 14654 requires the applicant to make representations to the

IRS regarding the applicant’s willfulness in failing to report foreign financial assets, the

IRS’s reservation of the right to further examine the conduct of the applicant does not bind

the IRS to the applicant’s representations.

The terms of the Form 14654 indicate that mutual intent to enter into a binding,

final contract was not present between the IRS and Mrs. Jones. Mutual intent to contract

requires “the existence of an offer and a reciprocal acceptance,” Anderson v. United

42

States, 344 F.3d at 1353, an offer, in turn, shown by “‘the manifestation of willingness to

enter into a bargain, so made as to justify another person in understanding that his assent

to that bargain is invited and will conclude it.’” Id. (quoting Restatement (Second) of

Contracts § 24 (1981)). By providing in the Form 14654 that the IRS could “open an

examination” into Mrs. Jones, with the explicit possibility of assessing FBAR penalties as

a result, the IRS reserved its right to conduct an examination and assess further penalties

after Mrs. Jones’ completion of the Form 14654. This reservation does not evidence a

“‘manifestation of willingness to enter into a bargain’” with finality on behalf of the IRS, nor

does it “‘justify’” Mrs. Jones’ belief, as alleged by plaintiffs, that her “‘assent’” had

“‘conclude[d]’” such a “‘bargain,’” id. (quoting Restatement (Second) of Contracts § 24

(1981)), binding the IRS “not to assert other penalties,” as alleged in plaintiffs’ complaint.

With respect to the element of consideration, the terms of the Form 14654 which

Mrs. Jones signed indicate that, rather than bargaining for a final exchange at the time

Mrs. Jones paid the penalty, Mrs. Jones “recognize[d] that if the” IRS were to “discover[]

evidence of willfulness, fraud, or criminal conduct,” the IRS could “open an examination

or investigation” of Mrs. Jones’ tax liabilities and assets for potential penalties, including

FBAR penalties. The language of the Form 14654 indicates that rather than a binding

“agreement not to assess other penalties,” as alleged by plaintiffs, the IRS gave Mrs.

Jones the opportunity to try to resolve her tax obligations with limited penalties as a result

of her failure to report foreign bank accounts, but the IRS did not renounce a later possible

penalty for an examination into and a finding of “willfulness, fraud, or criminal conduct” on

the part of Mrs. Jones. Plaintiffs, therefore, cannot demonstrate that the penalty Mrs.

Jones had previously paid as the Miscellaneous Offshore Penalty constituted sufficient

consideration necessary to support a contract with the IRS under the terms of the Form

14654. Because plaintiffs in the case currently before the court have not alleged the

elements of either mutual intent to contract or consideration, plaintiffs have not

demonstrated the requirements of a contract with the United States. Accordingly, the

court dismisses Count One of plaintiffs’ complaint alleging breach of contract for failure

to state a claim.

Defendant further maintains that even if Mrs. Jones had entered into a contract

with the government, “plaintiffs have failed to identify a breach of the purported contract.”

The question of breach of contract is one of contract interpretation. “Contract

interpretation starts with the language of the contract.” SUFI Network Servs., Inc. v.

United States, 785 F.3d 585, 593 (Fed. Cir. 2015); see also NOAA Maryland, LLC v.

Adm’r of Gen. Servs. Admin., 997 F.3d 1159, 1165 (Fed. Cir. 2021); Authentic Apparel

Grp., LLC v. United States, 989 F.3d at 1014; Premier Office Complex of Parma, LLC v.

United States, 916 F.3d 1006, 1011 (Fed. Cir. 2019) (citing NVT Techs., Inc. v. United

States, 370 F.3d 1153, 1159 (Fed. Cir. 2004)); Precision Pine & Timber, Inc. v. United

States, 596 F.3d 817, 824 (Fed. Cir. 2010), cert. denied, 562 U.S. 1178 (2011); Bell/Heery

v. United States, 739 F.3d at 1331; LAI Servs., Inc. v. Gates, 573 F.3d 1306, 1314 (Fed.

Cir.), reh’g denied (Fed. Cir. 2009); Barron Bancshares, Inc. v. United States, 366 F.3d

1360, 1375 (Fed. Cir. 2004); Foley Co. v. United States, 11 F.3d 1032, 1034 (Fed. Cir.

1993); HCIC Enters., LLC v. United States, 147 Fed. Cl. 118, 124 (2020); Nw. Title

Agency, Inc. v. United States, 126 Fed. Cl. 55, 57-58 (2016) (citing Foley Co. v. United

43

States, 11 F.3d at 1034) (“The starting point for any contract interpretation is the plain

language of the agreement.”), aff’d, 855 F.3d 1344 (Fed. Cir. 2017); Beard v. United

States, 125 Fed. Cl. 148, 158 (2016); Eden Isle Marina, Inc. v. United States, 113 Fed.

Cl. at 483-84.

“‘“In contract interpretation, the plain and unambiguous meaning of a written

agreement controls.”’” Arko Exec. Servs., Inc. v. United States, 553 F.3d 1375, 1379 (Fed.

Cir. 2009) (quoting Hercules Inc. v. United States, 292 F.3d 1378, 1380-81 (Fed. Cir.),

reh’g and reh’g en banc denied (Fed. Cir. 2002) (quoting Craft Mach. Works, Inc. v. United

States, 926 F.2d 1110, 1113 (Fed. Cir. 1991))). “Terms must be given their plain meaning

if the language of the contract is clear and unambiguous.” SUFI Network Servs., Inc. v.

United States, 785 F.3d at 593 (citing Coast Fed. Bank, FSB v. United States, 323 F.3d

1035, 1038 (Fed. Cir. 2003)); see also Canpro Invs. Ltd. v. United States, 130 Fed. Cl.

320, 347, recons. denied, 131 Fed. Cl. 528 (2017); Beard v. United States, 125 Fed. Cl.

at 158 (“If the contract language is unambiguous, then it must be given its plain and

ordinary meaning . . . .”). The United States Court of Appeals for the Federal Circuit stated

in Massie v. United States:

In interpreting a contract, “[w]e begin with the plain language.” “We give the

words of the agreement their ordinary meaning unless the parties mutually

intended and agreed to an alternative meaning.” In addition, “[w]e must

interpret the contract in a manner that gives meaning to all of its provisions

and makes sense.”

Massie v. United States, 166 F.3d 1184, 1189 (Fed. Cir. 1999) (quoting McAbee Constr.,

Inc. v. United States, 97 F.3d 1431, 1435 (Fed. Cir.), reh’g denied and en banc suggestion

declined (Fed. Cir. 1996) (internal citations omitted)); Jowett, Inc. v. United States, 234

F.3d 1365, 1368 (Fed. Cir. 2000) (quoting McAbee Constr., Inc. v. United States, 97 F.3d

at 1435; and Harris v. Dep’t of Veterans Affairs, 142 F.3d 1463, 1467 (Fed. Cir. 1998));

Harris v. Dep’t of Veterans Affairs, 142 F.3d at 1467; see also Coast Prof’l, Inc. v. United

States, 828 F.3d 1349, 1354 (Fed. Cir. 2016); Shell Oil Co. v. United States, 751 F.3d

1282, 1305 (Fed. Cir.), reh’g en banc denied (Fed. Cir. 2014); McHugh v. DLT Sols., Inc.,

618 F.3d 1375, 1380 (Fed. Cir. 2010); Giove v. Dep’t of Transp., 230 F.3d 1333, 1340-41

(Fed. Cir. 2000) (“In addition, we must interpret the contract in a manner that gives

meaning to all of its provisions and makes sense. Further, business contracts must be

construed with business sense, as they naturally would be understood by intelligent men

of affairs.” (citations omitted)); Gould, Inc. v. United States, 935 F.2d 1271, 1274 (Fed.

Cir. 1991) (indicating that a preferable interpretation of a contract is one that gives

meaning to all parts of the contract rather than one that leaves a portion of the contract

“useless, inexplicable, void, or superfluous”). A Judge of the United States Court of

Federal Claims has explained:

“The words of a contract are deemed to have their ordinary meaning

appropriate to the subject matter, unless a special or unusual meaning of a

particular term or usage was intended, and was so understood by the

parties.” Lockheed Martin IR Imaging Sys., Inc. v. West, 108 F.3d 319, 322

44

(Fed. Cir. 1997). “Under general rules of contract law we are to interpret

provisions of a contract so as to make them consistent.” Abraham v.

Rockwell Int’l Corp., 326 F.3d 1242, 1251 (Fed. Cir. 2003). “[A]n agreement

is not to be read in a way that places its provisions in conflict, when it is

reasonable to read the provisions in harmony. . . . [T]he provisions must be

read together in order to implement the substance and purpose of the entire

agreement.” Air-Sea Forwarders, Inc. v. United States, 166 F.3d 1170, 1172

(Fed. Cir. 1999). “A reasonable interpretation must assure that no contract

provision is made inconsistent, superfluous, or redundant.” Medlin Const.

Grp., Ltd. v. Harvey, 449 F.3d 1195, 1200 (Fed. Cir. 2006) (internal

quotation marks omitted).

Dynetics, Inc. v. United States, 121 Fed. Cl. 492, 512 (2015); see also Marquardt Co. v.

United States, 101 Fed. Cl. 265, 269 (2011) (“In interpreting contractual language, the

court must give reasonable meaning to all parts of the contract and avoid rendering

portions of the contract meaningless.” (citation omitted)).

While plaintiffs’ Count One alleges that the United States breached its contract

with Mrs. Jones, plaintiffs’ complaint is unclear as to the exact nature of the alleged

breach. In particular, plaintiffs’ complaint does not specify whether the United States

breached its contract with Mrs. Jones by assessing a willful FBAR penalty against Mrs.

Jones or whether the United States breached its contract by assessing willful FBAR

penalties against both Mr. and Mrs. Jones. Plaintiffs’ allegations relating to the claimed

breach of contract largely relate to Mrs. Jones’ alleged “good faith misunderstanding of

the law” or lack of willfulness. The complaint states:

The government lured Mrs. Jones in based upon the IRS promise and the

explicit provisions of the contract, that by its terms required some error of

the taxpayer to be reflected on the tax return, a failure to report foreign

financial assets. They then later switched their position and alleged her

good faith misunderstanding of the law was irrelevant and she should be

strictly liable for other “willfully blind” penalties beyond the 5% MOP penalty

set forth in the contract.

The complaint further states:

The government breached its contract with Mrs. Jones by subsequently

finding after a very long and detailed income tax and FBAR audit that

although the government actually owed a refund of income tax of

$15,872.00[23 ] to Mrs. Jones (and the IRS found no Title 26 penalties of any

23 In both the complaint and in plaintiffs’ response to defendant’s motion to dismiss,

plaintiffs refer to a “tax refund” “for the tax year 2013 of $15,872.00” at multiple points.

This tax refund, which appears to have been paid by the IRS to Mrs. Jones, is not

otherwise documented in the record before the court and, in the record before the court,

does not appear to be related to the willful FBAR penalty assessed against Mr. Jones,

45

kind were applicable); the government nevertheless assessed other

penalties in a total amount of $3,411,984. In assessing these Title 31

penalties, the government breached the terms of their own contract by later

asserting Mrs. Jones’s good faith misunderstanding of the law (an exacting

requirement of the written terms of the contract) was irrelevant; i.e., her “ . .

. negligence, inadvertence, or mistake or conduct that [was] . . . the result

of [her] a good-faith misunderstanding of the law . . .”; “ . . . is irrelevant. .

.”

(all capitalization, emphasis, punctuation, and quotations in original; alterations in original

except footnote added). The complaint additionally states:

The RAR[24 ] in support of the proposed FBAR assessment against Mrs.

Jones stated that “[t]here is no available evidence that Mrs. Jones knew

about FBAR filing requirements,” but concludes that “the foreign account

balances and foreign income were clearly significant enough that the risk of

harm for NOT making these disclosures was either known or so obvious

that it should have been known.”

(capitalization in original; alterations in original except footnote added).

Count One of the complaint further asserts:

The IRS made an offer to Mrs. Jones, she accepted the offer and paid the

IRS consideration of $156,795.26 along with signing a verified statement of

non-willfulness. The government then breached the contract by assessing

FBAR penalties under a “willful blindness” theory, far above the 5% MOP

agreed to penalty amount.

Plaintiffs allege that “the government breached the terms of their own contract by

later asserting” that “Mrs. Jones’s good faith misunderstanding of the law . . . was

irrelevant,” to the alleged contract, when the IRS nonetheless found Mrs. Jones’ actions

“willful.” At times, plaintiffs’ complaint in this court also appears to conflate and combine

the willful FBAR penalty assessed against Mr. Jones and the willful FBAR penalty

assessed against Mrs. Jones, as when the complaint states that “the IRS breached the

terms of their contract not to assert other penalties which they did, in a total amount of

$3,411,984,” an amount which appears to reflect the addition of Mr. Jones’ $1,890,074.00

willful FBAR penalty to Mrs. Jones’ $1,521,940.00 willful FBAR penalty. Plaintiffs’

complaint states the combined value of the two willful FBAR penalties as $3,411,984.

which was assessed with respect to tax year 2011, or the willful FBAR penalty assessed

against Mrs. Jones, which was assessed with respect to the tax years 2011 and 2012.

24As noted above, “Revenue Agent Report” or “RAR” is plaintiffs’ designation for the

Forms 886-A which accompanied the assessment letters sent to Mr. and Mrs. Jones and

which set forth the IRS’ determinations of willfulness with respect to Mr. and Mrs. Jones.

46

Plaintiffs’ complaint, however, misstates the amount of the willful FBAR penalty assessed

against Mrs. Jones as “$1,521,910,” when the actual amount of the willful FBAR penalty

indicated on the Form 886-A for Mrs. Jones, discussed above, was $1,521,940.00, a

difference of thirty dollars. An addition of the willful FBAR penalties as provided on the

Forms 886-A, $1,890,074.00 for Mr. Jones and $1,521,940.00 for Mrs. Jones, yields a

total of $3,412,014.00. To add further confusion, while the figure $3,411,984.00 appears

in the complaint in reference to the “other penalties” the government assessed in the

alleged breach of the contract in the current suit filed in this court, plaintiffs have sought

only to recover $156,795.26, as noted above, the amount of the Miscellaneous Offshore

Penalty paid by Mrs. Jones only in her individual capacity. Similarly, in plaintiffs’

complaint, plaintiffs refer to multiple “penalties” rather than a single “penalty” when

discussing the government’s alleged breach of contract, as when the complaint states

that the government “breached the contract by assessing FBAR penalties” for willfulness.

Plaintiffs’ complaint also states that the government had argued in prior proceedings that

“the only requirement was not whether Mrs. Jones (or her late husband) had ‘. . . a good-

faith misunderstanding of the requirements of the law,’” (emphasis and punctuation in

original), even though Mrs. Jones did not enter into the Streamlined Procedures on behalf

of the estate of Mr. Jones. As noted above, the text of Form 14654, which Mrs. Jones

signed, refers only to herself and states: “I recognize that if the Internal Revenue Service

receives or discovers evidence of willfulness, fraud, or criminal conduct, it may open an

examination or investigation that could lead to civil fraud penalties, FBAR penalties,

information return penalties, or even referral to Criminal Investigation.”

Defendant argues in its motion to dismiss, “the IRS opened an examination of Mrs.

Jones’s income tax and FBAR compliance and asserted willful penalties. Because the

IRS took action that, by the express terms of the Form 14654, it was permitted to do, the

IRS did not breach the purported contract.” As to any possible breach in this case,

defendant further argues that “[t]he IRS’s evidence and analysis provides a prima facie

basis for the imposition of the willful FBAR penalty based on reckless disregard,” such

that the government could not have breached its purported obligations under the contract

alleged by plaintiffs because such penalties were contemplated by the contract’s terms.

Plaintiffs, however, allege that the IRS’s assessment of willful FBAR penalties was not

based on sufficient evidence to demonstrate “willfulness, fraud, or criminal conduct” on

the part of Mr. and Mrs. Jones. Regardless, with respect to these arguments offered by

defendant in its motion to dismiss, the plaintiffs’ allegations of a breach of contract do not

come into consideration in this case because, as concluded above, no contract came into

existence. Nonetheless, to finally speak to the issue of willfulness on the part of Mr. and

Mrs. Jones after four lawsuits regarding their tax liabilities regarding their foreign bank

accounts, the court briefly addresses the willfulness issues surrounding Mrs. Jones’

actions. The court notes, as to the issue of whether the IRS was correct in its

determination that Mrs. Jones was willful in her failure to file FBARs, according to the

publicly available Opinions of the California District Court ruling on the parties’ cross-

motions for summary judgment in the California District Court case with respect to Mrs.

Jones, this is the second time that a challenge has been initiated to the determination of

Mrs. Jones’ willfulness. See Jones v. United States, 2020 WL 2803353, at *6 (“Mrs. Jones

argues that the IRS wrongfully determined that Mrs. Jones acted willfully and argues that

47

willfulness requires a ‘voluntary, intentional violation of a known legal duty’ or conscious

effort to avoid learning about FBAR requirements.”). Plaintiffs, however, argue that the

California Federal District Court “never reached a conclusion on willfulness in this prior

case.”

In defendant’s reply brief in support of its motion to dismiss the current case in this

court, more importantly, defendant argues:

At all events, plaintiffs cannot now contest the IRS determination that Mrs.

Jones acted recklessly or with willful blindness in failing to file FBARs. Mrs.

Jones had the opportunity to litigate her willfulness in the district court case.

Instead, she decided to pay a $1.3 million FBAR penalty to settle the district

court case. (Pls.’ Resp. at 6.) Her opportunity to contest whether the IRS

was justified in asserting the willful FBAR penalty for her reckless disregard

of her obligation to file the FBAR expired when she agreed to settle the

district court case.

(footnote omitted).

The background regarding the issue of the IRS’s determination that Mrs. Jones

had acted willfully when she failed to disclose her own and her husband’s foreign bank

account income, starts with the Bank Secrecy Act. See 31 U.S.C. §§ 5314, 5321(a)(5)(C)-

(D) (2018). The Bank Secrecy Act requires the submission of foreign account reports, but

“does not define the term willful” for failure to disclose. See Landa v. United States, 153

Fed. Cl. at 597. The regulation under which FBAR penalties are assessed similarly does

not define “willfulness.” See 31 C.F.R. § 1010.350 (2018). Instructive, however, are the

comments of the United States Supreme Court in Safeco Insurance Company of America

v. Burr, 551 U.S. 47 (2007), explaining the use of the term “willfully” in certain other

contexts:

We have said before that “willfully” is a “word of many meanings whose

construction is often dependent on the context in which it appears,” Bryan

v. United States, 524 U.S. 184, 191, 118 S. Ct. 1939, 141 L. Ed. 2d 197

(1998) (internal quotation marks omitted); and where willfulness is a

statutory condition of civil liability, we have generally taken it to cover not

only knowing violations of a standard, but reckless ones as well, see

McLaughlin v. Richland Shoe Co., 486 U.S. 128, 132–133, 108 S. Ct. 1677,

100 L. Ed. 2d 115 (1988) (“willful,” as used in a limitation provision for

actions under the Fair Labor Standards Act, covers claims of reckless

violation); Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 125–126,

105 S. Ct. 613, 83 L. Ed. 2d 523 (1985) (same, as to a liquidated damages

provision of the Age Discrimination in Employment Act of 1967); cf. United

States v. Illinois Central R. Co., 303 U.S. 239, 242–243, 58 S. Ct. 533, 82

L. Ed. 773 (1938) (“willfully,” as used in a civil penalty provision, includes

“‘conduct marked by careless disregard whether or not one has the right so

to act’” (quoting United States v. Murdock, 290 U.S. 389, 395, 54 S. Ct. 223,

48

78 L. Ed. 381 (1933))). This construction reflects common law usage, which

treated actions in “reckless disregard” of the law as “willful” violations. See

W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law

of Torts § 34, p. 212 (5th ed. 1984) (hereinafter Prosser and Keeton)

(“Although efforts have been made to distinguish” the terms “willful,”

“wanton,” and “reckless,” “such distinctions have consistently been ignored,

and the three terms have been treated as meaning the same thing, or at

least as coming out at the same legal exit”). The standard civil usage thus

counsels reading the phrase “willfully fails to comply” in [15 U.S.C.] §

1681n(a) as reaching reckless FCRA [Fair Credit Reporting Act] violations,

and this is so both on the interpretive assumption that Congress knows how

we construe statutes and expects us to run true to form, see Commissioner

v. Keystone Consol. Industries, Inc., 508 U.S. 152, 159, 113 S. Ct. 2006,

124 L. Ed. 2d 71 (1993), and under the general rule that a common law term

in a statute comes with a common law meaning, absent anything pointing

another way, Beck v. Prupis, 529 U.S. 494, 500–501, 120 S. Ct. 1608, 146

L. Ed. 2d 561 (2000).

Safeco Ins. Co. of Am. v. Burr, 551 U.S. at 57-58. While the Supreme Court’s decision in

Safeco Insurance was not made in the context of tax law, the common law definition of

“willfulness” articulated in Safeco Insurance has been relied upon previously by judges of

the United States Court of Appeals for the Federal Circuit and the United States Court of

Federal Claims when evaluating FBAR penalties assessed for “willfulness.” See, e.g.,

Norman v. United States, 942 F.3d 1111, 1115 (Fed. Cir. 2019) (holding “that willfulness

in the context of [31 U.S.C.] § 5321(a)(5)(C) includes recklessness”) (citing Bedrosian v.

United States, 912 F.3d at 152-53, and United States v. Williams, 489 F. App’x 655, 658-

59 (4th Cir. 2012)); Landa v. United States, 153 Fed. Cl. at 597; Kimble v. United States,

141 Fed. Cl. 373, 385 (2018); Norman v. United States, 138 Fed. Cl. 189, 191-92 (2018).

The Federal Circuit stated, in a footnote in Kimble v. United States, that the taxpayer’s

reasons for the violation (her subjective 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 Bedrosian 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 required to establish willfulness in this context”); Norman, 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).

Kimble v. United States, 991 F.3d 1238, 1243 n.2 (Fed. Cir. 2021).

Applying the definition of “willfulness” expressed in Safeco Insurance, which

includes the concept of recklessness, to evaluate an assessment of willful FBAR penalties

by the IRS, the Federal Circuit in Kimble v. United States determined that when a taxpayer

“knew about the numbered [foreign] account and took efforts to keep it secret by, among

49

other things, not disclosing the account to her accountant,” those facts would support a

determination of willfulness. Kimble v. United States, 991 F.3d at 1243 (alteration added).

The Federal Circuit in Norman v. United States stated that a determination of willfulness

does not “require[] a showing of actual knowledge of the obligation to file an FBAR,” but

“an FBAR violation would generally not be willful where a taxpayer did not know about,

and had no reason to know about, her overseas account.” Norman v. United States, 942

F.3d at 1115. The Federal Circuit in Norman further found willfulness when a taxpayer

“signed her 2007 tax return under penalty of perjury, and this return falsely indicated that

she had no interest in any foreign bank account,” despite questions from her accountant

“that specifically asked whether she had a foreign bank account.” Id. at 1116. The Federal

Circuit in Norman found this behavior, in addition to certain actions “which had the effect

of inhibiting disclosure of the account to the IRS,” such as opening the “foreign account

as a ‘numbered account,’” “preventing UBS [a foreign bank] from investing in U.S.

securities on her behalf,” and receiving money withdrawn in cash, evidence of willfulness.

Id. (alteration added). The Federal Circuit in Norman also considered evidence of

willfulness to be the taxpayer’s “false statements to the IRS about her knowledge of, and

the circumstances surrounding, the account.” Id.

More recent cases issued by judges of the United States Court of Federal Claims

also have considered failure to disclose the existence of a foreign account to one’s

accountant as grounds for a determination of willfulness. The judge in Landa v. United

States found willfulness when the taxpayer “failed to disclose this foreign account to his

accountant and never asked his accountant how to report the income from the foreign

account,” which led to filing a tax return that did not reflect the foreign account. Landa v.

United States, 153 Fed. Cl. at 597. The judge in Kimble v. United States found the

taxpayer showed “reckless disregard,” and therefore, “‘willful[ness],’” when the taxpayer

“did not review her individual income tax returns for accuracy” and “falsely represent[ed]

under penalty of perjury, that she had no foreign bank accounts.” Kimble v. United States,

141 Fed. Cl. at 386 (alteration added).

While plaintiffs maintain that Mrs. Jones did not have knowledge about the

reporting requirements on foreign income or the attendant tax liabilities, pursuant to the

applicable law of the Federal Circuit, Mrs. Jones’ ignorance of her foreign account

reporting requirements does not counteract her responsibilities or liabilities under the

Bank Secrecy Act, 31 U.S.C. §§ 5311 et seq., and implementing regulations, see, e.g.,

31 C.F.R. §§ 1010.306, 1010.350. See Norman v. United States, 942 F.3d at 1115.

According to plaintiffs’ complaint and attached documents, including the Proposed

Statement of Uncontroverted Facts from Mrs. Jones’ earlier suit challenging Mr. Jones’

willful FBAR penalty, Jones v. United States, Case No. 19-00173, which was attached to

plaintiffs’ complaint in the above captioned case, there is no dispute that in the time period

covered by the IRS’s willfulness determination, the tax years 2011 and 2012, Mrs. Jones

possessed foreign financial accounts. Specifically, as enumerated in the Proposed

Statement of Uncontroverted Facts, Mrs. Jones owned two Canadian accounts and one

New Zealand account in her name alone, and one Canadian account and three New

Zealand accounts jointly with her husband. Further, plaintiffs’ complaint states that Mrs.

Jones, in her amended tax r

This text is long and has been trimmed here. Open the source document for the complete record.