The U.S. Court of Appeals for the Second Circuit affirmed civil penalties against a married couple for violating federal foreign bank account reporting requirements in a decision that clarifies the willfulness standard for such violations.
In *United States v. Reyes*, decided Jan. 7, 2026, the appeals court upheld summary judgment against Juan and Catherine Reyes for failing to timely file a Report of Foreign Bank and Financial Accounts (FBAR) disclosing their financial interest in a jointly-held foreign account. The case involves civil penalties under 31 U.S.C. § 5321 for violations of foreign account reporting requirements.
The Second Circuit panel, consisting of Circuit Judges José A. Cabranes and Steven J. Menashi, along with District Judge Lewis J. Liman sitting by designation, rejected the defendants' arguments that the district court erred in its legal determinations.
The case originated in the U.S. District Court for the Eastern District of New York, where Chief Judge Margo K. Brodie granted summary judgment to the United States. The district court also granted the government's motion to reopen the case and enter judgment plus additional statutory interest and late payment penalties pursuant to 31 U.S.C. § 3717(e)(2).
FBAR requirements mandate that U.S. persons with financial interests in foreign financial accounts exceeding $10,000 at any time during a calendar year must file annual reports with the Financial Crimes Enforcement Network. The reporting requirement serves as a tool for detecting tax evasion and money laundering activities involving foreign accounts.
The Reyeses challenged the district court's ruling on two primary grounds. First, they argued that the court improperly granted summary judgment because it could not determine as a matter of law that they acted willfully in violating the reporting requirements. Under federal law, willful violations of FBAR requirements can result in civil penalties of up to the greater of $12,921 per account or 50% of the account balance.
The defendants also contested the district court's interpretation of late payment penalties, arguing that the court misunderstood the six percent late payment penalty as mandatory rather than discretionary.
The Second Circuit rejected both arguments in its affirmance. The appeals court held that the district court correctly interpreted "willful" as used in the statute to encompass reckless conduct, not just intentional violations. This interpretation aligns with Treasury Department guidance and other circuit court decisions that have adopted a broader definition of willfulness in FBAR contexts.
"The district court did not err in holding that 'willful' as used in the statute encompasses reckless conduct, nor in applying that standard in granting summary judgment to the United States," the court wrote in its opinion.
The court also affirmed the district court's imposition of the six percent late payment penalty, finding that the lower court correctly applied controlling Treasury Department regulations. The appeals court determined that the penalty was properly imposed pursuant to applicable federal regulations governing late payments of civil penalties.
The decision represents part of ongoing federal enforcement efforts targeting unreported foreign financial accounts. The Department of Justice has pursued numerous civil and criminal cases involving FBAR violations as part of broader initiatives to combat offshore tax evasion.
FBAR violations have become increasingly common subjects of federal enforcement actions, particularly following enhanced information sharing agreements with foreign financial institutions. The penalties can be substantial, with willful violations potentially resulting in penalties equal to half of the account balance.
The case was submitted to the Second Circuit on Sept. 8, 2025, during the court's August term. The relatively quick turnaround from submission to decision suggests the panel viewed the legal issues as well-settled under existing precedent.
For taxpayers with foreign accounts, the decision reinforces the importance of strict compliance with FBAR filing requirements. The ruling clarifies that courts may find willful violations based on reckless conduct, potentially lowering the bar for penalty assessments in appropriate cases.
The case also highlights the government's continued ability to reopen matters and assess additional penalties and interest for FBAR violations. This procedural aspect may be particularly relevant for other pending enforcement actions involving similar violations.
The Second Circuit's affirmance provides additional circuit-level precedent supporting the Treasury Department's enforcement approach to FBAR violations. The decision may influence how other courts analyze willfulness standards in similar foreign account reporting cases.
Neither the defendants nor their counsel could immediately be reached for comment regarding potential further appeals. The government's victory in the case adds to a growing body of precedent supporting aggressive enforcement of foreign account reporting requirements.