FBAR Civil “Willfulness” Includes Recklessness; Treasury’s 6% Late-Payment Penalty Applies as Set by Regulation — United States v. Reyes (2d Cir. 2026)

FBAR Civil “Willfulness” Includes Recklessness; Treasury’s 6% Late-Payment Penalty Applies as Set by Regulation — United States v. Reyes (2d Cir. 2026)

Introduction

In United States v. Reyes, the Court of Appeals for the Second Circuit affirmed summary judgment imposing enhanced civil FBAR penalties on Juan Reyes and Catherine Reyes for failing to timely file Reports of Foreign Bank and Financial Accounts (FBARs) disclosing a jointly-held Swiss account. The case arose after the Internal Revenue Service assessed “willful” FBAR penalties for tax years 2010–2012, the Reyeses signed forms agreeing to assessment and collection, and then failed to pay—prompting the United States to sue to reduce the assessments to judgment.

Two legal issues drove the appeal: (1) whether “willful” under 31 U.S.C. § 5321(a)(5)(C) reaches reckless conduct (so that willfulness can be established without proof of subjective intent to violate a known legal duty), and (2) whether the six percent late-payment penalty under 31 U.S.C. § 3717(e)(2) could be reduced as a matter of judicial discretion despite Treasury regulations setting the rate at six percent.

Summary of the Opinion

The Second Circuit held that “willful” in the civil FBAR penalty statute encompasses reckless conduct, aligning the Circuit with a uniform body of appellate authority. Applying an objective recklessness standard, the Court concluded that the undisputed record established at least recklessness as a matter of law, making summary judgment appropriate. The Court also held the district court correctly applied a six percent late-payment penalty pursuant to Treasury Department regulations implementing the Federal Claims Collection Act’s penalty framework.

Analysis

Precedents Cited

1) The Supreme Court’s civil “willfulness” framework

The Court’s interpretive anchor is Safeco Ins. Co. of Am. v. Burr, which stated that when willfulness is a condition of civil liability, it “generally” covers “reckless” violations as well as knowing ones, reflecting common-law usage. Safeco Ins. Co. of Am. v. Burr also supplies the objective conception of recklessness (risk “known or so obvious that it should be known”), drawing on Farmer v. Brennan and the Restatement.

To show why “willful” varies by context, the panel invoked Ratzlaf v. United States (quoting Spies v. United States) for the proposition that willfulness is a “word of many meanings,” and emphasized Cheek v. United States—via Safeco Ins. Co. of Am. v. Burr—to distinguish criminal willfulness (often requiring knowledge of a known legal duty) from civil willfulness (which generally includes recklessness).

The Court buttressed Safeco Ins. Co. of Am. v. Burr with the Supreme Court’s repeated use of an expansive civil willfulness concept in wage-and-age discrimination contexts: McLaughlin v. Richland Shoe Co. and Trans World Airlines, Inc. v. Thurston.

2) Common-law meaning and “borrowed” legal terms

The panel relied on interpretive canons that when Congress uses language with a settled common-law meaning, courts presume that meaning is incorporated absent contrary indication. The Court cited Beck v. Prupis and Morissette v. United States for the “settled meaning” principle and used those authorities to justify importing the common-law recklessness concept into § 5321(a)(5)(C).

3) Appellate consensus on FBAR willfulness

The Second Circuit explicitly joined what it described as uniform appellate authority holding that civil FBAR willfulness includes recklessness. It cited:

  • United States v. Hughes (Ninth Circuit) (applying Safeco Ins. Co. of Am. v. Burr to civil FBAR penalties)
  • Bedrosian v. U.S. Dep't of Treas., IRS (Third Circuit) (recklessness suffices; articulating a widely adopted test)
  • United States v. Horowitz (Fourth Circuit)
  • United States v. Kelly (Sixth Circuit)
  • United States v. Rum (Eleventh Circuit)
  • Kimble v. United States (Federal Circuit)

The Court also noted the Supreme Court’s repeated denials of certiorari on the question, referencing Rum v. United States, Kimble v. United States, Bedrosian v. United States, and Collins v. United States. While cert denials have no precedential force, the panel used them to underscore that the recklessness-inclusive approach has been stable and widely accepted.

4) Recklessness as an objective standard and summary judgment

For the governing summary-judgment framework, the Court cited Anderson v. Liberty Lobby, Inc. (no genuine issue where no reasonable jury could find for the nonmovant) and Horn v. Med. Marijuana, Inc. (standard of review and inference-drawing). It cited Monti v. United States for de novo review of statutory/regulatory interpretation.

To explain how recklessness is assessed objectively, the Court analogized to the Second Circuit’s securities-law recklessness cases: Novak v. Kasaks, quoting Rolf v. Blyth Eastman Dillon & Co., Inc. and referencing Chill v. General Elec. Co.. Those authorities supported the idea that “egregious refusal to see the obvious” or failure to investigate can constitute recklessness.

It also cited Hayman v. Comm'r for the notion that even a cursory review of documents can bring disclosure obligations to a taxpayer’s attention—supporting the conclusion that failing to read or notice plainly stated foreign-account questions can be reckless.

5) The “Bedrosian” recklessness formulation

The Court adopted the recklessness articulation from Bedrosian v. U.S. Dep't of Treas., IRS, which itself quotes United States v. Carrigan: recklessness is shown where the taxpayer clearly ought to have known there was a grave risk the filing requirement was not being met and was in a position to find out very easily. The Court emphasized that other circuits have adopted that framework (including United States v. Horowitz, United States v. Kelly, United States v. Hughes, and United States v. Rum), reinforcing its suitability as a civil FBAR standard.

6) Rejecting criminal-law analogies and subjective-intent defenses

The Reyeses relied on United States v. Granda, a Fifth Circuit criminal case requiring proof of knowledge of the reporting requirement and specific intent. The Second Circuit discounted its relevance because the Supreme Court (via Safeco Ins. Co. of Am. v. Burr) treats civil willfulness differently from criminal willfulness.

The Court also used United States v. Gentges to rebut the idea that a taxpayer’s asserted subjective belief defeats recklessness; subjective belief does not negate an objective recklessness/willful-blindness finding where the taxpayer could readily confirm obligations with a tax preparer.

7) “Sophistication” and the reasonable-cause detour

The Reyeses invoked United States v. Bittner for the proposition that sophistication matters. The Court found United States v. Bittner inapposite because it addressed reasonable cause and did not create a general “business sophistication” sliding scale for willfulness. The Court also referenced other cases to illustrate that willfulness findings have applied across occupations, including United States v. Hammers.

8) Late-payment penalty authority

On late-payment penalties, the Court interpreted 31 U.S.C. § 3717(e)(2) and upheld application of Treasury’s regulation setting penalties at six percent (31 C.F.R. § 5.5(a)). The Court rejected the notion that choosing litigation converts an executive-branch debt into a judicially rate-set obligation, reasoning that the statute authorizes the relevant agency head to assess within limits and does not empower courts to override a rate chosen by the collecting executive agency within the statutory cap.

The Court also dismissed as irrelevant the appellants’ reference to Loper Bright Enterprises v. Raimondo because they did not actually challenge the validity of the Treasury regulation as contrary to statute; the dispute was framed as judicial discretion rather than regulatory legality.

Legal Reasoning

1) New (Second Circuit) rule: civil FBAR “willfulness” includes recklessness

The opinion’s core doctrinal move is to treat § 5321(a)(5)(C)’s “willful” as a civil-liability term that presumptively incorporates common-law recklessness. The Court reasoned that:

  • Text and context: Section 5321 imposes civil penalties with enhanced maximums for “willful” violations, and nothing in the statutory text indicates Congress meant to depart from the common-law civil understanding.
  • Supreme Court guidance: Safeco Ins. Co. of Am. v. Burr supplies a generally applicable interpretive principle for civil “willfulness,” and the Bank Secrecy Act’s civil FBAR penalty regime is not materially distinguishable from the Fair Credit Reporting Act’s civil willfulness context in Safeco Ins. Co. of Am. v. Burr.
  • Structure (reasonable cause): The Reyeses argued that the presence of a “reasonable cause” exception implies willfulness must mean intentional. The Court rejected that, reading the statute as creating a sliding scale: (i) no penalty for certain reasonable-cause violations with proper reporting, (ii) non-willful penalties otherwise, and (iii) enhanced penalties for knowing or reckless violations. Recklessness, the Court stressed, is conceptually incompatible with “reasonable cause.”
  • Uniform appellate authority: The Court viewed the consistent holdings of other circuits as persuasive confirmation of the proper reading.

2) Application: recklessness established as a matter of law on undisputed facts

After adopting an objective recklessness standard, the Court held summary judgment proper because no reasonable jury could find the Reyeses were not reckless given the undisputed record. Key facts were treated as “obvious risk” indicators:

  • The foreign account held over $2 million and comprised 75%–90% of the Reyeses’ wealth—making the reporting risk grave and salient.
  • The couple used linked credit cards for routine withdrawals and arranged for statements to be mailed abroad.
  • They instructed the bank to retain correspondence (not send it to their U.S. address) for a fee.
  • They signed declarations refusing U.S. withholding-tax disclosures and prohibiting investments in U.S. securities—forms explicitly keyed to U.S. tax liability.
  • They did not disclose the account to their accountant and filed returns answering “No” to the foreign-account question.

The Court treated these facts as more than mere inadvertence: they showed an “unjustifiably high risk” that reporting obligations were being violated and that the Reyeses were in a position to verify obligations easily (e.g., by asking their accountant or reading the plainly worded returns and bank forms). Their asserted subjective belief—based on a newspaper column or non-U.S.-tax advice—did not create a triable issue because the legal standard is objective.

3) Late-payment penalties: court discretion yields to agency-set rate within statutory cap

On 31 U.S.C. § 3717(e)(2), the Court read “shall assess” as imposing a mandatory duty on the relevant agency head to assess a penalty charge up to six percent, and it accepted that Treasury has exercised that authority through 31 C.F.R. § 5.5(a) by setting the rate at six percent. The Court rejected the argument that litigation transfers rate-setting discretion to the judiciary, reasoning that:

  • The statute assigns assessment authority to the “head” of the relevant agency; it does not invite district-judge-by-district-judge recalibration.
  • The statute is a general debt-collection framework and does not contemplate one branch overriding another’s rate for that other branch’s debts.
  • Allowing a debtor to obtain a lower rate simply by refusing to pay and forcing suit would undermine the statutory collection scheme.

Impact

1) Second Circuit alignment and enforcement consequences

United States v. Reyes establishes binding Second Circuit precedent that civil FBAR “willfulness” includes recklessness. Practically, this lowers the government’s proof burden relative to a subjective-intent (Cheek-like) standard and strengthens the government’s ability to win FBAR cases at summary judgment when taxpayers:

  • answered “No” to foreign-account questions on returns,
  • failed to disclose accounts to preparers, and
  • had strong “obvious risk” indicators (large balances, foreign correspondence holds, secrecy-oriented banking steps).

2) Litigation strategy and settlement leverage

Because objective recklessness can be established through documentary records (returns, bank forms, correspondence instructions, credit card arrangements) and undisputed financial magnitude, the decision enhances the government’s ability to resolve cases without trial. Taxpayers facing willful FBAR assertions will have greater difficulty relying solely on asserted ignorance or subjective misunderstanding when the record shows multiple “red flags” and easy avenues to confirm obligations.

3) Late-payment penalties: reduced room for equitable adjustment

The ruling also signals that courts in the Second Circuit should apply Treasury’s six percent late-payment penalty rate in Treasury-debt collection suits, absent a direct, developed challenge that the regulation is unlawful. Debtors cannot manufacture judicial discretion by withholding payment and forcing a lawsuit.

Complex Concepts Simplified

  • FBAR: An annual report (separate from the tax return) required when a “U.S. person” has a financial interest in, or authority over, certain foreign financial accounts.
  • Willful vs. non-willful FBAR penalties: Non-willful violations generally carry a lower maximum penalty; “willful” violations permit much higher maximums, including up to 50% of the account balance at the time of violation.
  • Recklessness (objective): Not “I meant to break the law,” but “the risk I was breaking the law was so obvious that a reasonable person would have investigated or corrected it.”
  • Summary judgment: A court may decide a case without trial if there is no genuine dispute of material fact and the law entitles one party to win based on the undisputed record.
  • Late-payment penalty under 31 U.S.C. § 3717(e)(2): A statutory framework allowing an agency to add a penalty (up to 6% per year) when a debt is more than 90 days past due; Treasury’s regulation sets that rate at 6% for Treasury debts.

Conclusion

United States v. Reyes cements two consequential rules in the Second Circuit: (1) “willfully” in the civil FBAR penalty statute includes reckless conduct under an objective standard, and (2) Treasury’s six percent late-payment penalty rate applies as established by regulation when collecting Treasury debts, without case-by-case judicial reduction. The decision strengthens civil FBAR enforcement by validating summary judgment where undisputed facts show obvious reporting risk and easy access to verification, and it reduces incentives to delay payment in hopes of obtaining a lower late-payment charge through litigation.

Case Details

Year: 2026
Court: Court of Appeals for the Second Circuit

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