The Account You Did Not Mention.

On 7 January 2026, the United States Court of Appeals for the Second Circuit decided United States v. Reyes, No. 24-2333 (2d Cir. 7 Jan. 2026) (Cabranes and Menashi, Circuit Judges; Liman, District Judge, sitting by designation), on appeal from the United States District Court for the Eastern District of New York (Brodie, C.J.), and held that “willfully,” as Congress used the word in the Bank Secrecy Act’s civil penalty provision, reaches reckless conduct and not merely knowing violation. The Second Circuit was the last significant holdout in a lopsided body of authority; with its decision, the Third, Fourth, Sixth, Ninth, Eleventh, and Federal Circuits all stand together on the same rule. Bedrosian v. United States Department of the Treasury, IRS, 912 F.3d 144 (3d Cir. 2018); United States v. Horowitz, 978 F.3d 80 (4th Cir. 2020); United States v. Kelly, 92 F.4th 598 (6th Cir. 2024); United States v. Hughes, 113 F.4th 1158 (9th Cir. 2024); United States v. Rum, 995 F.3d 882 (11th Cir. 2021); Kimble v. United States, 991 F.3d 1238 (Fed. Cir. 2021).

Read alongside a very different decision out of Texas — United States v. Sagoo, No. 4:24-cv-01159, 2025 WL 2689912 (N.D. Tex. 19 Sept. 2025) (O’Connor, J.), in which a district judge dismissed a government FBAR collection suit on Seventh Amendment grounds — the pair sketches the whole shape of the problem for anyone holding wealth through a cross-border structure. One case tightens the substantive standard, permanently. The other opens a procedural door that may already have closed. The planning lesson lives in the asymmetry between them.

Juan and Catherine Reyes were United States citizens. Dr. Reyes was a surgeon. They held a joint foreign bank account — originally opened in Nicaragua, later moved to Switzerland — that carried a balance in excess of two million dollars and represented the substantial majority of their liquid wealth. For 2010, 2011, and 2012 they filed no FBARs. Reyes, No. 24-2333 (tax years 2010, 2011 and 2012; joint Swiss account exceeding US $2 million).

The statute is not obscure. Section 5314 of Title 31 requires a United States person with a financial interest in or signature authority over foreign financial accounts exceeding $10,000 in the aggregate at any point in the calendar year to report them annually. 31 U.S.C. § 5314; 31 C.F.R. § 1010.350. Section 5321(a)(5) supplies the penalty: for a non-willful failure, a capped amount adjusted for inflation; for a willful one, the greater of an inflation-adjusted six-figure floor or fifty percent of the balance in the account at the time of the violation — assessable per year. 31 U.S.C. § 5321(a)(5)(B)(i) (non-willful), § 5321(a)(5)(C)(i) (willful: the greater of $100,000, as adjusted for inflation, or 50 per cent of the balance in the account at the time of the violation); adjusted maxima are set out at 31 C.F.R. § 1010.821, and the Internal Revenue Manual further provides that the aggregate non-willful penalty across all open years will not exceed 50 per cent of the highest aggregate balance, IRM 4.26.16.

What sank the Reyeses was not the omission itself but everything that surrounded it. They routed correspondence away from their United States address. They arranged and paid for the bank to withhold communications. They signed a form declining the disclosure that would have carried United States withholding. They marked “No” on the Schedule B question asking, in plain English, whether they had an interest in a foreign account. And they considered, then declined, the voluntary disclosure programme because the penalties looked too high.

Dr. Reyes’s defence was subjective and sincere: he believed he had no duty to report, based on a newspaper column and conversations with international lawyers. The Second Circuit held that his belief was beside the point. Borrowing the civil recklessness standard the Supreme Court articulated in Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007), the court asked whether the conduct entailed “an unjustifiably high risk of harm that is either known or so obvious that it should be known.” The Internal Revenue Manual adopts a parallel formulation, defining willfulness to include knowing violation, reckless violation, and “willful blindness” — a conscious effort to avoid learning of a legal duty. IRM 4.26.16. A reasonable person in the Reyeses’ position — sitting on a Swiss account holding most of the family’s liquid assets, having been asked directly by both an accountant and the Internal Revenue Service — would have recognised that risk. Their failure to consult competent United States counsel was itself part of the recklessness, not an excuse for it. The penalties, mitigated below the statutory maximum, ran to roughly $420,051 per spouse, with a further late-payment penalty exceeding $84,000. Reyes, No. 24-2333 (penalties of approximately $420,051 per spouse, mitigated from $516,065, plus a late-payment penalty of $84,102.26 under 31 U.S.C. § 3717(e)(2) and 31 C.F.R. § 5.5(a)).

It is tempting to file Reyes under “compliance” and move on. That is a mistake, for two reasons.

First, the government is a creditor. A willful FBAR penalty assessed at fifty percent of the highest balance, for each of several open years, does not merely tax the account — it can consume it and then reach beyond it. The resulting liability is enforced by a sovereign with subpoena power, treaty partners, automatic information exchange, and no settlement fatigue. Every structural question a client asks about a hostile plaintiff applies with greater force here.

Second, and more importantly, Reyes is a fraudulent-transfer case wearing different clothes. Look again at the conduct the court found dispositive: correspondence redirected offshore, a bank paid to suppress mail, a direct question answered falsely, a disclosure programme refused. Anyone who has litigated a voidable-transaction claim will recognise those items immediately. They are the badges — concealment, misdirection, the paper trail deliberately broken — that a creditor’s counsel assembles when direct proof of intent is unavailable. Whether the tribunal is applying the Uniform Voidable Transactions Act or the Bank Secrecy Act, the machinery is the same: the law infers a state of mind from what a person did to keep the asset out of view.

This is the point Lighthouse has made in these pages about post-claim transfers, and it holds identically here. Concealment does not protect an asset. It characterises the owner. Once a court has found that a client hid an account from his own accountant, every other element of his planning is read in that light — the trust deed, the entity chart, the timing of contributions, the identity of the trustee. A finding of willfulness in a penalty case is admissible, persuasive context in the next proceeding. The tax exposure is quantifiable. The evidentiary contamination is not.

The most consequential feature of the Reyes rule is that it is objective. The question is not what the client believed; it is what a reasonable person in the client’s position should have appreciated. That formulation has a direct implication for how cross-border structures are administered.

A properly built international plan is reporting-intensive by design. A foreign financial account may generate an FBAR obligation. A foreign trust typically generates Forms 3520 and 3520-A. Specified foreign financial assets above threshold generate a Form 8938. Foreign entities generate their own information returns. None of this is optional, and none of it is inconsistent with protection — the disclosure regimes ask who owns and controls what, not who may be sued.

Under an objective recklessness standard, a settlor cannot outsource that obligation into invisibility. “My adviser never mentioned it” is precisely the argument Reyes rejects, because the failure to obtain competent advice about an obviously foreign, obviously large account is itself the reckless act. The practical answer is not to hope the question never comes: it is to build the compliance calendar into the structure at inception, assign it to a named professional, and treat a missed filing as the structural defect it is. A trust whose reporting is current is a trust whose existence, funding date, and terms are documented in the government’s own records — which, when a creditor later argues the structure was a recent contrivance, is an asset rather than a liability.

Against that tightening substantive standard, one decision has run the other way.

In United States v. Sagoo, the Justice Department sued to reduce to judgment roughly $1.02 million in willful FBAR penalties assessed against a taxpayer with accounts in Kenya, India, and England for 2011 through 2013. Judge Reed O’Connor of the Northern District of Texas granted her motion to dismiss — with prejudice — on Seventh Amendment grounds. Following Securities and Exchange Commission v. Jarkesy, 603 U.S. 109 (2024), the court reasoned that the Service had adjudicated liability and imposed a civil penalty without a neutral factfinder; that real-world consequences (demands, offsets, collection pressure) attach the moment the penalty is assessed; and that a jury trial available only later, and only if the government chooses to sue, cannot cure the defect. United States v. Sagoo, No. 4:24-cv-01159, 2025 WL 2689912 (N.D. Tex. 19 Sept. 2025) (dismissing with prejudice the government’s suit to reduce to judgment willful FBAR penalties of $1,020,922.50 for 2011–2013).

The argument is serious and the opinion is carefully written. But a client should understand exactly what it is and is not.

It is a single district court decision, not binding beyond its own docket. It went on appeal to the Fifth Circuit, where proceedings were stayed pending the Supreme Court’s disposition of the government’s certiorari petition in the FCC forfeiture litigation. And on 4 June 2026 the Supreme Court decided that case against the Jarkesy extension, holding that the Federal Communications Commission’s forfeiture procedures do not offend the Seventh Amendment — reasoning, in substance, that the agency’s orders are not themselves binding determinations of liability. Federal Communications Commission v. AT&T, Inc., No. 25-406 (U.S. 4 June 2026) (consolidated with Verizon Communications Inc. v. FCC), reversing the Fifth Circuit; the application of that reasoning to administratively assessed FBAR penalties has not, so far as we are aware, yet been decided.

Whether that reasoning controls the FBAR context is a genuinely open question, and one worth watching: an FBAR assessment arguably does bite immediately in a way an FCC forfeiture order does not, which is the distinction Sagoo would need to survive. But “arguably distinguishable from an adverse Supreme Court decision handed down three months ago” is a litigating position. It is not a plan.

Set the two cases side by side and the planning lesson is nearly self-drawing.

The rule that hurts is stable and nationwide. The rule that helps is contingent, contested, and geographically accidental. A structure whose survival depends on the second column is not protected; it is merely not yet tested.

This is the same asymmetry that governs creditor planning generally, which is why the Lighthouse position does not change with the case law. Protection that works is seasoned — put in place years before any claim, when there is nothing to hinder or delay and therefore no intent to infer. It is irrevocable and discretionary — the settlor holds no switch to flip when trouble arrives. It is independently administered — a real trustee, exercising real discretion, not the settlor in a different hat. And it is fully disclosed — reported to every authority entitled to ask, on time, every year.

That fourth pillar is the one Reyes underlines. Clients occasionally hear “disclosure” and assume it undoes the first three. It does not. Filing an FBAR tells the Treasury where an account is; it tells a future judgment creditor nothing about whether a discretionary beneficiary can compel a distribution, and it does nothing to convert a properly settled irrevocable trust into a reachable asset. What disclosure buys is the ability to stand in front of any tribunal and have the timeline, the terms, and the funding of the structure be exactly what the contemporaneous record says they are. That is not a concession. It is the whole basis on which a seasoned structure is believed.

The dollar figures matter here more than usual. The willful penalty’s fifty-percent alternative is not adjusted for inflation and never has been; the fixed floor is. The most recent adjustment to the FinCEN table at 31 C.F.R. § 1010.821 took effect in January 2025, and — as of this writing — no 2026 multiplier was issued, following the Office of Management and Budget’s cancellation of the annual adjustment in April 2026 after the underlying CPI data was not produced. Financial Crimes Enforcement Network, Inflation Adjustment of Civil Monetary Penalties, FR Doc. 2025-01374 (effective 17 Jan. 2025), codified at 31 C.F.R. § 1010.821; on the cancellation of the 2026 adjustment, see the Office of Management and Budget’s Memorandum M-26-11 (17 Apr. 2026) and the agency notices published in July 2026 declining to adjust civil monetary penalty amounts for 2026. Practitioners should confirm the operative figures against the current text of § 1010.821 rather than against any secondary summary, including this one.

Worth noting alongside this: the Supreme Court’s decision in Bittner v. United States, 598 U.S. 85 (2023), held that the non-willful penalty under 31 U.S.C. § 5321(a)(5)(A)–(B) accrues per report, not per unreported account — a meaningful limitation for the taxpayer with many small accounts and one late form. The practical effect of Bittner and Reyes together is to make the willful/non-willful line the single most valuable boundary in this area of law, while simultaneously making it easier for the government to cross. The client with several unreported foreign accounts and a plausible innocent explanation is in a very different position from the client who redirected his mail.

Reyes did not change the law so much as finish it. The proposition that a person can avoid a fifty-percent penalty by declining to find out what the rules are is now foreclosed in every circuit to have addressed the question. Sagoo remains an interesting constitutional argument, and its ultimate fate is worth following, but no one should hold an offshore account on the strength of it.

The structure that survives is the one that never needed either case to come out a particular way: settled early, on a clear day, with an independent trustee, terms the settlor cannot rewrite, and a filing history that runs back further than any claimant’s memory. Reporting is not the crack in that structure. It is the mortar.

This note is general commentary on published decisions and is not legal or tax advice for any particular person or matter. FBAR and information-reporting obligations, and the exposure attaching to any structure, turn on specific facts and on the law of the relevant jurisdictions; they should be assessed with qualified counsel.