# I n the United States Court of Federal Claims

No. 15-1534T (Filed: November 30, 2017)

LARRY D. JARNAGIN AND LINDA JARNAGIN,

Plaintiffs,

v.

THE UNITED STATES OF AMERICA,

Defendant. ) ) ) ) ) ) ) ) ) ) ) ) Keywords: Tax Refund; Illegal Exaction; IRS; Bank Secrecy Act; Report of Foreign Bank and Financial Accounts; FBAR; Reasonable Cause; Ordinary Business
Care and Prudence.

Jason M. Silver , Scottsdale, AZ, for Plaintiffs.

Jason S. Selmont , U.S. Department of Justice, Tax Divi sion, Court of Federal Claims Section, Washington, DC, with whom were Blaine G. Saito , Trial Attorney, David I. Pincus , Chief, Court of Federal Claims Section, and David A. Hubbert , Acting Assistant Attorney General, for
Defendant.

OPINION AND ORDER

KAPLAN, Judge.

In this case, plaintiffs Larry and Linda Jarn agin, husband and wife, assert that the IRS wrongfully assessed and collected penaltie s from them for the 2006, 2007, 2008, and 2009 tax years based on their failure to file certain repo rts regarding their forei gn bank account as required by the Bank Secrecy Act. Mr. Jarn agin, a dual U.S.-Canadian citize n, and Mrs. Jarnagin, a U.S. citizen with Canadian residency status, do notdispute that they owned an account at the Canadian Imperial Bank of Comme rce during each of the tax year s at issue. They also do not dispute that they were required by law to file a report regarding that acco unt with the IRS for each of those years and that they failed to do so. Th ey assert instead that th eir failure to file the reports was due to reasonable cause and that the IRS was therefore barred from assessing and collecting the penalty by 31 U.S.C. § 5321(a)(5)(B)(ii).

For the reasons set forth below, the Court c oncludes that the Jarnagins did not exercise ordinary business care and pruden ce with respect to their obligati on to file the re ports at issue
and thus cannot avail themselves of the reasonab le cause defense. Accordingly, the government’s motion for summary judgment is GRANTED and the Jarnagins’ motion for summary judgment
is DENIED

.2 BACKGROUND

I. The Statutory Framework

In 1970, Congress enacted the Bank Secrecy Act, Pub. L. No. 91-508, 84 Stat. 1114, in
order to address its concerns ove r “the use by American residents of foreign financial facilities located in jurisdictions with various types of secrecy laws.” H. R. Rep. No. 91-075 (1970), reprinted in 1970 U.S.C.C.A.N. 4394, 4395. “[C]onsiderable testim ony” had been presented to Congress regarding “serious and wi despread use of foreign financia l facilities located in secrecy jurisdictions for the purpose of violating American law.” Id. at 4397. In the Bank Secrecy Act, Congress responded by imposing on residents, citi zens, or persons doing business in the United States a requirement that they keep records and make reports concerning certain foreign accounts and transactions. 31 U.S.C. § 5314(a) (2006) 1 ; see also id. § 5311 (stating that the “purpose” of the Act is “to require certain re ports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or pr oceedings, or in the conduct of intelligence or counterintelligence activitie s, including analysis, to protect against inte rnational terrorism”).

The statute thus provides, in pertinent part , that “the Secretary of the Treasury shall require a resident or citizen of 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.” Id. § 5314(a). The Secretary of the Treasury has issued regulations implementing th e statutory requirements. They state, in pertinent part, as
follows:

Each United States person having a fi nancial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country shall repo rt such relationship to the
Commissioner of Internal Revenue for each year in which such relationship exists and shall provide such information as shall be specified in a reporting form pres cribed under 31 U.S.C. 5314 to be filed by such persons.

31 C.F.R. § 1010.350(a) (2016). 2 The reporting form prescrib ed under 31 U.S.C. § 5314 and referenced in the regulation is Form TD-F 90-22.1 (entitled “Report of Foreign Bank and Financial Accounts”). Id. 3 Under the regulations, the form must be filed “on or before June 30 of

1 Because the penalties collected by the IRS in th is matter were based on violations relating to the 2006, 2007, 2008, and 2009 tax years, the Court’s citation s to the United States Code are to the 2006 codification, unless otherwise noted.

2 During the years at issue in th is case, this regulation was locat ed at 31 C.F.R. § 103.24, but was relocated without substantive change in 2011. S ee Transfer and Reorganization of Bank Secrecy Act Regulations, 75 Fed. Reg. 65806-01 (Oct. 26, 2010).

3 The form is also referred to as an “FBAR.” United States v. Simon, 727 F.3d 682, 685 (7th Cir. 2013); see also 31 C.F.R. § 1010.350(g)(4).3 each calendar year with respect to forei gn financial accounts exceeding $10,000 maintained during the previous calendar year.” Id. § 1010.306(c) (previously codified at 31 C.F.R. § 103.27).

The statute authorizes the Secretary of the Treasury to impose a civil monetary penalty of not more than $10,000 for failure to file 

### the Form TD-F 90-22.1. See 31 U.S.C. § 5321(a)(5) (providing that if “any person . . . violates, or causes any violation of, any provision of section 5314,” then “[t]he Secretary of the Treasury may impose a civil m oney penalty,” not to exceed $10,000). “No penalty shall be imposed . . . withrespect to any viol ation,” however, “if— (I) such violation was due to reasonable cause, and (II) the amount of th e transaction or the
balance in the account at the time of th e transaction was prope rly reported.” Id. § 5321(a)(5)(B)(ii).

II. Undisputed Facts

A. The Jarnagins’ Educational and Business Backgrounds

Plaintiff Larry Jarnagin is a high school gr aduate. Def.’s Am. App. B Ex. 3 at 9, ECF No. 22-1. Although he does not have a college degr ee, he took courses atNew Mexico Western University in approximately 1963 or 1964. See id . In addition, Mr. Jarnagin completed both barbering school and chiropractic school, and practiced professionallyas a chiropractor for five years. Id. at 9–10. Mr. Jarnagin also owned a nd operated a number of barbershops in New
Mexico. Id. at 13.

Linda Jarnagin attended multiple community colleges in Iowa and New Mexico in the 1960s and 1970s, taking classes in elementary e ducation. Id. Ex. 4 at 8–9. She did not obtain a degree. Id. In the late 1970s, Mrs. Jarnagin took classes at a voca tional technical school in order
to obtain a real estate broker’s license. Id. at11. In approximately 1978, she passed her licensing exam. See id. at 9, 11–12. For about the next four y ears, Mrs. Jarnagin worked as a real estate
broker. Id. at 14–15.

The Jarnagins were married in 1966. Id. at 8. They moved to Oklahoma around 1971, where Mr. Jarnagin, in addition to barbering, became a cattle farmer and began buying and selling farms. Id. Ex. 3 at 13. He also began buying, selling, and leasing oil and mineral rights. Id. at 16. Mr. Jarnagin has since continuously been involved in the real esta te business. See id. at 16–17. He has set up and used corporations, limited liability companies, and “C Corps” for the purpose of buying and selling property. Id. at 17.

In the early- to mid-1980s, Mr. Jarnagin bought property in Canada and began operating
his own ranch in British Columbia. Id. at 18–20. In 1986, the Jarnagins immigrated to Canada. Id. at 19. In 1989, Mr. Jarnagin became a Canadian citizen. Id. He curren tly resides in Canada approximately nine to ten months out of the year . Id. at 95. Mrs. Jarnagin spends more of her
time in Oklahoma than in Canada. See id. at 95– 96; see also id. Ex. 4 at 53; id. Ex. 5 at 30–31.

In the early 1990s, the Jarnagins purchase d a number of apartment complexes in Oklahoma. Id. Ex. 3 at 20–21. At one point, they owned as many as six different properties. See id. Ex. 4 at 18. Mrs. Jarnagin“actively manage[d]” them. Id. Ex. 3 at 21. She served as the4 “property supervisor” and oversaw on-site manage rs, maintenance, and landscaping. Id. Ex. 4 at 18. In the 2000s, the Jarnagins so ld or transferred the apartmen t complexes. Id. at 18–19. In particular, in 2006, the Jarnagins engaged in a property exchange known as a “1031,” whereby they exchanged one of the apartment complexe s for a shopping center in Oklahoma City, which they still own. 4 Id. at 19.

The Jarnagins also became owners of a nightclub in Phoenix, Arizona in the mid- or late1990s, by virtue of their status as creditors in a bankruptcy procee ding. See id. Ex. 3 at 22; id. Ex 4 at 20. Ultimately, Mrs. Jarnagin went to Phoeni x and took over the operations of the nightclub directly. See id. Ex. 3 at 22–23; id. Ex. 4 at 20–21. In 2006, the property was taken by the city of Phoenix through its power of eminent domain. Id. Ex. 4 at 22.

B. The Jarnagins’ Canadian Bank Account and Their 2006–2009 Personal
Income Tax Returns

In 1986, the Jarnagins opened a bank account in Canada at the Canadian Imperial Bank of Commerce. See id. Ex. 3 at 26–27. They c ontinued to own and maintain this account throughout 2006, 2007, 2008, and 2009. Id. Ex 1 at 1–3, 6. At the end of 2006, the Jarnagins’ account had a balance of $4,000,000. Id. at 1. At th e end of 2007, the account had a balance of $3,500,000. Id. at 2. At the end of 2008, it had a balance of $3,850,000. Id. And in 2009, the
account had a balance of at le ast $1,870,000. See id. at 2–3; see al so id. Ex. 31 at 2, ECF No. 22-
9.

For tax years 2006 through 2009, the Jarnagins filed joint Form 1040 Individual Income Tax Returns. Id. Ex. 7, ECF No 22-2; id. Ex. 8, ECF No. 22-4; id. Ex. 9, ECF No. 22-6; id. Ex. 10, ECF No. 22-7. Schedule B of each of those tax returns contained a sec tion entitled “Part III Foreign Accounts and Trusts.” See, e.g., id. Ex. 7 at 5. In that section, lin e 7a required a response to the following question:

At any time during [the relevant ta x year], did you have an interest in or a signature or other auth ority over a financial account in a foreign country, such as a bank acc ount, securities account, or other
financial account?

Id. The form then contained checkboxes for answer ing the question either yes or no and directed filers to “[s]ee instru ctions for exceptions and filing requi rements for Form TD F 90-22.1.” Id.

On their 2006, 2007, 2008, and 2009 tax returns, the Jarnagins’ accountants (see below) checked the “no” box in response to line 7a, notwithstanding that the Jarnagins maintained a bank account in Canada during those y ears. Id.; id. Ex. 8 at 8; id. Ex 9 at 4; id. Ex. 10 at 4. In

4 The characterization of this exchange as a “1031” is based on 26 U.S.C. § 1031. That section states in pertinent part that “[n]o gain or loss shall be r ecognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.” Id. § 1031(a)(1).5 addition, the Jarnagins did not file an FBAR re porting their Canadian ba nk account during any of those years. Id. Ex. 1 at 3–6.

C. The Jarnagins’ Bookkeeper

The Jarnagins employed the services of a bookkeeper—Misty Fairchild—to help manage the financial aspects of their businesses and to provide information to the accountants who prepared their tax returns (see below). Ms. Fair child first began to pe rform bookkeeping services for the Jarnagins in January 1997 while she was still in coll ege. Id. Ex. 3 at 34; id. Ex. 4 at 25; id. Ex. 5 at 12. The Jarnagins hired her because of the friendship between Mrs. Jarnagin and Ms. Fairchild’s mother, and because Mrs. Jarnagin ha d learned that Ms. Fairchild was studying to be
an accountant. Id. Ex. 4 at 25.

Ms. Fairchild initially helped manage the Jarnagins’ apartments by keeping track of income and expenses at the properties. Id. E x. 3 at 38. Her duties later expanded to include preparing annual financial statements for the Jarn agins and other daily financial management and bookkeeping tasks. See id. Ex. 4 at 27–28, 66–68; i d. Ex. 5 at 13; see also id. Exs. 11–13. Ms.
Fairchild was aware that the Jarnagins had a Canadian bank account. Id. Ex. 5 at 44–45. She did not, however, have any knowledge of or experience related to internationa l tax matters. Id. Ex. 3 at 39; id. Ex. 4 at 26; id. Ex. 5 at 66. Nor did she know a nything about filing tax returns for a person with foreign sources of income. Id. Ex. 5 at 67.

In 1998, Ms. Fairchild graduated from Southwes tern Oklahoma State University with a bachelor’s degree in accounting w ith a minor in finance. Id. E x. 5 at 9. In 2000, she obtained her master’s degree in business administration. Id. Ms. Fairchild then became a licensed certified public accountant (CPA) in 2002. I d. at 10. She continued to work for the Jarnagins during this period.

In August 2004, Ms. Fairchild took a position as a comptroller with a bank. Id. at 12, 14– 15; id. Ex. 4 at 25–26. She nonetheless continue d to perform bookkeeping and accounting-type work in a part-time, consulting role for the Ja rnagins. Id. Ex. 5 at 15. While working in the banking industry, Ms. Fairchild did not have any responsibilities fo r or experience with
international tax or cross-borde r issues. Id. at 19, 23. In 2010, Ms. Fairchild left the banking industry and opened an accounting firm with her br other, Kyle Zybach (discussed below). Id. at
23.

D. The Jarnagins’ Accountants

The Jarnagins did not personally prepare th eir income tax returns for tax years 2006 through 2009. See id. Ex. 3 at 30–31. Instead, they employed the services of accountants in both Canada and the United States to prepare and file their Canadian and U.S. tax returns, respectively. See id. at 30–34.

Prior to the tax years at issue in this case, the Jarnagins’ U.S. tax returns were prepared by James Crook, an accountant and former IRS employee. Id. at 33, 43. After Mr. Crook passed away in 2005, his firm continued to prepare the Jarn agins’ tax returns, starting with their return for 2005, which was prepared by Mike Gordon. S ee id. at 33–34, 49–50; id. Ex. 4 at 33–34; id. Ex. 16 ¶ 15. The Jarnagins testified that Mr. Gordon was a CPA but that they otherwise had “no6 idea” what his qualifications were and did not kn ow whether or not he had any knowledge about, or experience with, issues of international taxa tion. Id. Ex. 4 at 34–35; see also id. Ex. 3 at 50.

Shortly thereafter, Mr. Go rdon passed away and Mr. Crook’s widow took over the preparation of the Jarnagins’ tax returns for ta x years 2006 and 2007. Id. Ex. 3 at 50; see also id. Ex. 7 at 3 (the Jarnagins’ 2006 tax return reflec ting Marie Crook as tax preparer); id. Ex. 8 at 3 (the Jarnagins’ 2007 tax return showing the sa me). Mr. Jarnagin was unsure of Mrs. Crook’s qualifications and did not know whether or not she was a CPA. Id. Ex. 3 at 52–53.

For tax years 2008 and 2009, the Jarnagins turned to a new accountant, Kyle Zybach, the brother of Ms. Fairchild, their bookkeeper. See id. at 34; id. Ex. 9 at 2; id. Ex. 10 at 2. The Jarnagins knew that Mr. Zybach was a CPA but did not know or inquire whether he had any knowledge about or experience with internati onal tax matters. Id. Ex. 3 at 55. Mr. Zybach testified that he had no such pr ior experience. Id. Ex. 6 at 10–11.

The Jarnagins never expressly informed Mr . Gordon, Mrs. Crook, or Mr. Zybach that they maintained a bank account in Canada. See id. Ex. 3 at 45–46, 56; id. Ex. 4 at 37–38; see
also id. Ex. 6 at 23. Nor did the Jarnagins provide any statements from the Canadian account to any of their U.S. accountants. See id. Ex. 3 at 45–46, 51–52, 54–56; see also id. Ex. 4 at 37.

Both Mr. and Mrs. Jarnagin te stified that they believed their accountants would have been aware that they maintained a bank account in Canada because thei r Canadian businesses and residence were common knowledge. See i d. Ex. 3 at 44–46, 50–51, 56; id. Ex. 4 at 37–38, 68–69, 71–72. In addition, the Jarnagins’ annual financial statements (which they supplied to their U.S. accountants) contained references to a Canadian bank account. I d. Ex. 11 at 2; id. Ex. 12 at 2; id. Ex. 13 at 2 (financia l statements provided by the Jarn agins to their U.S. accountants for 2006, 2007, and 2008 listing a personal “CD/Savi ngs” account at “CIBC” in Canadian dollars); see also id. Ex. 3 at 44–46, 50–51, 56; id. Ex. 4 at 37–38, 68–69, 71–72. The Jarnagins
also believed that their U.S. acc ountants would have inferred the existence of a Canadian bank account given that they were required to send th e Jarnagins’ U.S. tax information to Canadian accountants each year so that those accountants c ould file the Jarnagins’ Canadian tax returns. See id. Ex. 3 at 44–45; id. Ex. 4 at 36–38; see also id. Ex. 5 at 45–46.

The record supports the Jarnagins’ expectation that their U.S. accountants would have
known of their Canadian bank account notwithstandi ng the Jarnagins’ failure to directly draw
their U.S. accountants’ attention to its existence. Thus, Mr. Zybach testified that while he did not recall ever being directly told about the Canadian account, he wa s aware of it “from [his] prior experience and from looking at the financial statem ents that were provided.” Id. Ex. 6 at 23.

E. The Jarnagins’ Role in Preparing Their Tax Returns

The Jarnagins had little involvement in the pr eparation of their tax returns for tax years 2006 through 2009. Mr. Jarnagin expl ained that “[b]asically, we handed everything over to the accountants, [said] ‘[h]ere, take ca re of it and tell us how much we owe,’ and that’s about it.” Id. Ex. 3 at 44; see also id. at 57–58. Similarly, Mrs. Jarnagin tes tified that they “just turned everything over to [Mr. Gordon] that needed to be done.” Id. Ex. 4 at 44–45. She also recalled that the Jarnagins played a sim ilarly passive role when Mr. Zyb ach prepared their returns; she7 did not remember any discussions regarding tax planning, only rare meetings to provide records.
Id. at 45–46.

Mr. and Mrs. Jarnagin both signed their name s under the declaration contained at the end of the Forms 1040 that they filed fo r each of the years at issue in th is case. Id. Ex. 7 at 3; id. Ex. 8 at 3; id. Ex. 9 at 2; id. Ex. 10 at 2; see also id. Ex. 4 at 50–51, 57, 62–63. Those declarations
read as follows:

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.

E.g., id. Ex. 10 at 2.

Notwithstanding this declaration, however, Mr. Jarnagin testif ied that he did not review his 2006 tax return prior to filing it. Id. Ex. 3 at 59–60. Nor did he ask any questions of Mrs. Crook or anyone else at her firm re garding the return. Id. Mr. Jarnag in also did not review the tax
returns his U.S. accountants filed in tax years 2007, 2008, and 2009. Id. at 64–66, 68–69, 71–72.

Mrs. Jarnagin testified that she did not “usuallyhave time to review [the returns], but [she did] look to see how much [they] owe[d].” I d. Ex. 4 at 48. She thus did not review the 2006, 2007, 2008, or 2009 tax returns other than to learn the amount of tax owed. See id. at 48, 52–53, 56–58, 62–63; see also id. Ex. 6 at 22 (Kyle Zybach testifying that the Jarnagins “normally didn’t really want to look ove r the whole return, just kind of the 1040, total income, how much tax do [they] owe or what are [t hey] getting a refund for” and th at he did not sit down with the Jarnagins to go over their returns).

F. Penalties Imposed by the IRS

On June 28, 2012, the IRS sent separate letter s to Mr. and Mrs. Jarnagin “proposing a penalty for violating the reporting or record k eeping requirements relatin g to accounts [they]
maintain with financial institutions overseas.” Id. Ex. 28 at 1; id. Ex. 29 at 1. Specifically, the IRS informed the Jarnagins that it was “proposin g the assessment of a penalty under 31 U.S.C. § 5321(a)(5) for failing to meet the filing requireme nts of 31 U.S.C. § 5314.” Id. Ex. 28 at 1; id. Ex. 29 at 1. The total proposed penalty wa s $100,000, representing $10,000 each for Mr. and Mrs. Jarnagin for each tax year 2006 through 2010, inclusive, based upon their failure to report their bank account at the Canadian Imperial Bank of Commerce. Id. Ex. 28 at5; id. Ex. 29 at 5.

The Jarnagins disputed the proposed penalt ies with the IRS in August 2012. Compl. Ex. C, ECF No. 1. Ultimately, in late 2015, the IRS agreed to withdraw its proposed penalty for 2010, but asserted that the Jarnagins were liable for the “Report of Fo reign Bank and Financial Accounts (FBAR) penalty” for 2006, 2007, 2008, and 2009, and demanded payment of $40,000 each from Mr. and Mrs. Jarnagin. See Compl. Exs. A–B; Def.’s Am. App. B Exs. 30–31.

On November 10, 2015, Mr. and Mrs. Jarnag in each paid a $40,000 FBAR penalty. Compl. Ex. B. On November 13, 2015, the Jarnagin s filed a Form 843, seeking an abatement and refund of the penalty amounts paid. Compl. Ex. C. The Jarnagins allege that the IRS denied that request. Compl. ¶ 11.8 III. This Action

On December 16, 2015, the Jarnagin s filed the present suit. EC F No. 1. In their complaint they assert one count, which is entitled “Wrongf ul Assessment and Collection of Penalties.” Id. at 3. The Jarnagins allege that their “failure to file a[n] FBAR for tax years 2006, 2007, 2008 and 2009, was due to reasonable cause,” and that “[t]he IR S illegally or unlawfully failed to grant [the] Jarnagin[]s[’] claims for refund of th e FBAR penalties paid for tax years 2006, 2007, 2008 and 2009.” Id. ¶¶ 14, 16. They seek judgment in the amount of $80,000, plus interest, attorneys’ fees, and costs. Id. at 4.

This case was initially assigned to Senior Judge James F. Merow, but was transferred to the undersigned on January 11, 2017 . See ECF No. 16. On March 24, 2017, the government filed a motion for summary judgment. ECF No. 19. On May 10, 2017, the Jarnagins filed their response and cross-motion for summary judgment. ECF No. 25. The parties finished briefing the cross-motions on June 30, 2017, but on August 9, 2017, the government sought leave to file a surreply. ECF No. 30. The Court granted leave th e next day. ECF No. 31. The Jarnagins then filed their own surreply on August 23, 2017. EC F No. 33. On November 20, 2017, the Court held oral argument on the parties’ cr oss-motions. See Order, ECF No. 35.

DISCUSSION

I. Subject Matter Jurisdiction

Neither party has substantively addressed in its briefs the Court’s subject matter jurisdiction over this cas e. Subject matter jurisd iction, however, is a thre shold matter, Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94–95 (1998), and the Court has “an independent obligation to determine whether subject matter jurisdiction exists, even in the absence of a challenge from any party,” Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006).

The Tucker Act grants the Court of Federa l Claims jurisdiction “to render judgment upon any claim against the United St ates founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort.” 28 U.S.C. § 1491(a) (2012). Under this grant, the court may assert jurisdic tion over a complaint (such as this one) alleging an illegal exac tion if the plaintiff alleges th at “money . . . was ‘improperly paid, exacted, or taken from the claimant in c ontravention of the Constitution, a statute or a regulation.’” Norman v. United States, 429 F.3d 1081, 1095 (Fed. Cir. 2005) (quoting Eastport S.S. Corp. v. United States, 178 Ct. Cl. 599, 605 (1967)); see also Aerolineas Argentinas v. United States, 77 F.3d 1564, 1572–73 (Fed. Cir. 1996) (observing that “Tucker Act claims may be made for recovery of monies that the governme nt has required to be paid contrary to law”); S. P.R. Sugar Co. Trading Corp. v. United States, 167 Ct. Cl. 236, 244–45 (1964) (finding that “[u]nder [the Tucker Act], suit can be brought in this court to recove r exactions said to have been illegally imposed by federal officials (except where Congress has expres sly placed jurisdiction elsewhere)”); Clapp v. United States, 127 Ct. Cl. 505, 513 (1954) (stating that “a claim to recover an illegal exaction made by officials of the Government, which exaction is based upon a power supposedly conferred by a statute, is a claim founded upon any Act of Congress”).9 Here, the Jarnagins assert that the govern ment’s assessment and collection of FBAR penalties was unlawful because 31 U.S.C. § 5321(a)(5) contains a prohibition on penalties where, inter alia, the taxpayer has reasonable ca use for failing to file an FBAR. Thus, because the government based its exaction upon an assert ed statutory power and because the Jarnagins claim that the penalty was exacted in contravention of that statute, the Jarnagins’ claim is one for an illegal exaction and the Court has subject matter jurisdiction over it.

II. Summary Judgment Standards

The standards for granting summary judgmen t are well established. Summary judgment may be granted where there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Rule 56(a) of the Rules of the Court of Federal Claims; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 2 50 (1986). A fact is material if it “might affect the outcome of the suit under the gov erning law.” Anderson, 477 U.S. at 248. An issue is genuine if it “may reasonably be resolved in favor of either party.” Id. at 250.

The moving party bears the burden of demonstr ating the absence of any genuine issue of material fact. Conroy v. Reebok Int’l, Ltd., 14 F.3d 1570, 1575 (Fed. Cir. 1994); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986). All significant doubts regarding factual issues must be resolved in favor of the party opposi ng summary judgment. Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 1390 (Fed. Cir. 1987). “[T]he party opposing summary judgment must show an evidentiary conflic t on the record; mere denials or conclusory statements are not sufficient.” Id. at 1390–91. “[E]ntry of summary j udgment is appropriate against a [party] ‘who fails to make a showing sufficient to establish the existence of an essential element to [its] case, and on which [it] will bear the burden of proof at trial.’” Zafer Taahhut Insaat ve Ticaret A.S. v. United States, 833 F.3d 1356, 1362–63 (Fed. Cir. 2016) (quoting Celotex Corp., 477 U.S. at 322) (third and fourth alte rations in original).

III. The Parties’ Cross-Motions for Summary Judgment

In this case, there is no genui ne dispute as to any material fact or as to whether the Jarnagins violated the law when they fa iled to file FBARs for tax years 2006–2009. The disagreement between the parties is whether, as a matter of law, the Jarnagins qualify for an exception to the statutory penalty because “the violation[s were] due to reasonable cause,
and . . . the amount of the transa ction or the balance inthe account at the tim e of the transaction was properly reported.” 31 U.S.C. § 5321(a)(5)(B)(ii); see also Br. in Opp’n to Def.’s Mot. for Summ. J & in Supp. of Pls.’ Cross-Mot for Summ. J. (Pls.’ Br.) at 14, ECF No. 25 (stating that
“Plaintiffs are liable for the non- willful FBAR penalty, except thatreasonable cause exists and such is a defense to the imposition of the non-willful FBAR penalty”).

The Jarnagins argue that they have establis hed reasonable cause for failing to file FBARs for 2006, 2007, 2008, and 2009. Pls.’ Br. at 6. They asse rt that: 1) “they hired a competent CPA to prepare all required forms”; 2) “the CPA was aware of the CIBC account in Canada through the financial statements provide d to him by Plaintiffs before he filed the returns”; and 3) “Plaintiffs actually relied in good faith on the CPA.” Id. In short, the Jarnagins argue, “they relied upon their CPA[s] as it related to their tax re turns, which is all that is required.” Id. at 20.10 For the reasons set forth below, the Court conc ludes that, as a matter of law, the Jarnagins
have not established reasonable cause for th eir violations of the reporting requirement. Accordingly, they do not qualify for an exception from the statutory penalty provision and their request for reimbursement of th e penalties paid lacks merit. 5

A. Reasonable Cause Standard

Neither the statute nor its co rresponding regulations define “reasonable cause,” and there is little case law rega rding the meaning and application of the reasonable cause standard under 31 U.S.C. § 5321(a)(5)(B)(ii). See id. § 5312; see also 31 C.F.R. § 1010.100. Sections 6651(a) and 6664(c)(1) of the Internal Revenue Code and their implementing regulations, however, use and define the phrase in the tax compliance context. Accordingly, the Court finds those provisions instructive in constr uing the reasonable cause standard applicable here. See Bragdon v. Abbott, 524 U.S. 624, 631 (1998) (s tating that “Congress’ repetiti on of a well-established term carries the implication that Congress intended th e term to be construed in accordance with preexisting regulatory interpretations”); see al so Moore v. United States, No. C13-2063RAJ, 2015 WL 1510007, at *4 (W.D. Wash. Apr. 1, 2015) (conclu ding that “[t]here is no reason to think that Congress intended the meaning of ‘reasonabl e cause’ in the Bank Secrecy Act to differ from the meaning ascribed to it in tax statutes”).

The first of those provisions, 26 U.S.C. § 6651(a), prescribes penalties for failing to timely file certain returns or to pay particular taxe s “unless it is shown thatsuch failure is due to reasonable cause and not due to willful neglec t.” The regulations implementing § 6651 equate
the reasonable cause standard with a standard of ordinary business ca re and prudence. See 26 C.F.R. § 301.6651-1(c)(1) (stating that “[i]f the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time, then the delay
is due to a reasonable cause” and that “[a] failure to pay will be considered to be due to reasonable cause to the extent the taxpayer has made a satisfactory showing that he exercised ordinary business care and prudence in providi ng for payment of his tax liability and was nevertheless either unable to pay the tax or would suffer an undue hardship . . . if he paid on the due date”); see also United States v. Boyle, 469 U.S. 241, 246 n.4 (1985) (holding that IRS’s “correlation [in its regulation] of ‘reasonable cause’ with ‘ord inary business care and prudence’ is consistent with Congress’ intent, and over 40 years of case law” and “merits deference”).

Similarly, 26 U.S.C. § 6664(c)(1) states that“[n]o penalty shall be imposed under section 6662 or 6663 with respect to any portion of an un derpayment if it is shown that there was a reasonable cause for such portion and that the ta xpayer acted in good faith with respect to such

5 In light of the Court’s conclu sion that the Jarnagins’ failure to file FBARs was not due to reasonable cause, it does not address the questi on of whether the Jarnagins have satisfied the additional criteria for the exception to the FB AR penalty—i.e., that “the amount of the
transaction or the balance in the account at th e time of the transaction was properly reported.”

See 

### 31 U.S.C. § 5321(a)(5)(B)(ii).11 portion.” 6 IRS regulations, in turn, state that w ith respect to § 6662 unde rpayments, “[t]he determination of whether a taxpayer acted with reasonable cause . . . is made on a case-by-case basis, taking into account al l pertinent facts and circumstan ces.” 26 C.F.R. § 1.6664-4(b)(1). They provide that “[g]enerally, th e most important factor is the ex tent of the taxpayer’s effort to assess the taxpayer’s proper tax liability.” Id. The regula tions further state that “[c]ircumstances that may indicate reasonable cau se and good faith include an honestmisunderstanding of fact or law that is reasonable in light of all of the facts and circumst ances, including the experience, knowledge, and education of the ta xpayer.” Id. They advise that “[r]eliance on an information return or on the advice of a professional tax advisor or an appraiser does not necessarily demonstrate reasonable cause and good faith.” Id. “Reliance on an information return, professional advice, or other facts, however, constitutes reasonable cause and good faith if, under all the circumstances, such reliance was reasona ble and the taxpayer acted in good faith.” Id.

The regulations contain examples that i llustrate “reasonable cause,” and include circumstances in which the taxpayer engages a “professional tax advisor, ” provides him or her with “full details,” and relies upon his or he r “advice.” Id. § 1.6664-4( b)(2). The regulation
defines the word “advice” as “any communication, including the opinion of a professional tax advisor, setting forth the analysis or conclusion of a person, other than th e taxpayer, provided to (or for the benefit of) the taxpaye r and on which the taxpayer relies, directly or indirectly.” Id. § 1.6664-4(c)(2).

On the other hand, if the taxpayer “sought advi ce from someone that [he] knew, or should have known, lacked knowledge in the relevant as pects of Federal tax law, or if other facts demonstrate that [he] failed to act reasonably or in good faith, [he] would not be considered to have shown reasonable cause.” Id. § 1.6664-4(b)(2 ). Additionally, the taxpayer’s education, sophistication, and business experi ence must be considered, “the advice must be based upon all pertinent facts and circumstances,” and the advice must not be based on unreasonable factual or legal assumptions. Id.

B. Whether the Jarnagins Have Reasonab le Cause for Failing to File the FBARs

In light of the foregoing, the Court concludes that in orde r to show reasonable cause under 31 U.S.C. § 5321(a)(5)(B)(ii), the Jarnagins mu st establish that they exercised “ordinary business care and prudence” with respect to their obligation to file FBARs for tax years 2006 through 2009. As noted, they assert that they have met their burden of proving their entitlement to the defense by showing that 1) “they hired a competent CPA to prepare all required forms”; 2) “the CPA was aware of the CIBC account in Canada through the financial statements provided to him by Plainti ffs before he filed the returns”; and 3) “Plaintiffs actually relied in good faith on the CPA.” Pls.’ Br. at 6.

For purposes of ruling on the cross-motions for summary judgment, the Court assumes that the accountants the Jarnagins hired were “comp etent . . . to prepare all required forms” and were aware that the Jarnagins had a bank account in Canada. Nonetheless, the Court concludes

6 Section 6662 of Title 26 concerns penaltie s for “accuracy-related” underpayments. Section 6663 concerns the underpayment of taxes “due to fraud.”12 that, as a matter of law, the Jarnagins did not exer cise ordinary business care and prudence in the handling of their reporting obligations.

First, as noted above, IRS regulations specify that in determining reasonable cause, “the most important factor is the exte nt of the taxpayer’s effort to assess the taxpayer’s proper tax liability.” 26 C.F.R. § 1.6664-4(b)(1). The Jarn agins have owned multiple businesses in multiple states and in two countries, yet th ey apparently did not have any substantive discussions with any
of their American accountants abouttheir taxes, did not review their tax returns, and did not specifically identify their Canadian bank account to their American accountants or ask for any advice with respect to that accoun t. Further, while the Jarnagins relied upon their accountants to fill out their tax returns, the record contains no evidence that they otherwise sought advice (legal or otherwise) concerning any ob ligations that they might have had to file reports or make disclosures concerning their fo reign assets or businesses.

Second, ordinary business care and prudence w ould require that the Jarnagins personally read and review their completed tax returns carefully. Each year the Jarnagins “declare[d],” “[u]nder penalties of perjury,” that they “examined th[e] return and accompanying schedules and statements, and [that] to the best of [their] knowledge and belief, it [was] true, correct, and complete.” Def.’s Am. App. B Exs. 7–10. Yet it is undisputed that the Jarnagins did not, in fact, read any of their tax return s before signing or filing them. Id. Ex. 3 at 59–60, 64–66, 68–69, 71– 72; id. Ex. 4 at 48, 52–53, 56–58, 62–63; see also id. Ex. 6 at 22.

“A taxpayer who signs a tax re turn will not be heard to claim innocence for not having actually read the return, as he or she is charge d with constructive knowledge of its contents.” United States v. Williams, 489 F. App’x 655, 659 (4 th Cir. 2012) (quoting Greer v. Comm’r of Internal Revenue, 595 F.3d 338, 347 n.4 (6th Cir. 2010)) (finding that taxpayer willfully violated the FBAR reporting requirement). Further, the Ja rnagins had a particular obligation—given Mr. Jarnagin’s dual citizenship, his business activ ities in Canada, and th eir maintenance of a
Canadian bank account with millions of dollars on deposit—to attend to Part III of Schedule B, which is entitled, after all, “Foreign Accounts and Trusts.” See United States v. Sturman, 951 F.2d 1466, 1476–77 (6th Cir. 1991) (finding that “[i]t is reasonable to assume that a person who has foreign bank accounts would read the info rmation specified by the government in tax forms”); see also Williams, 489 F. App’x at 659 (observing that not reading line 7a and not paying attention to tax returns “constitute[d] w illful blindness to the FBAR requirement” and that line 7a “put [the ta xpayer] on inquiry notice of the FBAR requirement”).

Had the Jarnagins read the text of Part III, Foreign Account s and Trusts, they would have
seen the obvious error their accountants committed when they answered “no” to the question of whether the Jarnagins had “an interest in . . . a fi nancial account in a foreign country . . . .” Def.’s Am. App. B Ex. 7 at 5; id. Ex. 8 at 8; id. Ex. 9 at 4; id. Ex. 10 at 4. They also would have seen the admonition in that Part to “[s]ee instructi ons for exceptions and filing requirements for Form
TD F 90-22.1.” 7

7 In their defense, the Jarnagins assert that the question at line 7a on Sche dule B is “in very small font.” Pls.’ Br. at 4. But the cap tion of the section, “Part III Foreign Accounts and Trusts,” is in bold print and in the same font size as the captions for Parts I and II of Schedule B. See, e.g.,13 Further, any individual exercising ordinary business care and prudence would have made inquiry of their accountant about the FBAR filing requirements afte r having identified the clear error in the response provided to question 7a. In that regard, the Court notes again that the Jarnagins are not unsophisti cated in matters of business and fina nce. They have been involved in multiple real estate transactions, property mana gement, oil and gas leasing, and the management of a nightclub. See id. Exs. 3–4. They have pr operty interests and fi nancial accounts in two countries, and the account at issue in this case refl ects substantial wealth. See id.; see also id. Ex. 1. A reasonable person, particularlyone with the sophistication, i nvestments, and wealth of the Jarnagins, would not have signed their income tax returns without read ing them, would have identified the clear error committed by thei r accountants, and would have sought advice regarding their oblig ation to file a Form TD F 90-22.1.

Finally, the Court finds that the mere fact that the Jarnagins’ returns were prepared by tax professionals does not excuse their failure to fi le FBARs. To be sure, IRS regulations provide that a taxpayer’s reliance upon th e advice of tax professionals ma y establish reasonable cause for a violation of the tax laws in appropriate circ umstances. See 26 C.F.R. § 1.6664-4(c)(2) (stating that advice consists of “any communication, includ ing the opinion of a pr ofessional tax advisor, setting forth the analysis or c onclusion of a person, other than the taxpayer, provided to (or for the benefit of) the taxpayer and on which the taxpay er relies, directly or indirectly”). But the Jarnagins neither requested nor received any advice one way or th e other from their accountants regarding whether they were required to file FBARs—that is, their accountants conducted no analysis and drew no conclusions concerning the obligation, nor di d they communicate any such conclusion to the Jarnagins. In fact, Mr. Zybach ’s testimony shows that he himself was unaware of the FBAR requirement and so could not ha ve provided the Jarnagin s any advice at all regarding their obligations to f ile one. The Jarnagins, in othe r words, cannot use as a shield reliance upon advice that they neither solicited nor received. See Russian Recovery Fund Ltd. v. United States, 122 Fed. Cl. 600, 623 (2015) (stating th at “the only record plaintiff offers of ‘advice’ given to [it] concerning the propriety of taking the losses is the returns themselves” and that the court was thus being “asked to accept that, by signing off on the returns . . . [the accounting firm] was giving its cons idered advice on whether it was appropriate to take the loss deduction,” and rejectin g the same), aff’d, 851 F.3d 1253 (Fed. Cir. 2017); see also Richardson v. Comm’r of Internal Revenue, 125 F.3d 551, 558–59 (7th Cir. 1997) (“The record shows only that her returns were signed by a tax preparer. There is no eviden ce that a professional, after being informed of the circumstances, advised he r that she did not have taxable income in the relevant years.”); Neonatology Assocs., P.A. v. Comm’r of Internal Revenue, 115 T.C. 43, 100 (2000) (“We also are unpersuaded by petitioners’ assertion that they relied reasonably on the
correctness of the contents of their returns simply because their returns were prepared by certified public accountants. The mere fact that a certified public accountant has prepared a tax
return does not mean that he or she has opined on any or all of the items reported therein.”), aff’d, 299 F.3d 221 (3d Cir. 2002).

Def.’s Am. App. B Ex. 7 at 5. And both the questi on at line 7a and the admonition regarding the FBAR filing requirement are in the exact same fo nt size as the other lines on Schedule B and the
main Form 1040. See id.14 In fact, in Boyle, the Supreme Court rejected a similar argument by an estate that it had reasonable cause for the untimely filing of its ta x return because it had relied upon the estate’s tax attorney to prepare and f ile the return. 469 U.S. at 249–52. Th e Court reasoned that the duty to promptly file is “fixed and clear” and placed directly on the taxpayer, “not on some agent or employee of the [taxpayer].” Id. at 249; see also Baccei v. United States, 632 F.3d 1140, 1148 (9th Cir. 2011) (noting that “a taxpayer canno t rely on its employee or agent to escape responsibility for the nonperformance of nondelegable tax duties” and that “reliance upon [a professional advisor] to competently file a pa yment extension request does not constitute reasonable cause excusing [the taxpayer’s] failu re to timely pay the estate taxes owed” (quotation omitted)). The Court acknowledged that “[w]hen an accountant or attorney advises a taxpayer on a matter of tax law, su ch as whether a liability exists , it is reasonable for the taxpayer to rely on that advice.” Boyle, 469 U.S. at 251 (emphasis in original). Such “reliance” however, “cannot function as a substitute for compliance with an unambiguous statute.” Id. The Court thus held that “failure to make a timely filing of a ta x return is not excused by the taxpayer’s reliance on an agent, and such reliance is not ‘reasonable cause.’” Id. at 252.

In short, the Court concludes that the Jarnag ins did not exercise ordinary business care and prudence and that their failur e to file FBARs for the years at issue was not due to reasonable cause. Accordingly, they are not entitled to a refund of the pe nalties assessed against them.

CONCLUSION

For the reasons set forth above, the govern ment’s motion for summary judgment is
GRANTED and Plaintiffs’ motion for summary judgment is DENIED . The Clerk is directed to enter judgment accordingly. Each si de shall bear its own costs.

IT IS SO ORDERED.

s/ Elaine D. Kaplan
ELAINE D. KAPLAN Judge