United States of America v. Niksich, No. 24-12882 (11th Cir. June 4, 2026)

The enforcement of Foreign Bank and Financial Accounts (FBAR) reporting requirements remains a high-stakes area for tax practitioners. A recent decision from the United States Court of Appeals for the Eleventh Circuit, United States v. Niksich, No. 24-12882 (June 4, 2026), provides critical insights into the objective standard applied to "willfulness" and the significant risks associated with relying on the purported authority of IRS agents during settlement negotiations.

Factual Background and the Underlying Non-Compliance

The litigation arose from the taxpayer’s failure to file complete and accurate FBARs for the tax years 2006 through 2012. The taxpayer, Eugene Niksich, maintained various foreign accounts, including accounts at AKB Privatbank Zurich AG in Switzerland and Ban Vivenda Banca Privada (BVBP) in Panama. Several aspects of these accounts suggested a lack of transparency: the Swiss account was held under the alias “Misty” (the name of the taxpayer’s dog), the taxpayer paid fees to have bank statements sent to a U.S. address to maintain secrecy, and the taxpayer intentionally concealed the existence of the account from his then-wife.

Regarding the tax returns themselves, the taxpayer self-prepared his filings and included Schedule B. In 2006, he explicitly answered "No" to the question regarding whether he had any interest in a foreign financial account; for the subsequent years (2007–2012), he left the same question blank. While the taxpayer eventually attempted to rectify these omissions through the IRS Offshore Voluntary Disclosure Program (OVDP), the subsequent breakdown in settlement negotiations led to an assessment of $2,286,954 in penalties.

The Taxpayer’s Arguments for Relief

In seeking relief from the massive penalty assessment, the taxpayer raised several legal theories. First, he challenged the finding of willfulness, arguing that his failure to report was a result of a subjective misunderstanding of the law—specifically believing that non-trading investment assets did not require reporting—and a reliance on professional advice.

Second, the taxpayer asserted two affirmative defenses: accord and satisfaction and equitable estoppel. He contended that the IRS had effectively settled the matter when its agents negotiated, approved, and accepted his signed closing agreement (Form 906) and his partial payment of approximately $331,375. Furthermore, he argued that the IRS was estopped from pursuing further penalties because the agency's conduct—retaining the settlement funds while simultaneously repudiating the agreement—constituted affirmative misconduct.

Finally, the taxpayer challenged the constitutionality of the penalties, asserting they were subject to the Excessive Fines Clause of the Eighth Amendment.

The Court’s Analysis of Willfulness

The primary point of contention for tax professionals is the court's treatment of "willfulness." The taxpayer argued that his subjective lack of intent should preclude a finding of willfulness. However, the Eleventh Circuit reaffirmed the high bar set by the objective standard used in FBAR enforcement.

Citing United States v. Rum, 995 F.3d 882 (11th Cir. 2021), the court noted that "[w]here 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." The court rejected the taxpayer's subjective claims, emphasizing that "the willfulness standard for FBAR penalties is . . . an objective standard: action entailing an unjustifiably high risk of harm that is either known or so obvious that it should be known."

Applying this to the facts, the court found that the taxpayer’s conduct—using aliases, hiding accounts from family, and the blatant omissions on his self-prepared tax returns—met the threshold for recklessness. The court concluded that "the objective facts show willfulness," regardless of whether the taxpayer subjectively believed he was in compliance.

Rejection of Affirmative Defenses

The court’s analysis regarding the affirmative defenses provides a cautionary tale regarding the limits of agency power within the IRS.

On the issue of accord and satisfaction, the court held that the taxpayer could not bind the government to the settlement because the IRS agents lacked "actual authority." While the taxpayer presented evidence that the agents communicated that the agreement was final, the court looked to the Internal Revenue Manual (IRM) and the nature of the Form 906 itself. The court observed that "[t]he signature line certifying that the ‘Commissioner of Internal Revenue’ has read and agreed to the terms of the document [was] conspicuously blank." Citing Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380 (1947), the court reminded practitioners that "anyone entering into an arrangement with the Government takes the risk of having accurately ascertained that he who purports to act for the Government stays within the bounds of his authority." Because the agents were merely "Receiving Officers" recommending acceptance rather than officials with the power to bind the Commissioner, the settlement was not binding.

Regarding equitable estoppel, the court found the taxpayer failed to meet the stringent requirements for a claim against the government. Under Tefel v. Reno, 180 F.3d 1286 (11th Cir. 1999), an estoppel claim against the government requires a showing of "affirmative misconduct." The court determined that the IRS's retention of funds, following only an informal request for a refund rather than a formal administrative claim or lawsuit, did not rise to the level of affirmative misconduct necessary to bar the government's pursuit of the full penalty.

Constitutional Implications and Final Conclusion

In a significant development for FBAR litigation, the court addressed the Eighth Amendment issue. While the district court had previously ruled that FBAR penalties are not subject to the Excessive Fines Clause, the Eleventh Circuit reversed this finding. Relying on the recent precedent in United States v. Schwarzbaum, 127 F.4th 259 (11th Cir. 2025), the court held that these penalties are indeed subject to constitutional scrutiny for excessiveness. Consequently, the court remanded the case to allow for the development of a factual record regarding the actual magnitude of the penalty in relation to the taxpayer's conduct and assets.

In conclusion, United States v. Niksich serves as a stark reminder to CPAs and EAs that subjective good faith is an insufficient defense against FBAR penalties when objective facts suggest recklessness. Furthermore, it underscores the extreme danger of assuming that a settlement with an IRS agent is final without verified evidence of the agent's actual authority to bind the Commissioner.

Prepared with assistance from LM Studio google/gemma-4-26b-a4b.