Government Argues Non-Willful FBAR Penalties Apply Per Account

UNITED STATES OF AMERICA,
Plaintiff-Appellee-Cross Appellant
v.
ALEXANDRU BITTNER,
Defendant-Appellant-Cross Appellee

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

ON APPEAL FROM THE JUDGMENT OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS

RESPONSE AND OPENING BRIEF FOR THE APPELLEE-CROSS APPELLANT

DAVID A. HUBBERT
Acting Assistant Attorney General

FRANCESCA UGOLINI (202) 514-1882
ARTHUR T. CATTERALL (202) 514-2937
PAUL A. ALLULIS (202) 514-5880
Attorneys
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044

Of Counsel:
NICHOLAS J. GANJEI
Acting United States Attorney

STATEMENT REGARDING ORAL ARGUMENT

Counsel for the United States believe that oral argument would be helpful to the Court in resolving the novel and complex issues of statutory interpretation presented by this case.

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TABLE OF CONTENTS

Statement regarding oral argument

Table of contents

Table of authorities

Statement of jurisdiction

Statement of the issues

Statement of the case

Summary of argument

Argument:

Certificate of service

Certificate of compliance

TABLE OF AUTHORITIES

Cases:

Baccei v. United States, 632 F.3d 1140 (9th Cir. 2011)

Brinkley v. Commissioner, 808 F.3d 657 (5th Cir. 2015)

California Bankers Ass'n v. Shultz, 416 U.S. 21 (1974)

Capitol Fed. Sav. & Loan Ass'n v. Commissioner, 96 T.C. 204 (1991)

City of Columbus v. Ours Garage and Wrecker Service, Inc., 536 U.S. 424 (2002)

Congdon v. United States, No. 4:09-cv-289, 2011 WL 3880524 (E.D. Tex. Aug. 11, 2011)

Cruz v. Carpenter, 893 F.2d 84 (5th Cir. 1990)

Denenburg v. United States, 920 F.2d 301 (5th Cir. 1991)

Estate of Duncan v. Commissioner, 890 F.3d 192 (5th Cir. 2018)

Flume v. Commissioner, 113 T.C.M. (CCH) 1097, 2017 WL 394541 (2017)

IBP, Inc. v. Alvarez, 546 U.S. 21 (2005)

Jarnagin v. United States, 134 Fed. Cl. 368 (2017)

Kimble v. United States, 141 Fed. Cl. 373 (2018), aff'd, ___ F.3d ___, 2021 WL 1081395 (Fed. Cir. Mar. 22, 2021)

Moore v. United States, Case No. C13-2063RAJ, 2015 WL 1510007 (W.D. Wash. 2015)

Renz v. Grey Advert., Inc., 135 F.3d 217 (2d Cir. 1997)

Rumsfeld v. Padilla, 542 U.S. 426 (2004)

Russello v. United States, 464 U.S. 16 (1983)

Klamath Strategic Inv. Fund ex rel. St. Croix Ventures v. United States, 568 F.3d 537 (5th Cir. 2009)

Staff IT, Inc. v. United States, 482 F.3d 792 (5th Cir. 2007)

Thomas v. UBS AG, 706 F.3d 846 (7th Cir. 2013)

United State v. Boyd, No. 19-55585, 2021 WL 1113531 (9th Cir. Mar. 24, 2021)

United States v. Agrawal, Case No. 18-C-0504, 2019 WL 6702114 (E.D. Wis. 2019)

United States v. Boyle, 469 U.S. 241 (1985)

United States v. Castleman, 572 U.S. 157 (2014)

United States v. Estate of Schoenfeld, 344 F. Supp. 3d 1354 (M.D. Fla. 2018)

United States v. Flume, 5:16-cv-73, 2018 WL 4378161 (S.D. Tex. Aug. 22, 2018)

United States v. Giraldi, No. 20-cv-02830, 2021 WL 1016215 (D. N.J. Mar. 16, 2021)

United States v. Hidy, 471 F. Supp. 3d 927 (D. Neb. 2020)

United States v. Kaufman, No. 3:18-cv-00787, 2021 WL 83478 (D. Conn. Jan. 11, 2021)

United States v. Lauderdale County, Mississippi, 914 F.3d 960 (5th Cir. 2019)

United States v. McBride, 908 F. Supp. 2d 1186 (D. Utah 2012)

United States v. Ott, Case No. 18-cv-12174, 2019 WL 3714491 (E.D. Mich. 2019)

United States v. Sturman, 951 F.2d 1466 (6th Cir. 1991)

United States v. Williams, 489 F. App'x 655 (4th Cir. 2012)

United States v. Williams, No. 1:09-cv-00437, 2014 WL 3746497 (E.D. Va. June 26, 2014)

In re Wyly, 552 B.R. 338 (Bankr. N.D. Tex. 2016)

Statutes:

Internal Revenue Code (26 U.S.C.):

31 U.S.C.:

Bank Secrecy Act, Pub. L. No. 91-508, 84 Stat. 1114 (1970)

Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Pub. L. No. 114-41, § 2006(b)(11), 129 Stat. 4435

Regulations:

Treasury Regulations (26 C.F.R.):

Treasury Regulations (31 C.F.R.):

Miscellaneous:

Federal Rules of Appellate Procedure:

H.R. Rep. No. 91-975 (1970)

Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 108th Congress JCS-5-05 No. 32, 2005 WL 5783636 (May 2005)

S. Rep. No. 108-192 (2003)

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STATEMENT OF JURISDICTION

On June 6, 2019, the United States filed suit to reduce to judgment civil penalties assessed by the Internal Revenue Service (“IRS”) against appellant Alexandru Bittner for his non-willful failure to timely report his interests in foreign bank accounts on a Report of Foreign Bank and Financial Accounts (“FBAR”) for the years 2007-2011.¹ The District Court had jurisdiction under 28 U.S.C. §§ 1331, 1345, and 1355.

On June 29, 2020, the District Court granted Bittner's motion for partial summary judgment and granted in part and denied in part the Government's motion for partial summary judgment. (ROA.1558-1586.) The court entered a final judgment on July 22, 2020. (ROA.1656-1658.) On September 4, 2020, Bittner timely filed a notice of appeal. (ROA.1659.) See Fed. R. App. P. 4(a)(1)(B). On September 17, 2020, the Government timely filed a notice of appeal. (ROA.1662.) See Fed. R. App. P. 4(a)(3). This Court has jurisdiction under 28 U.S.C. § 1291.

STATEMENT OF THE ISSUES

United States persons must report their interests in foreign bank accounts on a timely filed FBAR form for any year in which the aggregate balance of such accounts exceeds $10,000 at any time during the year. 31 U.S.C. § 5314; 31 C.F.R. §§ 1010.350(a), 1010.306(c).² The amount of “any civil penalty” for a non-willful “violation of [ ] any provision of section 5314” “shall not exceed $10,000.” 31 U.S.C. § 5321(a)(5)(A), (B)(i) (comma omitted). No such penalty may be imposed, however, if the violation was due to reasonable cause. 31 U.S.C. § 5321(a)(5)(B)(ii). The question presented by Bittner's appeal is:

Whether the District Court correctly held that the Government was entitled to summary judgment on the reasonable-cause issue, i.e., that Bittner does not qualify for the applicable reasonable cause exception for the years 2007-2010 as a matter of law.

The question presented by the Government's appeal is:

Whether the District Court erred in holding that a non-willful violation of 31 U.S.C § 5314 pertains to the failure to timely and accurately file the prescribed FBAR form on which foreign accounts are to be collectively reported, rather than the failure to timely and accurately report a foreign account, and that the penalty for a non-willful violation of § 5314 is therefore imposed on a per-form (as opposed to a per-account) basis.

STATEMENT OF THE CASE

A. Statutory and regulatory background

1. The Bank Secrecy Act and the foreign financial account reporting requirements

United States citizens and residents are subject to U.S. income tax on their worldwide income, regardless of where the income is earned. See 26 U.S.C. (“I.R.C.”) § 61(a); 26 C.F.R. (“Treas. Reg.”) § 1.1-1(b). Concerned about the use of foreign accounts to (inter alia) evade taxes, Congress in 1970 passed the Bank Secrecy Act, Pub. L. No. 91-508, 84 Stat. 1114 (1970) (codified in relevant part, as amended, at 31 U.S.C. § 5311-5336), to require “certain reports or records where [they] have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.” 31 U.S.C. § 1051 (1970); see also 31 U.S.C. § 5311.

As relevant here, § 5314 provides that “the Secretary of the Treasury shall require a resident or citizen of the United States . . . to keep records, file reports, or keep records and file reports when the [person] . . . maintains a relation for any person with a foreign financial agency.” 31 U.S.C. § 5314(a). The Secretary is directed to take into “[c]onsider[ation] the need to avoid . . . burdening unreasonably” persons who are subject to the reporting requirement. Id. The Secretary promulgated a regulation providing that “[e]ach United States person having a financial interest in, or signature authority over, a bank, securities, or other financial account in a foreign country shall report such relationship to the Commissioner of Internal Revenue for each year in which such relationship exists and shall provide such information as shall be specified in a reporting form prescribed under 31 U.S.C. § 5314 to be filed by such persons.” 31 C.F.R. § 1010.350(a).

At all relevant times, the prescribed reporting form was the Report of Foreign Bank and Financial Accounts, Form TD 90-22.1, or “FBAR.” See 31 C.F.R. § 1010.350(a). A United States citizen had to file an FBAR form on or before June 30 if the aggregate value of his foreign accounts exceeded $10,000 at any time during the previous calendar year. 31 C.F.R. § 1010.306(c).³ Similarly, at all relevant times, the U.S. individual income tax return (IRS Form 1040, Schedule B) required taxpayers to disclose whether they had “an interest in or a signature or other authority over a financial account in a foreign country,” and directed taxpayers to consult the filing requirements for Form TD 90-22.1. See, e.g., 2010 Schedule B, Part III, Line 7a, available at https://www.irs.gov/pub/irs-prior/f1040sb—2010.pdf.

U.S. persons were required to complete a separate entry on the FBAR for each reportable account. See FBAR Parts II, IV, available at https://www.irs.gov/pub/irs-pdf/f90221.pdf. A filer who had a financial interest in 25 or more accounts, however, was only required to disclose the number of accounts. Id., Part I, Item 14. Similarly, a filer who had signature authority over (but no financial interest in) 25 or more accounts was only required to provide information regarding the account owners (rather than the accounts themselves). Id., Part IV, Items 34-43, Instructions at 7, 8. Filers qualifying for those exceptions, however, were required to produce detailed account information to the IRS upon request. 31 C.F.R. § 1010.350(g)(1), (2); see also id., § 1010.420 (recordkeeping requirements).

2. Penalties for violations of the reporting requirements

Congress has authorized the Secretary of the Treasury to “impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314.” 31 U.S.C. § 5321(a)(5)(A). Section 5321(a)(5)(B)(i) provides that “[i]n general,” and “[e]xcept as provided in subparagraph (C) [relating to willful violations], the amount of any civil penalty imposed under [§ 5321(a)(5)(A)] shall not exceed $10,000.” Where the violation is willful, “the maximum penalty under subparagraph (B)(i) [i.e., $10,000] shall be increased to” the greater of (1) $100,000 or, (2) “in the case of a violation involving a failure to report the existence of an account or any identifying information required to be provided with respect to an account,” 50 percent of “the balance in the account at the time of the violation.” 31 U.S.C. § 5321(a)(5)(C)(i)(II), (D)(ii).

In the case of a non-willful violation, however, the penalty does not apply if “such violation was due to reasonable cause” and “the balance in the account . . . was properly reported.” 31 U.S.C. § 5321(a)(5)(B)(ii). Willful violations are excluded from the reasonable cause exception. 31 U.S.C. § 5321(a)(5)(C)(ii).

B. Bittner's failure to report his foreign accounts

Bittner was born in Romania in 1957 and immigrated to the United States in 1982. He earned a master's degree in engineering from Politechnica University of Bucharest. (ROA.1312; ROA.1314.) Bittner worked as a dishwasher and plumber in the United States, eventually becoming a licensed master plumber in California. (ROA.1314.) He became a naturalized U.S. citizen in 1987 and remains a U.S. citizen today. (ROA.1317.)

In 1990, Bittner returned to Romania, where he lived until 2011. (ROA.1318-1319.) Bittner is a savvy businessman who earned millions of dollars while living in Romania. (ROA.412-419; ROA.1322-1323.) His business dealings were vast and varied, ranging from hotels, rental real estate, and construction, to restaurants, aquaculture, logging, and manufacturing. (ROA.482.) He had an ownership interest in at least 38 different companies from 2004 to 2011. (ROA.689; ROA.482.) He negotiated purchases of Romanian government assets and used the services of attorneys in those dealings. (ROA.669-670.)

To manage his growing wealth, Bittner maintained dozens of bank accounts in Romania, Switzerland, and Liechtenstein, and purposely opened “numbered accounts” “to hide [his] name.” (ROA.676; ROA.678.) Bittner also transferred his business assets into three holding companies, two located in London and one in Geneva. (ROA.673.) Bittner purchased four investment properties in Brussels, placing title in one of those holding companies. (See ROA.672-673.) In connection with that purchase, he made inquiries into various issues relating to owning property in Brussels as a foreigner, including “taxes.” (ROA.674.)

In 2010 alone, Bittner deposited at least $1,689,778 into his RBC Suisse account in Switzerland. (ROA.405.) That same year, Bittner transferred approximately $1,000,000 from personal accounts in Romania and Switzerland to the United States. (ROA.368; ROA.405-406.) In 2011, Bittner transferred at least $1,500,000 from a personal account in Romania to the United States. (ROA.349-354.) Upon returning to the United States, Bittner opened several different bank accounts to maximize FDIC deposit insurance. (ROA.675.)

Bittner alleges that he first learned of the requirement to report foreign accounts on an FBAR — as well as his U.S. income tax obligations on the income he earned abroad as a U.S. citizen — when he returned to the United States in 2011. (ROA.437.) In May 2012, his CPA filed delinquent FBARs on his behalf for the years 1996-2010 and a timely FBAR for 2011, each reporting only the largest account. (ROA.420-435.) On each of those forms, Bittner checked the box for “No” in response to the question asking whether he had an interest in 25 or more accounts. (ROA.420-435.) He included a letter with those FBARs explaining that he had failed to file federal tax returns while in Romania because his “English was not good [and] he was poor and couldn't hire an accountant and it [was] his understanding that if you didn't have any income, you did not need to file a return.” (ROA.437.) In a statement of reasonable cause that he later submitted to the IRS regarding his failure to report the foreign accounts, however, Bittner stated that he had “hired Romanian accountants to keep records and assist with tax compliance” and “dealt routinely with foreign accountants[.]” (ROA.438; ROA.439; ROA.441.)

In September 2013, a second CPA filed amended FBARs on Bittner's behalf for the years 2007-2011.⁴ Those FBARs reported the number of foreign accounts in which Bittner had a financial interest as follows (ROA.335-339):

Year	Number of accounts
2007	61
2008	51
2009	54
2010	53
2011	53

Further investigation revealed aggregate high balances of those accounts as follows (ROA.335-339; ROA.446-481; ROA.607):

Year	Highest aggregate account balance
2007	$10,127,860
2008	$10,420,152
2009	$3,053,884
2010	$16,058,319
2011	$15,137,405

On June 8, 2017, the IRS timely assessed the following penalties for non-willful violations of § 5314 (ROA.536-554):⁵

Year	Number of accounts	Total assessed penalties
2007	61	$610,000
2008	51	$510,000
2009	53	$530,000
2010	53	$530,000
2011	54	$540,000
Total	272	$2,720,000

C. Proceedings in the District Court

On June 6, 2019, the Government timely filed suit to recover the assessed amounts, see 31 U.S.C. § 5321(b)(2)(A), and associated late-payment penalties and interest. (ROA.15-39.) In his answer, Bittner asserted (inter alia) that (1) he qualified for the reasonable cause exception in § 5321(a)(5)(B)(ii) as to all penalty amounts, (2) under § 5321(a)(5)(B)(i), the maximum penalty for non-willful violations of § 5314 is $10,000 per year, and (3) the amount sought by the Government violates the Excessive Fines Clause of the Eighth Amendment. (ROA.43-59.) Through discovery, Bittner admitted that he was required to report the following number of accounts each year under § 5314:

Year	No. of agreed reportable accounts
2007	51
2008	43
2009	42
2010	41
2011	43
Total	220

The parties filed cross-motions for partial summary judgment in March 2020. Bittner limited his motion to the issue regarding how the $10,000 cap in § 5321(a)(5)(B)(i) applies in the context of multiple accounts, arguing that “the plain language of the statute cap[s] the maximum non-willful penalty at $10,000 per year.” (ROA.226.) The Government likewise sought summary judgment on that issue, arguing that the failure to report the existence of each foreign account constitutes a separate violation of § 5314 for purposes of § 5321(a)(5)(A) and that, consequently, for “violations involving the non-willful failure to report the existence of a foreign account, the maximum amount of the penalty that may be assessed is $10,000 per account.” (ROA.308.) The Government also sought summary judgment on (1) Bittner's liability for the $1,770,000 of assessed penalties relating to the agreed reportable accounts for the years 2007-2010, arguing that Bittner did not (as a matter of law) qualify for the reasonable cause exception as applied to those violations, and (2) Bittner's Eighth Amendment argument.

1. Bittner's arguments

a. The per-form/per-account issue

Bittner argued that his failure to comply with the account-reporting requirement for each of the years 2007-2011 “result[ed] in only one annual violation for each of the five years at issue — not 272 separate violations as the government asserts.” (ROA.237 (emphasis in original).) He noted that in the related context of willful violations, “Congress expressly tied the . . . penalty to 'accounts,' imposing 'in the case of a violation involving a failure to report the existence of an account' . . . a penalty of 50 percent of 'the balance in the account at the time of the violation.'” (ROA.241 (quoting 31 U.S.C. § 5321(a)(5)(D)(ii).) He argued that the absence of similar language in § 5321(a)(5)(B) — the portion of the statute dealing solely with non-willful conduct — “strongly indicates” that, as applied to non-willful violations, the penalty authorized by § 5321(a)(5)(A) “is not computed on a per-account basis.” (ROA.241.)

Elsewhere in his motion (ROA.248), Bittner acknowledged that similar “account” language does appear in § 5321(a)(5)(B), i.e., in the reasonable cause exception of subparagraph (B)(ii) that — per subparagraph (C)(ii) — applies solely to non-willful violations. See 31 U.S.C. § 5321(a)(5)(B)(ii) (providing that a showing of reasonable cause will negate the penalty only if “the balance in the account . . . was properly reported”). Once again, he emphasized that “[t]he word 'account' . . . appears only in the safe harbor [of subparagraph (B)(ii)], but not in the statutory provisions actually imposing” the penalty (subparagraph (A)) “or limiting [it]” as applied to non-willful violations (subparagraph (B)(i)). (ROA.252.)

Bittner also argued (ROA.244) that the Government's interpretation of the statute could lead to “absurd and unreasonable results”: a non-willful violator who maintained numerous accounts could owe a significantly higher penalty than a willful violator who maintained a single account, even though the balance of that one account significantly exceeded the non-willful violator's aggregate account balance. And he further argued that, “[a]ssuming . . . there were any ambiguity in the statute, the Court should resolve the issue in [his] favor” under the rule of lenity that applies to penal statutes. (ROA.244.)

b. The reasonable cause defense

Regarding the reasonable cause defense, Bittner argued that although “reasonable cause” is not defined in the statute or regulations, regulations under other sections of the Code (e.g., §§ 6038(a), 6038A, and 6038D) indicate that reasonable cause should be determined “under all the facts and circumstances.” (ROA.972.) Pointing to certain “'[f]actors that might weigh in favor'” of reasonable cause as identified in an IRS “Fact Sheet” (ROA.975), Bittner argued that the facts and circumstances here demonstrate that he had reasonable cause for his failure to timely report his foreign accounts.

2. The Government's arguments

a. The per-form/per-account issue

The Government argued that several aspects of § 5321(a)(5)'s text indicate that a non-willful violation of § 5314 pertains to the failure to report an account, not the failure to file the FBAR form on which such accounts are to be collectively reported. The Government argued that the “per account” conclusion is evident from the language of the reasonable cause exception — § 5321(a)(5)(B)(ii) — referring to “the balance in the account.” (ROA.317.) In particular, the Government argued that “Congress's choice to use the singular 'account' and 'balance' in § 5321(a)(5)(B)(ii), each preceded by the definite article 'the,' is most naturally read as referring to the particular account [to] which the violation at issue relates.” (ROA.317.)

The Government further noted that “[t]he same singular language of 'account' and 'balance' appears in” § 5321(a)(5)(D)(ii), which identifies “the balance in the account at the time of the violation” as one of the inputs in determining the maximum penalty that may be imposed in the case of a willful account-reporting violation. (ROA.317.) In that regard, the Government argued that “there is no indication that Congress intended to use a different violation trigger for non-willful violations.” (ROA.317.)

The Government then argued that “[t]he plain language of § 5321(a)(5) shows that the United States' interpretation is the correct one.” (ROA.318.) As the Government explained (ROA.318),

• subparagraph (A) authorizes the penalization of any person who “violates, or causes any violation of,” § 5314;

• subparagraph (B)(i) sets the maximum amount of any “penalty imposed under subparagraph (A),” “[e]xcept as provided in subparagraph (C)”; and

• subparagraph (C)(i) increases “the maximum penalty under subparagraph (B)(i)” — i.e., the maximum “penalty imposed under subparagraph (A)” — in the context of “[w]illful violations” of § 5314.

The Government argued that “[n]othing in the text indicates that the term 'violation' for purposes of [subparagraph (C)] has a meaning different from the meaning of 'violation' in [subparagraph (A)].” (ROA.318.) “[I]ndeed,” the Government continued, “the cross-referencing of those two subparagraphs in subparagraph (B)(i) confirms that the violation is the same.” Noting that subparagraph (D)(ii) — which applies in the context of willful violations — refers to “a violation involving a failure to report the existence of an account,” the Government reasoned that because “the underlying violation is the same” whether committed willfully or non-willfully, the penalty should be interpreted as applying to each undisclosed account in the context of non-willful violations as well. (ROA.318.)

The Government also argued that interpreting the statute as limiting the penalty to $10,000 per year in the context of non-willful conduct — rather than $10,000 per unreported account — would be inconsistent with “the remedial nature of the statute to compensate the government for the cost of investigating hidden foreign accounts.” (ROA.320.) In support of that argument, the Government cited United States v. Estate of Schoenfeld, 344 F. Supp. 3d 1354, 1369-73 (M.D. Fla. 2018), in which the court held that, due to its remedial — as opposed to penal — nature, the § 5321(a)(5)(A) penalty as applied to a willful violation survived the death of the person assessed.

Relatedly, in response to Bittner's invocation of the rule of lenity, the Government argued that the rule has no application in the context of this “purely civil penalty.” (ROA.935.) The Government further argued that, in any event, there is no “grievous ambiguity” in the statute that would justify resort to the rule. (ROA.934 (citing Barber v. Thomas, 560 U.S. 474, 488 (2010)).

b. The reasonable cause defense

The Government argued that Bittner did not qualify for the reasonable cause defense for the years 2007-2010 because he could not “establish that [he] exercised 'ordinary business care and prudence'” with respect to his account-reporting obligations for those years. (ROA.310.) The Government noted that, although the statute and regulations do not define “reasonable cause” in this context, courts addressing the issue have applied by analogy the standards set forth in I.R.C. §§ 6651(a), 6664(c)(1), and 6677(d) (and case law thereunder), all of which require the taxpayer to demonstrate the exercise of ordinary business care and prudence. (ROA.310.) Bittner could not meet that standard, the Government argued, because “[f]ailing to seek professional advice and take steps to learn about the requirement to report foreign financial assets[ ] does not constitute ordinary business care and prudence, even for a taxpayer with limited education and experience.” (ROA.310.) And “Bittner is an educated, sophisticated and successful businessman who has knowledge about several U.S. banking and U.S. Customs' regulations.” (ROA.310.) “Thus,” the Government argued, “Bittner's decision during 1991-2010 not to make any inquiries about” his account-reporting obligations constituted “a failure to exercise ordinary business care and prudence.” (ROA.311.)⁶

3. The District Court's opinion

a. The per-form/per-account issue

The District Court ruled in favor of Bittner on the penalty calculation issue, holding that non-willful violations of § 5314 “relate to each FBAR form not timely or properly filed rather than to each foreign financial account maintained but not timely or properly reported.” (ROA.1566.) The court began by reasoning that, because § 5314 merely directs the Secretary (of the Treasury) to prescribe reporting requirements, the penalty applies to “violations of [those] implementing regulations.” (ROA.1568 (citing the Supreme Court's observation in California Bankers Ass'n v. Shultz, 416 U.S. 21, 26 (1974), that penalties under the Bank Secrecy Act “attach only upon violation of regulations promulgated by the Secretary”).) The court further reasoned that, because the implementing regulations establish the annual filing requirement, “it is the failure to file an annual FBAR that is the violation contemplated and that triggers the civil penalty provisions” of § 5321(a)(5). (ROA.1568 (quoting 31 C.F.R. § 1010.306(c)).)

Turning to the language of § 5321(a)(5), the court agreed with Bittner that the reference to “a failure to report the existence of an account” in § 5321(a)(5)(D)(ii) (which applies to willful violations), coupled with the lack of similar language in § 5321(a)(5)(B)(i) (which applies to non-willful violations), “is persuasive evidence” that Congress did not intend “non-willful penalties” to relate to specific accounts. (ROA.1569 (citing Hamdan v. Rumsfeld, 548 U.S. 557, 578 (2006), and Russello v. United States, 464 U.S. 16, 23 (1983)).) And it drew the same negative inference from the fact that § 5321(a)(5)(B)(ii) — the reasonable cause exception that is limited to non-willful violations — refers to “the account,” while § 5321(a)(5)(B)(i) itself — which prescribes the maximum amount of the penalty in the context of non-willful violations — does not. (ROA.1569-1570.)

The court then found that tying “the penalty for a 'violation' within the meaning of § 5321(a)(5)(A) . . . to the FBAR form, rather than to each individual account” required to be reported thereon, “makes sense in light of the overall statutory and regulatory scheme.” (ROA.1570.) Noting that § 5314(a) refers to “the need to avoid burdening [foreign-account holders] unreasonably,” the court suggested that the single-FBAR approach of the regulations was statutorily mandated: “It stands to reason that a 'violation' of the statute would attach directly to the obligation that the statute creates — the filing of a single report.” (ROA.1570 (emphasis added).) The court further reasoned that, inasmuch as “the number of . . . accounts . . . maintain[ed] has no bearing whatsoever on [the] obligation to file an FBAR” under the regulations, it would “make little sense to read § 5321(a)(5)(A) and (B)(i) to impose per-account penalties” for non-willful violations of § 5314 absent “some directive from Congress indicating otherwise.” (ROA.1571.)

The court then turned to the Government's argument that (in the court's words) “if the [reasonable cause] exception [in subparagraph (B)(ii)] applies on an account-by-account basis, then the [non-willful] violation that the exception forgives must also apply on an account-by-account basis.” (ROA.1571.) Although the court “recognize[d] the logic” of this argument, it was ultimately “unpersuaded” thereby, finding no “good reason for why the exception to a rule should somehow inform the calculation of the penalty for a violation of that rule.” (ROA.1571.) The court observed that “Congress can forgive” non-willful violations of § 5314 “any way it likes,” and that “any attempt by this Court to comment on why the reasonable cause exception mentions 'balance in the account' while the penalty provision does not would be pure conjecture.” (ROA.1571-1572.)

Next, the court rejected what it characterized as the Government's argument that “because the penalty for willful violations” — which is “'assessed with reference to each account'” — “simply modifies the penalty for non-willful violations, the underlying violation must also be the same.” (ROA.1572 (quoting ROA.318).) While “acknowledg[ing] that the willful and non-willful variants of the penalty are connected,” the court found that this argument “overlooks the fact that Congress may have had perfectly good reasons for choosing to compute the penalty for willful violations different from the penalty for non-willful violations.” (ROA.1572.)

The court then found that the Government's contrary interpretation would result in “absurd outcomes that Congress could not have intended.” (ROA.1572.) The court noted that under the Government's interpretation, a non-willful failure to report two foreign accounts with a $1 million aggregate balance would result in a maximum penalty of $20,000, while a non-willful failure to report 20 foreign accounts with the same aggregate balance ($1 million) would result in a maximum penalty of $200,000. In that regard, the court concluded that the Government's “significant concern” regarding the increased investigation costs associated with multiple unreported accounts “is . . . not strong enough to compel the Court to read into § 5321(a)(5)(A) and (B)(i) a word [i.e., “account”] that is not there.” (ROA.1574.)

The court also posited a situation where A maintains 20 foreign accounts with an aggregate balance of $180,000 and B maintains 20 foreign accounts with an aggregate balance of $100,000. (ROA.1575.) The court correctly noted that under the Government's position, if B non-willfully failed to report his accounts, he would be subject to a maximum penalty of $200,000 (20 × $10,000). Contrary, however, to its reference elsewhere to the “account specific” nature of “penalties . . . for willful violations” (ROA.1569; see ROA.1572), the court surmised that if A willfully failed to report his accounts, he would be subject to a maximum penalty of only $100,000 (i.e., the greater of (I) $100,000, or (II) 50% of $180,000). See 31 U.S.C. § 5321(a)(5)(C)(i), (D)(ii).⁷

The court concluded its analysis of this issue by disclaiming any reliance on the rule of lenity (ROA.1575-1578). In addition to questioning “whether the non-willful civil penalty” under § 5321(a)(5) “is even the kind of statutory provision to which the rule of lenity applies” (ROA.1576), the court found no “'grievous ambiguity or uncertainty in the statute'” that would justify reliance on the rule (ROA.1577 (quoting Barber v. Thomas, 560 U.S. 474, 488 (2010)).

b. The reasonable cause defense

The court then examined and rejected Bittner's reasonable cause defense, finding no genuine issue of material fact in that regard. (ROA.1582-1586.) It noted that neither the Bank Secrecy Act nor the implementing regulations “provide a definition of 'reasonable cause' within the meaning of § 5321(a)(5)(B)(ii).” (ROA.1582.) But, as have other courts addressing the issue, the court looked to other “statutes governing taxes and tax-related penalties” and held that, considering all the facts and circumstances, Bittner “'must show that he exercised ordinary business care and prudence.'” (ROA.1583 (citing Congdon v. United States, No. 4:09-cv-289, 2011 WL 3880524, at *2-3 (E.D. Tex. Aug. 11, 2011) and United States v. Boyle, 469 U.S. 241, 249 n.8 (1985).)

Applying that standard, the court rejected Bittner's argument that he qualified “for the reasonable cause safe harbor merely by claiming that he 'had never heard of FBAR forms, much less that as a naturalized U.S. citizen living abroad he was required to file them[.]'” (ROA.1583 (citing ROA.227).) It further rejected Bittner's argument that the circumstances of this case — viz., that “he was educated outside of the United States; had no instruction or education in accounting, tax law, or finances; had no close contact with the United States during the relevant period; and took prompt steps to correct his mistake after learning of his compliance failure” — gave rise to a genuine issue of material fact as to the applicability of the reasonable cause exception. (ROA.1584.) In that regard, the court concluded that Bittner's reliance on Congdon was misplaced, as that case involved “a genuine dispute as to whether the plaintiff had acted in good faith by making an effort to report his proper tax liability,” whereas “there is no dispute as to whether Mr. Bittner made a similar effort[.]” (ROA.1584-1585.) To the contrary, Bittner “admitted that he 'did not take affirmative steps to learn about'” his account-reporting obligations. (ROA.1585 (citing ROA.1304).) Further, “Mr. Bittner was undoubtedly a sophisticated business professional, as demonstrated by his business and investment savvy,” and he “was aware of at least some of his United States tax obligations.” (ROA.1585-1586.)

The court therefore held that there was no “genuine issue of material fact as to whether Mr. Bittner acted with ordinary business care and prudence so as to trigger the reasonable cause exception under § 5321(a)(5)(B)(ii).” (ROA.1586.) The court concluded: “Mr. Bittner cannot claim with a straight face that, as an American citizen generating millions of dollars in income abroad, he was so unaware that he might have United States reporting obligations that he did not even feel compelled to investigate the matter.” (ROA.1586.)

---

Bittner withdrew his reasonable cause defense with respect to 2011, and the court entered judgment against him in the amount of $10,000 (plus interest and late-payment penalties) for each year from 2007 to 2011. Bittner appealed the reasonable-cause ruling (i.e., with respect to 2007-2010), and the Government appealed the penalty-calculation ruling.

SUMMARY OF ARGUMENT

1. The District Court correctly held that, as a matter of law, Bittner does not qualify for the reasonable cause exception to the imposition of penalties under § 5321(a)(5)(A). Although reasonable cause is not defined in the applicable statute or regulations, courts have used the standards set forth in I.R.C. §§ 6651(a), 6664(c)(1), and 6677(d) and the regulations and case law thereunder when construing the reasonable cause standard in the account-reporting context. That analogous authority requires a taxpayer to demonstrate that he exercised ordinary business care and prudence in his effort to ascertain his tax reporting obligations. Here, Bittner admits that he took no affirmative steps to learn about his obligation to report foreign bank accounts. Even taking into account Bittner's excuses for that failure, the District Court correctly entered summary judgment for the Government on this issue because there was “no dispute” that Bittner “spent zero hours attempting to do so much as learn about his” account-reporting obligations. (ROA.1584-1585.)

2. The District Court incorrectly held that Bittner was subject to a maximum penalty of only $10,000 per year for his non-willful failures to report numerous foreign bank accounts. Section 5314 mandates a reporting requirement that extends to each foreign account maintained. It necessarily follows that a violation of § 5314 relates to each failure to report each foreign account, not to the failure to file the FBAR form on which such accounts are to be collectively reported. Consequently, the penalty authorized by § 5321(a)(5)(A) may be imposed with respect to each undisclosed or insufficiently disclosed account, subject to the maximum amounts per violation set forth in § 5321(a)(5)(B)(i) and (C)(i).

The District Court erred in its analysis of § 5321(a)(5). In particular, the court erred in holding that Congress's use of “account specific” language in the “willfulness provision,” but not the “non-willfulness provision,” is “persuasive evidence” that “Congress intended the penalty for willful violations to relate to specific accounts and the penalty for non-willful violations not to.” (ROA.1569, ROA.1572.) Contrary to that statement, there is only one penalty authorized by § 5321(a)(5), and it applies to “any violation of . . . any provision of section 5314,” i.e., there is a single penalty that applies to both willful and non-willful violations. That the maximum amount of the penalty is determined (in part) by reference to the “balance in the account” in the context of willful violations, but not in the context of non-willful violations, does not alter the unitary nature of the penalty. Yet the District Court's reasoning requires the term “violation of . . . any provision of section 5314” in § 5321(a)(5)(A) to mean one thing in the context of non-willful violations (failure to file the consolidated report prescribed by Treasury under § 5314) and another thing in the context of willful violations (failure to report an account covered by that filing requirement).

The text, structure, and context of § 5321(a)(5) establish that the “violation of . . . section 5314” to which the unitary penalty authorized by § 5321(a)(5)(A) applies is the failure to report an account (not the failure to file the form on which all such accounts are to be reported), regardless whether the failure is willful or non-willful. Moreover, the District Court's contrary interpretation is problematic in terms of how the reasonable-cause exception would operate when a person has reasonable cause for failing to report one account but not for failing to report others, as well as how the statutory maximums for non-willful and willful violations could be applied coherently when an account holder non-willfully fails to report some accounts while willfully failing to report others. And the hypotheticals that the court relied upon are inapposite (and, in one case, erroneous). The court's holding that the relevant violation in the context of non-willful conduct is the failure to file the FBAR, as opposed to each failure to report each foreign account, and that the penalty therefore applies on a per-form basis in that situation — is erroneous and should be reversed.

We recognize that a panel of the Ninth Circuit recently issued a divided opinion agreeing with the District Court's holding here. See United State v. Boyd, No. 19-55585, 2021 WL 1113531 (9th Cir. Mar. 24, 2021). But the majority in Boyd committed the same analytical errors as the District Court here. As explained more fully infra, the dissent's analysis in Boyd reflects the most natural reading of the statutes, is more faithful to principles of statutory interpretation, and is consistent with the policies underlying the Bank Secrecy Act.

ARGUMENT

I. The District Court correctly held that the Government was entitled to summary judgment on the reasonable-cause issue

Standard of review

This Court “reviews the grant of [a] summary judgment motion de novo, using the same criteria used by the district court in the first instance.” Denenburg v. United States, 920 F.2d 301, 302 (5th Cir. 1991). “Summary judgment is proper 'if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.'” Id., quoting Fed. R. Civ. P. 56(c).

A. Bittner did not have reasonable cause for failing to report his foreign accounts

1. Reasonable cause in this context requires the exercise of ordinary business care and prudence

As noted, the penalty for a non-willful violation of § 5314 does not apply if “such violation was due to reasonable cause” and “the balance in the account . . . was properly reported.” 31 U.S.C. § 5321(a)(5)(B)(ii). While § 5321 and its corresponding regulations do not define reasonable cause, courts have used the standards set forth in I.R.C. §§ 6651(a), 6664(c)(1), and 6677(d), and the regulations and case law thereunder, when construing the reasonable cause exception in § 5321(a)(5)(B)(ii). See, e.g., United States v. Hidy, 471 F. Supp. 3d 927, 933-34 (D. Neb. 2020); Jarnagin v. United States, 134 Fed. Cl. 368, 376 (2017); Moore v. United States, Case No. C13-2063RAJ, 2015 WL 1510007 at *4 (W.D. Wash. 2015); United States v. Agrawal, Case No. 18-C-0504, 2019 WL 6702114 (E.D. Wis. 2019), United States v. Ott, Case No. 18-cv-12174, 2019 WL 3714491, at *2 (E.D. Mich. 2019); see also Thomas v. UBS AG, 706 F.3d 846, 851 (7th Cir. 2013) (noting the similarity between 31 U.S.C. § 5321(a)(5)(B)(ii) and I.R.C. § 6664(c)). The taxpayer bears the burden of proof on a reasonable cause defense. Klamath Strategic Inv. Fund ex rel. St. Croix Ventures v. United States, 568 F.3d 537, 548 (5th Cir. 2009); In re Wyly, 552 B.R. 338, 388 (Bankr. N.D. Tex. 2016).

The Supreme Court has explained that the regulation explicating the statutory reasonable cause exception to the penalty for late-filed returns (I.R.C. § 6651(a)) “calls on the taxpayer to demonstrate that he exercised 'ordinary business care and prudence' but nevertheless was 'unable to file the return within the prescribed time.'” United States v. Boyle, 469 U.S. 241, 246 (1985) (quoting Treas. Reg. § 301.6651-1(c)(1)). This Court has applied the same standard. See Staff IT, Inc. v. United States, 482 F.3d 792, 802 (5th Cir. 2007) (rejecting reasonable cause defense for failure to file and pay payroll taxes where taxpayer “failed to exercise ordinary business care and prudence”); Denenburg, 920 F.2d at 303. In the context of the reasonable cause exception to the Code's accuracy-related penalties — an exception that requires a showing of reasonable cause and good faith, I.R.C. § 6664(c)(1) — this Court has held that the determination is made by “'taking into account all pertinent facts and circumstances'” (Brinkley v. Commissioner, 808 F.3d 657, 669 (5th Cir. 2015) (quoting Treas. Reg. § 1.6664-4(b)(1))), but even then “'the most important factor is the extent of the taxpayer's effort to assess his proper liability” (id., citing Klamath, 568 F.3d at 548). See Treas. Reg. § 1.6664-4(b)(1).

As noted above, courts have applied this same standard of reasonable cause in applying § 5321(a)(5)(B)(ii). That is, courts inquire whether an account holder has exercised ordinary business care and prudence in his effort to ascertain his account-reporting obligations. And courts have not hesitated to grant summary judgment on the issue where the evidence has shown that an account holder failed to undertake any effort to ascertain his reporting obligations. In Ott, for example, the court held that the account holder had not “establish[ed] a material question of fact as to whether she had reasonable cause for the failure to disclose her foreign financial accounts” where “she ha[d] not shown that she took any steps to learn whether she was required to report [such] accounts.” 2019 WL 3714491, at *2. Similarly, in Jarnagin, the court held on summary judgment that the account holders did not qualify for the reasonable cause exception because they had failed to exercise ordinary business care and prudence, given their failure to introduce any evidence that they had “sought advice (legal or otherwise) concerning any obligations that they might have had to file reports or make disclosures concerning their foreign assets or businesses.” 134 Fed. Cl. at 377. This was so notwithstanding that the account holders there had relied upon tax professionals to prepare and file their returns, because they “neither requested nor received any advice one way or the other from their accountants regarding whether they were required to file FBARs[.]” Id. at 378-79. See also, e.g., Moore, 2015 WL 1510007 at *5 (summary judgment; among other things, account holder failed to investigate his account-reporting obligations); Agrawal, 2019 WL 6702114, at *4 (summary judgment; account holder made no “reasonable effort to understand his FBAR reporting responsibilities”).

2. Bittner did not exercise ordinary business care and prudence

In this case, Bittner admits that he “did not take affirmative steps to learn about” his obligation to report his foreign accounts. (ROA.1304.) The District Court considered Bittner's justifications for his total lack of effort in this regard, viz., that “he was educated outside of the United States; had no instruction or education in accounting, tax law, or finances; had no close contact with the United States during the relevant period; and took prompt steps to correct his mistake after learning of his compliance failure[.]” (ROA.1584.) But the court correctly rejected those justifications as grounds to deny summary judgment to the Government on this issue, since there was “no dispute” that Bittner “spent zero hours attempting to do so much as learn about his” reporting obligations as a United States citizen. (ROA.1584-1585.) The record amply supports that conclusion.

Despite his protestations to the contrary (e.g., Br. 43), Bittner was at best indifferent, and at worst cavalier, about his federal tax and reporting obligations as a United States citizen living abroad. When asked at his deposition whether he had ever inquired about such obligations at the U.S. embassy, he scoffed, “Why should I?” (ROA.664.) Nor did Bittner ever ask any of the “foreign accountants” with whom he “dealt routinely” while residing in Romania (ROA.439) about any U.S. tax and reporting obligations he might have as a dual citizen. (ROA.686; see also ROA.684.) In his mind, he had no duty to undertake any steps to determine those obligations. To the contrary, he asserted that it was the IRS's duty to determine which U.S. citizens living in Romania had not filed tax returns, to summon those citizens to the embassy, and to tell them “hey, check out, you have to pay your taxes, even if you live 6,000 miles from America.” (ROA.664.) And when asked whether he had inquired as to any obligations he might have with respect to bank accounts in foreign countries, he responded, “No. And I didn't feel like it. And I still don't feel like it.” (ROA.664; see also ROA.693.)

Despite his claims of naivety (Br. 34), Bittner was quite sophisticated in matters that he did feel like focusing on, such as his business dealings in and outside of Romania. Indeed, Bittner is a savvy businessman who earned many millions of dollars while living in Romania. His business dealings were vast and varied, ranging from hotels, rental real estate, and construction, to restaurants, aquaculture, logging, and manufacturing. (ROA.482.) He had an ownership interest in at least 38 different companies from 2004 to 2011. (ROA.689; ROA.482.) He negotiated purchases of Romanian government assets and used the services of attorneys and sought legal advice during those dealings. (ROA.669-670.) He maintained dozens of accounts at various banks, some in Switzerland and Liechtenstein, and purposely opened “numbered accounts” “to hide [his] name.” (ROA.676; ROA.678.) He transferred his business assets into three holding companies, two located in London and one in Geneva. (ROA.673.) He purchased four investment properties in Brussels, placing title in one of those holding companies. (See ROA.672-673.) And in connection with that purchase, Bittner made inquiries into various issues relating to owning property in Brussels as a foreigner, including “taxes.” (ROA.674.)

Bittner also took pains to apprise himself of U.S. banking and currency laws when it suited him. Upon returning to the United States, for example, Bittner opened several different bank accounts to maximize FDIC deposit insurance. (ROA.675.) And when he flew from Romania to Las Vegas with the intent to spend $50,000 gambling, he was careful to only bring $10,000 across the border to avoid having to declare the currency. (ROA.690.)

Further, when he was contemplating returning to live in the United States, Bittner then investigated his tax obligations, even going so far as to research the U.S.-Romanian tax treaty. (ROA.682.) He did not, however, think it was important to investigate his U.S. tax obligations — as a dual citizen — when he moved from the United States to Romania. (ROA.683.) Nor did he speak to anyone about U.S. federal taxes, or bank account reports, while he lived in Romania from 1990 to 2011. (ROA.684.) His attitude was, “Why? We're in Romania . . .” (ROA.684.) The fact that he was an American citizen was apparently of no moment to Bittner once he left the United States.

On these facts, the District Court correctly concluded that none of the justifications offered by Bittner could be sufficient to outweigh his total lack of any effort whatsoever to ascertain his account-reporting obligations as a U.S. citizen living abroad. On that score, Bittner is no different from the account holder in Agrawal. In that case, the court granted summary judgment to the Government notwithstanding the account holder's “arguments that he is elderly, speaks English as a second language, and has an inexpert understanding of tax reporting requirements.” Agrawal, 2019 WL 6702114, at *5. Given all the evidence of Bittner's business and financial savvy, the record does not support his “argument that his naivety excuses him from exercising ordinary business care by seeking advice regarding his obligation to file an FBAR.” Id. Bittner's arguments to the contrary are unavailing.

Bittner argues (Br. 38) that the District Court erred in its assessment of reasonable cause because the exercise of ordinary business care and prudence is “an important factor” but “not controlling.” And he asserts (Br. 38 n.14) that the court should have employed “an all-facts-and-circumstances test” that does not turn on “'ordinary business care and prudence,' let alone give it any special weight.” He is wrong for several reasons.

First, the District Court here did consider all the facts and circumstances as presented by Bittner. (ROA.1584.) It cited its own prior precedent that “reasonable cause is based on all the facts and circumstances in each situation . . . [and] is generally granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations.” (ROA.1583, quoting Congdon, 2011 WL 3880524, at *2-3.) Put another way, the question is whether all the facts and circumstances show that Bittner exercised ordinary business care and prudence in his effort to ascertain his filing requirements. The District Court correctly held that they do not. Bittner's excuses (ROA.1584) cannot overcome his total lack of any effort to determine his U.S. filing obligations. As this Court has held when applying an all-facts-and-circumstances test for reasonable cause, “the most important factor is the extent of the taxpayer's effort to assess his proper liability in light of all the circumstances.” Brinkley, 808 F.3d at 669. And here the “extent” of that effort — the “most important factor” in the analysis — was “zero hours.” (ROA.1585).

Bittner's head-in-the-sand approach simply cannot support a finding of reasonable cause. Indeed, Bittner cites no case in which a person who admittedly “did not take affirmative steps to learn about” his obligation to report foreign accounts (ROA.1304) nevertheless survived summary judgment on the issue of reasonable cause. To the contrary, even account holders who have done far more than Bittner have lost the issue on the Government's motion for summary judgment. See, e.g., Jarnagin, 134 Fed. Cl. at 377 (dual-citizen account holders hired accountants to prepare and file their tax returns).

Other facts underscore how utterly unreasonable Bittner's actions were regarding his U.S. filing obligations. The law is clear, for example, that holders of foreign accounts who sign and file Form 1040 are put on inquiry notice by Schedule B and its warning that they may be required to file an FBAR. United States v. Sturman, 951 F.2d 1466, 1477 (6th Cir. 1991); United States v. Williams, 489 F. App'x 655, 659 (4th Cir. 2012); United States v. McBride, 908 F. Supp. 2d 1186, 1206-08 (D. Utah 2012); Hidy, 471 F. Supp. 3d at 933; Agrawal, 2019 WL 6702114, at *4; Jarnagin, 134 Fed. Cl. at 378. That is because Schedule B requires taxpayers to check a box stating whether they own any foreign bank accounts, and it refers the filer to the Schedule B instructions for information regarding the FBAR filing requirements. (See, e.g., ROA.1249, ROA.1256.) Failure to investigate the obligation is fatal to a claim of reasonable cause. Sturman, 951 F.2d at 1477; McBride, 908 F. Supp. 2d at 1206-08; Hidy, 471 F. Supp. 3d at 933; Agrawal, 2019 WL 6702114, at *4; Jarnagin, 134 Fed. Cl. at 378; Moore, 2015 WL 1510007, at *6-7.

Bittner acknowledges this principle (Br. 32),⁸ but argues that he cannot be charged with such knowledge, or duty to inquire, because he did not even know that he was required to file U.S. tax returns at all during the years in question. (Br. 7, 42.) Bittner is wrong for multiple reasons. First, just as he had a duty to ascertain his filing requirements with respect to his foreign bank accounts, he also had a duty to ascertain his filing requirements with respect to his federal tax obligations in general. See, e.g., Boyle, 469 U.S. at 249-50.⁹ In essence, Bittner is trying to excuse one failure to exercise ordinary business care and prudence by embedding it within an even greater failure to do so.

But even more to the point, Bittner did file some federal income tax returns during the time that he was living in Romania. (ROA.576-577.) Indeed, he filed federal income tax returns for the years 1990, 1991, 1997, 1998, 1999, and 2000. (ROA.576-577; see also ROA.645-654.) Although those returns are not part of the record, in each of those years, Bittner would have been required to file a Schedule B and answer the question whether he had foreign financial accounts. (See ROA.417-418; ROA.576-577.) And he would have been directed to read the instructions for Schedule B that in turn would have told him of his obligation to file FBARs for his foreign accounts.

Similarly, Bittner filed federal income tax returns for 1988 and 1989, years in which he earned sufficient interest income (over $400) (see ROA.1236, ROA.1238) to have required the filing of Schedule B with those returns (see ROA.1242-1249). As was the case with later years, the 1988 and 1989 versions of Schedule B contained a check-the-box question in Part III requiring a taxpayer to state whether he had any interest in a financial account in a foreign country, specifically referencing the FBAR form and referring the taxpayer to the Schedule B instructions. (ROA.1249.) Those instructions, in turn, provided detailed guidance about the FBAR filing requirements. (ROA.1256.)

In short, had Bittner put forth any degree of effort to determine his U.S. filing obligations at any point during the 21 years he was living as a dual citizen in Romania, he would have had ample reason at least to inquire further regarding his obligation to file FBARs reporting his many foreign bank accounts. His failure to do so constituted a lack of ordinary business care and prudence and precludes any reasonable cause defense.

Tellingly, in his Tax Court case, Bittner ultimately abandoned his reasonable cause defense to the penalties for failing to file timely and accurate federal tax returns. Bittner agreed to entry of decision in the Tax Court imposing penalties under § 6651 (failure to file) and § 6662 (accuracy-related penalties) for the years 2004, 2006, 2007, and 2011. (ROA.1105-1107.) Not only is the standard applied in that context exactly the same as the standard that Bittner argues should apply here, but the facts underlying his claim of reasonable cause are also the same. Just as Bittner had no reasonable cause for failing to file timely and accurate federal income tax returns during the years he was living in Romania, he also had no reasonable cause for failing to timely and accurately report his foreign accounts during those years.

B. Bittner's remaining arguments are meritless

1. Reasonable cause determinations are appropriate on summary judgment

Bittner incorrectly argues (Br. 31-34) that summary judgment is inappropriate on the question of reasonable cause because it turns on an analysis of all the relevant facts and circumstances. But this Court itself has affirmed the grant of summary judgment on the question of reasonable cause for failure to timely file tax returns. See Denenburg, 920 F.2d 301; see also, e.g., Baccei v. United States, 632 F.3d 1140, 1147-49 (9th Cir. 2011). And numerous lower courts have granted summary judgment to the Government on the specific issue presented here, viz., whether an account holder's failure to timely and accurately report foreign accounts was attributable to reasonable cause. See Hidy, 471 F. Supp. 3d at 932-34; Ott, 2019 WL 3714491, at *2; Agrawal, 2019 WL 6702114, at *5; Jarnagin, 134 Fed. Cl. at 377-79; Moore, 2015 WL 1510007, at *6-7.

Bittner argues (Br. 32-34) that those cases — other than Hidy, which he does not cite — are distinguishable on their facts. Even if that were true, they belie his argument (Br. 31) that summary judgment is never appropriate for a reasonable cause determination. And those cases are not so easily distinguished anyway. Bittner asserts (Br. 32) that they all “involved persons who lived or grew up in the United States” and “[n]one involved dual citizens who lived abroad for over 20 years and had routine bank accounts in their country of residence.” But Jarnagin involved an account holder who “immigrated to Canada” in 1989 and continued to reside there “approximately nine to ten months out of the year.” 134 Fed. Cl. at 371; see also United States v. Kaufman, No. 3:18-cv-00787, 2021 WL 83478, at *1 (D. Conn. Jan. 11, 2021) (account holder lived in Israel from 1979 through at least 2010); Hidy, 471 F. Supp. 3d at 929 (account holder lived in the U.K. and the Netherlands from 2000 to 2012 and “opened his first foreign bank account in the U.K., so he could deposit his wages”). Bittner also highlights his status as a naturalized, rather than native-born, citizen, but that was also true for at least one of the above-mentioned account holders against whom summary judgment was entered on reasonable cause. See Agrawal, 2019 WL 6702114, at *1 (account holder emigrated from India).

And though Bittner attempts to distinguish Ott, Agrawal, Jarnagin, and Moore on the ground that “[i]n all but one [of those cases], the persons had set up bank accounts in countries where they did not live” (Br. 33), Bittner did the same, setting up bank accounts outside his country of residence (Romania) in both Switzerland and Liechtenstein. Bittner also asserts that all of the above-cited cases “involved persons who signed tax returns that explicitly included a check-the-box question whether they had foreign bank accounts, which put them on notice of the issue.” (Br. 32.) But Bittner also filed U.S. tax returns both before he moved from the United States to Romania and during his time in Romania and, as part of those filings, should have included the form (Schedule B) that would have alerted him to his foreign bank account reporting obligations. In attempting to portray himself as a naïve and unaware refugee (Br. 34), Bittner ignores the significant evidence demonstrating not only his education and sophistication in business matters generally, but also his understanding of the necessity to inquire as to applicable tax laws when operating across borders.

2. Neither IRS Fact Sheet 2011-13 nor the Internal Revenue Manual creates substantive rights

Bittner substantially relies throughout his brief on statements in an IRS “Fact Sheet” (FS-2011-13) and the Internal Revenue Manual (“IRM”), but that reliance is misplaced. First, neither the Fact Sheet nor the Internal Revenue Manual has the force of law, binds the IRS, or “create[s] rights in the taxpayer.” Estate of Duncan v. Commissioner, 890 F.3d 192, 200 (5th Cir. 2018) (referring to the IRM). See Capitol Fed. Sav. & Loan Ass'n v. Commissioner, 96 T.C. 204, 216-17 (1991) (“general statements of policy and rules governing internal agency operations or 'housekeeping' matters, which do not have the force and effect of law, are not binding on the agency issuing them and do not create substantive rights in the public”) (citing United States v. Will, 671 F.2d 963, 967 (6th Cir. 1982), Einhorn v. DeWitt, 618 F.2d 347, 349-50 (5th Cir. 1980), and Smith v. Commissioner, 478 F.2d 398 (5th Cir. 1973)).

Further, the Fact Sheet itself explains that it “is provided for information purposes only, and the topics discussed may or may not apply to a particular taxpayer's situation.” (ROA.1108.) And while the Fact Sheet provides illustrative factors “that might weigh in favor” or that “might weigh against” a finding of reasonable cause, it also notes that “there may be other factors.” (ROA.1111-1112 (emphasis added).) In any event, among the illustrative factors described in the Fact Sheet as potentially weighing against a finding of reasonable cause is the situation where “the taxpayer's background and education indicate that he should have known of the FBAR reporting requirements.” (Id.) Here, as explained above, Bittner's extensive business experience and history of tax filings show that he should have known of his obligation to report his foreign accounts.

3. There is no lower standard of reasonable cause for penalties relating to “information returns”

Bittner suggests that a lower standard for reasonable cause should apply to account-reporting penalties than to penalties involving income tax returns because the FBAR is merely an “information reporting form.” (Br. 28; see also Br. 38 n.14; 39.) He cites no law for this proposition, and we are aware of none. To the contrary, as discussed immediately below, courts have consistently applied the reasonable cause standard employed by the District Court here whether considering information-return penalties or tax-return penalties. See, e.g., Wyly, 552 B.R. at 576-79 (noting in the context of information returns regarding interests in foreign corporations and trusts that “[c]ourts have adopted the Supreme Court's definition of reasonable cause in Boyle — i.e., 'ordinary business care and prudence' — as the proper definition of reasonable cause throughout the Internal Revenue Code and especially in failure to file situations”). Moreover, Bittner grossly understates the importance of the foreign account reporting requirement. Indeed, Congress extended the § 5321(a)(5) penalty to non-willful violations of that requirement because it considered improved compliance to be “vitally important to sound tax administration, to combating terrorism, and to preventing the use of abusive tax schemes and scams.” S. Rep. No. 108-192, at 108 (2003), 2003 WL 22668223 (Nov. 7, 2003); see also Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 108th Congress JCS-5-05 No. 32, 2005 WL 5783636, at *34 (May 2005).

To bolster his argument that reasonable cause in the context of information-return penalties connotes something less than ordinary business care and prudence, Bittner points (Br. 25-26) to various information-return penalties in the Internal Revenue Code that contain reasonable cause exceptions. See I.R.C. §§ 6038, 6038A, 6038D. He notes that the regulations under those sections state that reasonable cause is “'determined . . . under all the facts and circumstances.'” (Br. 25, quoting Treas. Reg. § 1.6038-3(k)(4)). But he overlooks the fact that the few courts that have considered reasonable cause under those statutes have, like the District Court did here with respect to § 5321(a)(5)(B)(ii), “adopted the Supreme Court's definition as stated in [Boyle].” Flume v. Commissioner, 113 T.C.M. (CCH) 1097, 2017 WL 394541, at *5 (2017). “That is that a taxpayer must demonstrate that he exercised ordinary business care and prudence but nevertheless was unable to file within the prescribed time.” Id. See also, e.g., Congdon, 2011 WL 3880524, at *2; Wyly, 552 B.R. at 576-79.

Reasonable cause in the context of other penalties relating to information reporting requirements for foreign holdings is determined similarly. Section 6046, for example, requires the filing of information returns regarding the acquisition of certain foreign stock ownership interests. I.R.C. § 6046(a); see also I.R.C. § 6046A (information return regarding interest in foreign partnership). Failure to file such a return, or the filing of an inaccurate return, is subject to a penalty of $10,000, “unless it is shown that such failure is due to reasonable cause.” I.R.C. § 6679. The relevant regulations explain that reasonable cause exists “[i]f the taxpayer exercises ordinary business care and prudence and is nevertheless unable to furnish any item of information required” under those sections. Treas. Reg. § 301.6679-1(a)(3).

In any event, even if Bittner were correct that “the level of business care and prudence one should exercise with respect to an income tax return . . . is quite different from obscure information forms” (Br. 39), that would not save him, because here Bittner devoted “zero hours” (ROA.1585) of business care and prudence to his account-reporting obligations during the entire time he lived in Romania. However low Bittner wishes to set the bar, he cannot set it below zero.

4. Bittner would not have qualified for streamlined treatment

Finally, Bittner suggests (Br. 29) that he would have qualified under Streamlined Filing Compliance Procedures that the IRS instituted for certain account holders to come into compliance with their account-reporting obligations, and accordingly should not be liable for § 5321(a)(5) penalties. (See ROA.1518-1519; ROA.1530-1546.) But Bittner was not eligible to use the streamlined procedures because the IRS had initiated an audit of his tax returns for the years 2006-2011. See https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures. Bittner himself acknowledged his failure to meet this eligibility requirement in his statement requesting streamlined treatment. (ROA.1226.)

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In short, the District Court correctly granted the Government's motion for summary judgment on Bittner's reasonable cause defense, as there was “no dispute” that Bittner “spent zero hours attempting to do so much as learn about his” account-reporting obligations as a United States citizen living abroad. (ROA.1584.)

II. The District Court erred in holding that the penalty authorized by 31 U.S.C. § 5321(a)(5)(A) applies on a per-form basis in the context of non-willful violations of § 5314

Standard of review

This Court reviews de novo “questions of statutory construction underlying the district court's summary adjudication[.]” Cruz v. Carpenter, 893 F.2d 84, 86 (5th Cir. 1990); see also United States v. Lauderdale County, Mississippi, 914 F.3d 960 (5th Cir. 2019).

A. Because the § 5321(a)(5) penalty applies to violations of § 5314, the inquiry regarding what constitutes a “violation” should begin with the statute, not the regulations thereunder

As explained above, § 5321(a)(5)(A) authorizes the Secretary to impose “a civil monetary penalty on any person who violates, or causes any violation of, any provision of [31 U.S.C. §] 5314.” 31 U.S.C. § 5321(a)(5)(A). The District Court nonetheless posited that “[i]t is . . . violations of the Secretary of the Treasury's implementing regulations [under § 5314] to which § 5321(a)(5)'s civil penalties attach.” (ROA.1568.) From there, the court reasoned that “it is the failure to file an annual FBAR that is the violation contemplated” in § 5321(a)(5). (ROA.1568.) The court's focus on the regulations under § 5314 — to the exclusion of § 5314 itself — in determining what constitutes a “violation of . . . section 5314” is unsound.

In support of its exclusive focus on the § 5314 regulations in this context, the District Court relied on the Supreme Court's observation in Shultz, 416 U.S. at 26, that penalties under the Bank Secrecy Act “attach only upon violation of regulations promulgated by the Secretary; if the Secretary were to do nothing, the Act itself would impose no penalties on anyone.” (ROA.1568.) But the District Court's reliance on that purely introductory statement is misplaced. The Shultz Court made the point “[b]ecause it ha[d] a bearing on [the Court's] treatment of some of the issues” addressed later in the opinion, namely, the Court's conclusion that, because penalties were dependent on the issuance of regulatory reporting requirements, the relevant constitutional analysis should focus on the reporting requirements that were actually promulgated rather than those that “might have been imposed by the Secretary under the broad authority given him in the Act.” 416 U.S. at 26, 64. Because no such ripeness concerns are presented here, Shultz is inapposite. See id. at 64 (referring to the ripeness doctrine).

In addition to lacking any support from Shultz, the District Court's exclusive focus on the § 5314 regulations in this context is undercut by another (earlier enacted) penalty provision in § 5321(a). See 31 U.S.C. § 5321(a)(3) (imposing a penalty on any “person not filing a report under a regulation prescribed under section 5315”); id. § 5315(c) (requiring reports on foreign currency transactions). That Congress did not use similar language in § 5321(a)(5) supports the inference that it did not intend the reference therein to “any violation of . . . section 5314” to be construed solely by reference to the regulations under § 5314. See Russello, 464 U.S. at 23 (“Where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposefully in the disparate inclusion or exclusion.”); City of Columbus v. Ours Garage and Wrecker Service, Inc., 536 U.S. 424, 435-36 (2002) (referring to this principle as the “Russello presumption”).

B. Because the reporting requirement mandated by § 5314 applies to each foreign account maintained, each failure to report each such account constitutes a violation of § 5314

As discussed above, § 5314 mandates a reporting requirement that extends to each foreign account maintained by a U.S. person, subject to reasonable exceptions prescribed by the Secretary. 31 U.S.C. § 5314(a), (b)(1). It stands to reason, then, that each failure to report each such reportable account represents a separate violation of § 5314 for which a penalty is authorized under § 5321(a)(5)(A).

Specifically, § 5314(a) provides in relevant part that the Secretary of the Treasury “shall require” a U.S. citizen or resident to file reports when he “maintains a relation for any person with a foreign financial agency.” The implementing regulations clarify that the requisite “relationship” is a “financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country.” 31 C.F.R. § 1010.350(a). Although Congress granted the Secretary broad authority to determine how a U.S. person must comply with this account-reporting obligation, the reporting obligation itself clearly applies on an account-by-account basis. In that regard, Congress directed that the report must contain the identity and address of participants in a “relationship,” the legal capacity in which a participant is acting, and the identity of any real parties in interest. 31 U.S.C. § 5314(a)(1)-(3). Because that information may vary across multiple accounts maintained by one U.S. person, compliance with Congress's directive could not occur except by reporting the required information on a per-account basis. For example, a U.S. person who maintains three accounts at one foreign bank might own one account individually, might own another account jointly, and might have signature authority over (but no financial interest in) the third account. Or a person may own two accounts, each held at a different foreign bank. In such circumstances, anything less than reporting on a per-account basis would be wholly inadequate to disclose the information specified in § 5314(a)(1)-(3).

Section 5314 therefore mandates a reporting requirement that applies separately to each reportable account. It follows that a violation of § 5314 pertains to the failure to report any given account, not the failure to file the FBAR form on which all reportable accounts must be reported. Thus, a delinquent filing of an FBAR results in a separate violation of § 5314 with respect to each account required to be reported on the form.

The Secretary's determination to allow the reporting of multiple foreign accounts on a single FBAR form each year casts no doubt on the conclusion that the failure to file an FBAR in that situation results in multiple violations of § 5314. Nor is the single-FBAR approach of the regulations mandated by the statute, as the District Court erroneously suggested in remarking that it “stands to reason that a 'violation' of the statute would attach directly to the obligation that the statute creates — the filing of a single report.” (ROA.1570 (emphasis added).) To the contrary, nothing in § 5314 prescribes the number of forms the Secretary may require in implementing the statutory reporting requirement. Congress granted the Secretary broad discretion on that score, directing that reporting occur “in the way and to the extent the Secretary prescribes.” 31 U.S.C. § 5314(a). While the Secretary's choice of the less burdensome means of a single, annual FBAR for the reporting of multiple foreign accounts is certainly consistent with the introductory clause of § 5314(a) (referring to “the need to avoid burdening [foreign-account holders] unreasonably,” it is not — contrary to the District Court's suggestion — mandated by that language.

Nor does the Secretary's determination to provide a de minimis filing exemption that is based on the aggregate account balance — rather than the number of accounts — undermine the conclusion that violations of § 5314 are account-based rather than form-based. (See ROA.1570-1571.) That regulatory exemption — like the regulatory single-FBAR approach — simply reflects Congress's desire (as expressed in the introductory clause of § 5314(a)) that the mandated reporting requirement be implemented in a way that is not overly burdensome. The Secretary's exercise of discretion in that regard does not affect the determination of what constitutes a violation of § 5314. See 31 U.S.C. §5314(b)(1) (authorizing the Secretary to prescribe “a reasonable classification of persons . . . exempt from a requirement under this section”).¹⁰

C. The text, structure, and context of § 5321(a)(5) confirm that each unreported foreign account gives rise to a separate “violation of . . . section 5314” for purposes of § 5321(a)(5)(A)

Ultimately, the best evidence of the meaning of the term “violation of . . . any provision of section 5314” in § 5321(a)(5) comes from §5321(a)(5) itself. As explained below, the text and structure of § 5321(a)(5), as well as the surrounding context of § 5321(a), establish that the language at issue is account-based rather than form-based. We begin, however, by demonstrating the fallacy of the District Court's approach.

1. The District Court's reliance on the Russello presumption is misplaced

Relying on the Russello presumption, see supra p. 57, the District Court concluded that, “because [§ 5321(a)(5)(D)(ii)] includes explicit reference[s] to 'the existence of an account' and 'the balance in the account' while [§ 5321(a)(5)(B)(i)] does not, the Court can infer that Congress intended the penalty for willful violations to relate to specific accounts and the penalty for non-willful violations not to.” (ROA.1572.) The court's reliance on the Russello presumption, however, is misplaced for multiple reasons.

First, there is an alternative, more straightforward explanation for why the word “account” appears in subparagraph (D)(ii) but not in subparagraph (B)(i): Congress decided that the quantum of unreported financial assets should be part of the calculus for determining the amount of the penalty in the context of willful violations, but not in the context of non-willful violations. It does not follow that Congress intended the penalty itself to apply on a per-account basis as applied to willful violations but not as applied to non-willful violations.

Second, the District Court's reliance on the Russello presumption is undercut by the fact that the word “account” does appear in a portion of the statute dealing solely with non-willful conduct: the reasonable-cause exception. See 31 U.S.C. § 5321(a)(5)(B)(ii)(II) (conditioning availability of the exception on the “proper[ ] report[ing]” of “the balance in the account”), (C)(ii) (providing that the exception does not apply in the context of willful violations). At the very least, the use of the word “account” in subparagraph (B)(ii) weakens any inference that, based on the presence of that word in subparagraph (D)(ii) but not in subparagraph (B)(i), Congress intended a per-account regime to apply to willful violations and a per-form regime to apply to non-willful violations.

Finally, the District Court's Russello-based conclusion in this case — viz., that “Congress intended the penalty for willful violations to relate to specific accounts and the penalty for non-willful violations not to” (ROA.1572) — is untenable in light of the structure of § 5321(a)(5). Contrary to the court's suggestion, there is only one penalty authorized by § 5321(a)(5), and it applies to “any violation of . . . any provision of section 5314.” 31 U.S.C. § 5321(a)(5)(A); see id. § 5321(a)(5)(B)(i) (setting the maximum amount of the “penalty imposed under subparagraph (A),” “[e]xcept as provided in subparagraph (C)”), (C)(i) (increasing “the maximum penalty under subparagraph (B)(i)” in the case of “[w]illful violations”). Given the unitary nature of the penalty, the term “violation of . . . any provision of section 5314” in subparagraph (A) cannot mean one thing in the context of non-willful violations (failure to file the consolidated report promulgated by the Secretary) and another thing in the context of willful violations (failure to include a reportable account in that consolidated report). See United States v. Boyd, No. 19-55585, 2021 WL 1113531, at *12 (9th Cir. Mar. 24, 2021) (Ikuta, J., dissenting).¹¹

2. The presumption of consistent usage — and a different application of the Russello presumption — carry the day for the Government's interpretation of § 5321(a)(5)(A)

The question remains whether the unitary “violation” of § 5314 dictated by the structure of § 5321(a)(5) pertains to the filing of the (one) required form or to the reporting of each reportable account. And on that score, the text of § 5321(a)(5) and the surrounding context of § 5321(a) establish that the referenced violation is account-based. Since the term “violation of . . . any provision of section 5314” (or the shorthand “violation”) appears not only in § 5321(a)(5)(A), but in §5321(a)(5)(B), (C), and (D) as well, any definitional clues from those other subparagraphs are highly relevant to the § 5321(a)(5)(A) inquiry. See IBP, Inc. v. Alvarez, 546 U.S. 21, 34 (2005) (referring to “the normal rule of statutory interpretation that identical words used in different parts of the same statute are generally presumed to have the same meaning”); see United States v. Castleman, 572 U.S. 157, 174 (2014) (Scalia, J., concurring) (referring to this principle as the “presumption of consistent usage”); Boyd, 2021 WL 1113531, at *12 (Ikuta, J., dissenting). The clearest textual clue comes from subparagraph (D), which refers to a willful “violation involving a failure to report the existence of an account or any identifying information required to be provided with respect to an account.” 31 U.S.C. § 5321(a)(5)(D)(ii); see id. § 5321(a)(5)(C) (referring to “willful violations” in the heading), (C)(i)(II) (incorporating subparagraph (D) by cross-reference). That this provision describes the relevant violation in terms of a failure to report (or accurately report) an account rather than a failure to file (or accurately file) the required report indicates that the word “violation” therein refers to account-based failures rather than form-based failures. Indeed, the District Court itself acknowledged (ROA.1569, ROA.1572) that the penalty applies on a per-account basis in the context of a willful violation. See Kimble v. United States, 141 Fed. Cl. 373 (2018), aff'd, ___ F.3d ___, 2021 WL 1081395 (Fed. Cir. Mar. 22, 2021); United States v. McBride, 908 F. Supp. 2d 1186 (D. Utah 2012); United States v. Williams, No. 1:09-cv-00437, 2014 WL 3746497 (E.D. Va. June 26, 2014) (remand op.). It follows that, under the presumption of consistent usage, the word “violation” in § 5321(a)(5)(A) — the provision encompassing both willful and non-willful violations — likewise refers to account-based failures rather than form-based failures.

Further support for that conclusion is found in § 5321(a)(5)(B)(ii), which provides that the penalty imposed by subparagraph (A) does not apply to any non-willful “violation” that is attributable to reasonable cause. See 31 U.S.C. § 5321(a)(5)(C)(ii) (providing that the reasonable-cause exception does not apply in the case of willful violations). In particular, subparagraph (B)(ii) limits the availability of the reasonable-cause exception (as relevant here) to situations where “the balance in the account . . . was properly reported.” 31 U.S.C. §5321(a)(5)(B)(ii)(II). The use of the singular “account” and “balance” in the phrase “the balance in the account” here indicates that the “violation” excused for reasonable cause relates to a single account. See also § 5321(a)(5)(D)(ii) (determining the amount of the penalty in the case of a willful violation by reference, in part, to “the balance in the account at the time of the violation”). Indeed, “[p]lacing the article 'the' in front of a word connotes the singularity of the word modified.” Renz v. Grey Advert., Inc., 135 F.3d 217, 222 (2d Cir. 1997); accord Rumsfeld v. Padilla, 542 U.S. 426, 434 (2004) (explaining that the “use of the definite article . . . indicates that there is generally only one” proper respondent to a petitioner's habeas petition). Again, if the word “violation” in subparagraph (B)(ii) refers to account-based failures, then, under the presumption of consistent usage, the word “violation” in subparagraph (A) likewise refers to account-based failures.

The surrounding context of § 5321(a) confirms that the term “violation of . . . any provision of section 5314” in § 5321(a)(5)(A) refers to account-based failures. Specifically, other (earlier enacted) penalty provisions in § 5321(a) demonstrate that Congress understood how to impose a form-based penalty when it chose to do so. For instance, § 5321(a)(2) imposes a penalty on any person “not filing a report, or filing a report containing a material omission or misstatement,” under another Bank Secrecy Act reporting requirement. And § 5321(a)(3), discussed supra at 57, imposes a penalty on any person “not filing a report” under yet another BSA reporting requirement. That Congress did not use similar report-filing language in § 5321(a)(5)(A) supports the conclusion, under the Russello presumption, that the term “violation of . . . any provision of section 5314” refers to each unreported (or misreported) account, not to an unfiled (or inaccurately filed) FBAR.

3. The courts that have rejected the Government's position, including the Ninth Circuit in Boyd, have followed the District Court's faulty rationale

We recognize that other courts, including the Ninth Circuit in Boyd, 2021 WL 1113531, have rejected the Government's interpretation of the statutes at issue here, and all have done so by largely adopting the District Court's faulty analysis here. See United States v. Kaufman, No. 3:18-cv-00787, 2021 WL 83478, at *10 (D. Conn. Jan. 11, 2021); United States v. Giraldi, No. 20-cv-02830, 2021 WL 1016215, at *4 (D. N.J. Mar. 16, 2021). We submit that those courts' interpretation of the statutes is highly strained and that Judge Ikuta's interpretation, in her dissent in Boyd, reflects the most natural reading of the statutes, is more faithful to principles of statutory interpretation, and is consistent with the policies underlying the Bank Secrecy Act.

Boyd involved an individual who held interests in 13 foreign accounts that were reportable as early as 2004, but she did not report any of the income from those accounts on her U.S. tax returns or file any FBARs. In 2012, Boyd sought to disclose her accounts to the IRS for the first time through the Offshore Voluntary Disclosure Program, and she submitted delinquent FBARs for prior years that accurately listed all of her accounts. The IRS determined that she was liable for penalties for non-willful failure to report her accounts for all of the years at issue, but it exercised its discretion to impose penalties for only one year (2010) and imposed a penalty of $47,279, rather than the statutory maximum of $130,000.

Like Bittner here, Boyd argued that she should be liable for a single penalty of $10,000. The district court rejected this view, but the Ninth Circuit, in a 2-1 opinion, reversed. In the majority's view, Boyd — despite her years of non-compliance — had committed a single violation: she was late in filing her otherwise accurate 2010 FBAR. Like the District Court here, the majority relied on Shultz to justify its “focus” on the regulations in determining what constitutes a “violation” of § 5314. Boyd, 2021 WL 1113531, at *4. The majority identified two requirements in the regulations: (1) a requirement to file a single FBAR form that provides all requested account information, and (2) a requirement to file the form by a certain date. In the majority's view, Boyd's accurate FBAR for 2010 violated only the second of these regulatory requirements and therefore was subject to a single $10,000 penalty. Id.

But as Judge Ikuta's dissent correctly explained, the majority conflated the statutory obligation to report each account with the regulatory procedure for doing so. The dissent correctly explained that “there is no language in the relevant statutes or regulations providing that it 'is the failure to file an annual FBAR that is the violation contemplated and that triggers the civil penalty provisions of § 5321.' Maj. at 12 [2021 WL 1113531, at *4] n.7 (quoting United States v. Bittner, 469 F. Supp. 3d 709, 718 (E.D. Tex. 2020)). Rather . . . the statute and regulations make clear that the requirement to report an account and the requirement to file a reporting form are distinct, and the violation of § 5314 described in § 5321 includes the failure to report the existence of an account before June 30, as required by § 1010.306(c).” Boyd, 2021 WL 1113531, at *11 (Ikuta, J., dissenting).

Moreover, the dissent correctly explained that the majority's opinion cannot be reconciled with the fact that the acts giving rise to a violation of § 5314 are the same whether the conduct is willful or non-willful. The dissent stated: “Nothing in the language of § 5321 suggests that Congress wanted the word 'violation' to have a different meaning in different subparagraphs. . . . [E]ven though subparagraphs (B) and (D) refer to different mens rea, the actus reus (the violation itself) is defined the same way — as 'any violation of, any provision of section 5314' — for violations that are both willful and not willful.” Boyd, 2021 WL 1113531, at *12 (Ikuta, J., dissenting). Thus, the dissent correctly rejected the notion that the failure to timely report a single account is an independent violation of § 5314 in the context of willful conduct, but not in the context of non-willful conduct.

Judge Ikuta concluded her dissent by positing that the majority had interpreted the statute and regulations “in a manner that unfairly favors the tax evader.” Boyd, 2021 WL 1113531, at *12 (Ikuta, J., dissenting). Indeed, when it enacted the Bank Secrecy Act, Congress was particularly concerned with the “impossible position” in which law enforcement personnel are placed when “confronted with the secret foreign bank account or the secret financial institution.” H.R. Rep. No. 91-975, at 12-13 (1970), reprinted in U.S.C.C.A.N. 4394, 4397-98. Each and every secret foreign account creates its own “impossible position” and investigation of each and every secret foreign account requires “a time consuming and oftimes fruitless foreign legal process.” Id. The Boyd majority's minimizing of this concern ignores that foreign accounts are maintained at not just one foreign bank, or in one foreign country, but are often spread around the world, a fact present in this case.

We submit that the majority decision in Boyd is wrong and that the dissent is correct. But we note that even if this Court were inclined to follow Boyd, this case is distinguishable. The Boyd majority repeatedly emphasized the fact that Boyd's delinquent FBAR for 2010 accurately reported all of her foreign accounts. 2021 WL 1113531, at *1, 2, 4, 5, 7. This fact was at the heart of the majority's determination that Boyd should face only a single $10,000 penalty. The majority stated that “even if the language could support separate non-willful penalties in a different factual scenario — like if an individual first failed to timely file an FBAR, and then filed an inaccurate one — we are not presented with those facts.” Boyd, 2021 WL 1113531, at *5. In this case, Bittner's first set of delinquent FBARs reported only one account, rather than the dozens of accounts he actually maintained. Thus, this Court should decline to follow Boyd, not only because it was wrongly decided, but because it is factually distinguishable.

D. Other problems with the District Court's opinion

1. The District Court's form-based approach is unworkable

It is not surprising that the form-based approach resulting from the District Court's faulty statutory analysis cannot logically be applied to many potential factual scenarios. The incompatibility of the District Court's holding with respect to the operation of the reasonable cause exception in § 5321(a)(5)(B)(ii), for example, is most clearly seen where different factual bases support non-willful failures to comply with the reporting requirements. For example, suppose a U.S. person who files a timely FBAR reports one foreign account accurately, but non-willfully omits three foreign accounts. For the omitted accounts, suppose further that the person did not know that she was a co-owner of the first account, that her accountant advised her she did not have to report the second account, and that she did not tell her accountant about the third account because it generated no income and she mistakenly believed that such accounts did not have to be reported. If a non-willful violation of § 5314 were a single, form-based violation, then the person in the scenario above would have to prove three separate reasonable-causes defenses to avoid a single maximum $10,000 non-willful penalty amount. The more natural interpretation of the reasonable-cause exception in § 5321(a)(5)(B)(ii) is that it applies on a per-account basis because a violation of § 5314 relates to one account.

The District Court's form-based approach is problematic outside the reasonable-cause context as well. In particular, given the unitary nature of the § 5321(a)(5) penalty, if § 5314 violations were form-based in the context of non-willful conduct, then they would have to be form-based in the context of willful conduct as well. But that would create problems in the situation where an FBAR presents both willful and non-willful violations. For example, suppose a U.S. person files a timely FBAR accurately reporting one account, non-willfully omitting one account for which she was not able to show reasonable cause, and willfully omitting a third account she wanted to conceal. Under a unitary form-based approach, it is unclear which penalty — and therefore which statutory maximum — would apply in that scenario.

2. The District Court's hypotheticals — one of which posits an erroneous outcome — do not support its claim of “absurd outcomes” resulting from the Government's position

Finally, we note that the hypotheticals posited by the District Court to demonstrate the “absurd outcomes” (ROA.1572) supposedly resulting from the Government's position do nothing of the sort. As indicated in the Statement of the Case, supra, the court first posited two individuals each holding $1 million in foreign accounts, one in 2 such accounts and one in 20 such accounts. (ROA.1572-1573.) Both non-willfully fail to file an FBAR reporting the accounts. Under an account-based reading of the statute, the first individual would be liable for a maximum penalty of $20,000 while the second individual would be liable for a maximum penalty of $200,000. (Id.) The court saw “nothing in the plain language of the statute or in Congress' declaration of purpose indicat[ing] that Congress intended to treat those two individuals differently” and thought it “odd not to penalize them equally.” (Id.) But as the Government explained below, the increase in investigation costs associated with multiple hidden accounts provides a perfectly reasonable explanation why Congress might have “intended to treat those two individuals [in the court's hypothetical] differently” (ROA.1574) notwithstanding the similarity in their aggregate account balances. In the absence of an accurate reporting of each foreign account, the Government may be required to conduct time consuming investigations around the globe, including in countries that do not have tax-information-sharing treaties with the United States. Such a state of affairs would contravene Congress's intent in enacting the Bank Secrecy Act in general and extending the application of the § 5321(a)(5) penalty to non-willful reporting violations in particular. See S. Rep. No. 108-192, at 108 (2003), 2003 WL 22668223 (Nov. 7, 2003); 2005 Joint Committee Report, JCS-5-05, 2005 WL 5783636, at *34.

As a second example of an “outcome [that] cannot be what Congress intended” (ROA.1575), the court posited a situation where A maintains 20 foreign accounts with an aggregate balance of $180,000 and B maintains 20 foreign accounts with an aggregate balance of $100,000. The court correctly noted that under the Government's position, if B non-willfully failed to report his accounts, he would be subject to a maximum penalty of $200,000 (20 x $10,000). Contrary, however, to its reference elsewhere to the “account specific” nature of “penalties . . . for willful violations” (see, e.g., ROA.1569, ROA.1572), the court surmised that if A willfully failed to report his accounts, he would be subject to a maximum penalty of only $100,000 (i.e., the greater of (I) $100,000, or (II) 50% of $180,000). See 31 U.S.C. § 5321(a)(5)(C)(i), (D)(ii). In fact, because (as the District Court acknowledges) the penalty clearly applies on a per-account basis in the context of willful violations, the maximum penalty for A's willful failure to report his accounts would be $2 million (20 x $100,000) rather than the $100,000 determined by the Court.¹²

Neither of the hypotheticals posited by the District Court supports its holding that the penalty under § 5321(a)(5)(A) applies on a per-form basis in the case of non-willful violations. To the contrary, they further confirm what the text, structure, and context of that section demonstrate: the penalty under § 5321(a)(5)(A) applies on a per-account basis, regardless whether the violation of § 5314 is willful or non-willful.

CONCLUSION

The District Court's judgment should be affirmed with regard to its holding that the Government was entitled to summary judgment on the reasonable cause issue, and reversed with regard to its holding that Bittner is liable for only a single $10,000 penalty with respect to each of the years at issue.

Respectfully submitted,

DAVID A. HUBBERT
Acting Assistant Attorney General

FRANCESCA UGOLINI (202) 514-1882
ARTHUR T. CATTERALL (202) 514-2937
PAUL A. ALLULIS (202) 514-5880
Attorneys
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044

Of Counsel:
NICHOLAS J. GANJEI
Acting United States Attorney

MARCH 26, 2021