Court Dismisses FBAR Case on Jurisdictional Grounds

In March 2015, Plaintiff received a form letter (Letter 3709) from the IRS concerning his failure to file a FBAR for 2008. The letter proposed assessing a civil penalty of half the account's balance ($1,363,336.00) for willful failure to meet FBAR filing requirements. The letter explained that Plaintiff could either agree to the proposed penalty and submit payment, or request a conference with the Appeals Office to contest the proposed penalty. If Plaintiff did neither, the letter stated that the IRS would assess the penalty and begin collection procedures.

In response to the letter, Plaintiff submitted a written request in May 2015 to meet with the Appeals Office. Plaintiff's attorneys met with an appeals officer on September 10, 2015. At the meeting, the appeals officer stated that the agency's burden of proof is by a preponderance of the evidence, and that under this burden the agency could show a willful violation of FBAR filing requirements by Plaintiff. Plaintiff also alleges, however, that the appeals officer represented if the burden of proof was clear and convincing evidence, the agency could not prove willfulness. Ultimately, the matter was not resolved at the meeting or in the months that followed.

Approximately three months after the Appeals Office conference, Plaintiff filed the instant suit against the IRS, United States, and IRS Commissioner in his official capacity. Plaintiff seeks a declaration that the IRS must prove willful violations of FBAR filing requirements by clear and convincing evidence.

The United States has now moved for dismissal under Rule 12(b)(1) on several grounds.¹ First, Defendant claims that the suit is barred by sovereign immunity. Second, Defendant contends that Plaintiff lacks standing because no formal penalty assessment has, or is certain to, take place. Finally, Defendant argues that Plaintiff's claims are not ripe for consideration.

Here Plaintiff's complaint is supplemented by two undisputed documents: the proposed penalty letter (Letter 3709) and an agreement between the Parties to extend the statute of limitations period to assess civil FBAR penalties.

Article III of the Constitution limits the jurisdiction of federal courts to cases or controversies. Const., Art. III, § 2. Standing is an essential element of Article III's case-or-controversy requirement. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). The requirements of Article III standing are built on separation-of-powers principles, and serve "to prevent the judicial process from being used to usurp the powers of the political branches." Clapper v. Amnesty Int'l USA, 133 S. Ct. 1138, 1146 (2013).

"To establish standing, a plaintiff must show: (1) it has suffered, or imminently will suffer, a concrete and particularized injury-in-fact; (2) the injury is fairly traceable to the defendant's conduct; and (3) a favorable judgment is likely to redress the injury." Hous. Chronicle Pub. Co. v. City of League City, Tex., 488 F.3d 613, 617 (5th Cir. 2007) (citing Lujan, 504 U.S. at 560-61). "An allegation of future injury may suffice if the threatened injury is certainly impending, or there is a substantial risk that the harm will occur." Susan B. Anthony List v. Driehaus, 134 S. Ct. 2334, 2341 (2014) (internal quotation marks omitted) (quoting Clapper, 133 S. Ct. at 1150 n.5); see also Bauer v. Texas, 341 F.3d 352, 357-58 (5th Cir. 2003) ("A plaintiff can meet the standing requirements when suit is brought under the Declaratory Judgment Act by establishing actual present harm or a significant possibility of future harm, even though the injury-in-fact has not yet been completed." (citation omitted)). To show redress-ability, "it must be 'likely, as opposed to merely speculative, that a favorable decision will redress the plaintiff's injury.'" Dep't of Tex., Veterans of Foreign Wars of U.S. v. Tex. Lottery Comm'n, 760 F.3d 427, 432 (5th Cir. 2014) (en banc) (quoting S. Christian Leadership Conference v. Supreme Court of State of La., 252 F.3d 781, 788 (5th Cir.2001)).

Here, even assuming Plaintiff can establish an injury-in-fact caused by Defendant's conduct, he cannot satisfy the redressability requirement of Article III standing. Plaintiff argues that a declaration that the IRS must prove willful violations of FBAR filing requirements by clear and convincing evidence would resolve the threat of a $1.36 million penalty. Plaintiff's arguments, however, are highly speculative, and his pleadings cannot support the conclusion that a declaration by this Court would be likely to redress the claimed harmed. Although Plaintiff alleges that an individual appeals officer represented the IRS could not meet this higher burden, Plaintiff has not claimed that this representation was legally binding or would preclude the IRS from still assessing a penalty. In fact, Plaintiff conceded at oral argument that the appeals officer could choose to assess or not assess the penalty regardless of any declarations by this Court regarding the burden of proof. In other words, without additional facts, it is far from likely that a favorable declaration regarding the IRS's burden of proof would prevent the assessment of a penalty against Plaintiff.

Accordingly, because Plaintiff fails to satisfy the redressability requirement of standing, Plaintiff cannot meet Article III's case-or-controversy requirement.

It is so ORDERED.

SIGNED this 4th day of May, 2016.

Marina Garcia Marmolejo