Individual Argues Maximum Non-Willful FBAR Penalty Is $10,000

JANE BOYD
Defendant-Appellant
v.
UNITED STATES OF AMERICA,
Plaintiff-Appellee

In the
UNITED STATES COURT OF APPEALS
for the NINTH CIRCUIT

On Appeal from The
United States District Court for
The Central District of California
Case no. 2:18-cv-00803
Honorable Michael W. Fitzgerald

APPELLANT'S OPENING BRIEF

A. Lavar Taylor, Esq.
Jonathan T. Amitrano, Esq.
Law Offices of A. Lavar Taylor, LLP
3 Hutton Centre Dr., Suite 500
Santa Ana, CA 92707
Telephone: (714) 546-0445

Attorneys for Defendant-Appellant, Jane Boyd

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TABLE OF CONTENTS

TABLE OF AUTHORITIES

I. JURISDICTIONAL STATEMENT

II. INTRODUCTORY STATEMENT

III. STATEMENT OF ISSUE PRESENTED FOR REVIEW

IV. STANDARD OF REVIEW

V. STATEMENT OF THE CASE

VI. STATEMENT OF FACTS

VII. SUMMARY OF ARGUMENT

VIII. ARGUMENT

IX. CONCLUSION

ADDENDUM

STATEMENT OF RELATED CASES

CERTIFICATION OF COMPLIANCE

CERTIFICATE OF SERVICE

TABLE OF AUTHORITIES

Cases

Auer v. Robbins, 519 U. S. 452 (1997)

Bradley v. United States, 817 F.2d 1400 (9th Cir. 1987)

Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984)

Commissioner v. Acker, 361 U.S. 87 (1959)

Kisor v. Wilkie, __ U.S. __, 139 S. Ct. 2400 (2019)

Loving v. IRS, 742 F.3d 1013 (D.D.C 2014)

Rucker v. Davis, 237 F.3d 1113 (9^th Cir. 2001)

Skidmore v. Swift & Co., 323 U.S. 134 (1944)

Washington Mutual, Inc. v. United States 856 F.3d 711 (9th Cir. 2017)

Wood v. Commissioner, 95 T.C. 364 (1990), rev'd on other grounds, 955 F.2d 908 (4th Cir. 1992)

Statutes

1 U.S.C. §1

26 U.S.C. §6037

26 U.S.C. §6072

26 U.S.C. §6699

26 U.S.C. §6704

28 U.S.C. §1291

28 U.S.C. §1331

28 U.S.C. §1345

31 U.S.C. §5314

31 U.S.C. §5314(a)

31 U.S.C. §5321

31 U.S.C. §5321(a)(5)

31 U.S.C. §5321(a)(5)(A)

31 U.S.C. §5321(a)(5)(B)

31 U.S.C. §5321(a)(5)(B)(i)

31 U.S.C. §5321(a)(5)(B)(ii)

31 U.S.C. §5321(a)(5)(C)

31 U.S.C. §5322

31 U.S.C. §5322(a)

American Jobs Creation Act of 2004, Pub. L No. 108-357, 118 Stat. 1418 (2004)

Bank Secrecy Act, 31 U.S.C. §§ 5311-5325, 1970. Pub. L. 91-508, 84 Stat. 1114

Regulations

31 C.F.R. §1010.306

31 C.F.R. § 1010.306(c)

31 C.F.R. § 1010.306(d)

31 C.F.R. §1010.350

31 C.F.R. §1010.350 (a)

31 C.F.R. §1010.350(g)

31 C.F.R. §1010.350(g)(1)

31 C.F.R. §1010.350(g)(2)

31 C.F.R. §1010.81(g) (March 1, 2011)

Other Authorities

H.R. Conf. Report 108-755

Internal Revenue Manual Exhibit 4.26.16-2

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I. JURISDICTIONAL STATEMENT

Jane Boyd (“Boyd”) appeals from a Decision of the United States District Court for the Central District of California (“District Court”) in a suit brought by the United States against Boyd to reduce to judgment a penalty assessed against Boyd pursuant to 31 U.S.C. §5321(a)(5)(A). The District Court had jurisdiction under 28 U.S.C. §§1331 and 1345.

The District Court, the Honorable Michael W. Fitzgerald presiding, issued its Judgment in favor of the United States against Boyd on April 23, 2019. Docket Sheet Entry (“Docket”) No. 48, Excerpts of Record (“ER”) pp. 15. Boyd timely filed a Notice of Appeal on May 22, 2019. Docket No. 51, ER p. 1. This Court has jurisdiction under 28 U.S.C. §1291.

II. INTRODUCTORY STATEMENT

The present case involves an important issue of first impression, namely, whether the government can impose a penalty of greater than $10,000.00 on a U.S. person having control over multiple foreign bank accounts in a single calendar year when that person unintentionally (i.e., non-willfully) fails to timely file a single Foreign Bank Account Report¹ for that year. U.S. citizens and residents who have control over foreign bank accounts, the cumulative value of which exceeds $10,000.00 at any point in a calendar year, are required to file a single FBAR for that year, pursuant to 31 U.S.C. §5314 and 31 C.F.R. §1010.350. Boyd contends that the maximum possible penalty for a single unintentional (non-willful) failure to timely file one FBAR is $10,000.00, regardless of the number of foreign bank accounts over which the U.S. person had control during the relevant year. Per Boyd, the maximum possible penalty for an unintentional (non-willful) failure to timely file a single FBAR is $10,000.00, even if the person has control over multiple foreign accounts.

The government contends, and the District Court held, that the maximum possible penalty for a single non-willful failure to timely file one FBAR is $10,000.00 multiplied by the number of foreign bank accounts over which the U.S. person had control during the relevant tax year. Per the government and the District Court, the statutory maximum penalty is $150,000.00 if the person who non-willfully failed to timely file an FBAR for a given year had control over 15 different foreign accounts during that year.

As of the date of the submission of this brief, the District Court's ruling below is the only trial or appellate court to have addressed this issue. Thus, this is a case of first impression at the appellate level.

III. STATEMENT OF ISSUE PRESENTED FOR REVIEW

Where a U.S. Person unintentionally (non-willfully) fails to timely file a single FBAR, is the statutory cap on the penalty imposed by 31 U.S.C. §5321(a)(5)(A)&(B) $10,000.00, or, alternatively, is that statutory cap determined by multiplying $10,000.00 by the number of foreign bank accounts over which the U.S. person had control?

IV. STANDARD OF REVIEW

The issue raised in the present appeal is a legal issue which is reviewed de novo. Washington Mutual, Inc. v. United States, 856 F.3d 711 (9^th Cir. 2017).

V. STATEMENT OF THE CASE

The United States filed suit against Boyd to reduce to judgment a penalty assessment under 31 U.S.C. §5321(a)(5)(A) in the amount of $47,279.00 for Boyd's non-willful failure to timely file a single FBAR for the year 2010 on January 31, 2018. Docket No. 1. On February 11, 2019, the parties filed cross motions for summary judgment, along with declarations and exhibits. Docket Nos. 31, 32, and 33. Boyd's Motion for Summary Judgment raised two issues. First, Boyd argued that the maximum possible penalty for her non-willful failure to timely file her 2010 FBAR was $10,000.00. Boyd also argued that, if the Court agreed with her that the maximum possible penalty was $10,000.00, the amount of the penalty should be reduced to $5,000.00, based on the application of the IRS's internal “mitigation guidelines.” Defendant's Memorandum of Points and Authorities in Support of Motion for Summary Judgment at pp. 20-24, Docket No. 32, ER pp. 27-31.These are the same mitigation guidelines which the IRS relied upon to reduce Boyd's non-willful penalty to $47,279.00 from what the IRS contends is the statutory maximum penalty of $130,000.00. See Minute Order at p. 3, Docket No. 47, ER p. 6.

The IRS's Motion for Summary Judgment argued that the maximum possible penalty for Boyd's non-willful failure to timely file her 2010 FBAR was $10,000.00 multiplied by the number of foreign bank accounts over which Boyd exercised control during 2010. The IRS, in opposition to Boyd's Motion, also argued that, in event the statutory maximum penalty was $10,000.00, the penalty should not be reduced below $10,000.00 because the IRS was not legally bound to follow its own internal “mitigation guidelines” for purposes of computing the penalty. Plaintiff's Opposition to Defendant's Motion for Summary Judgment at p. 6, Docket No. 37, ER p. 26.

The District Court held that the statutory maximum penalty was $10,000.00 multiplied by the number of foreign accounts over which Boyd exercised control during 2010. Minute Order at pp. 5-9, Docket No. 47, ER pp. 8-12. Boyd did not dispute the manner in which the IRS applied its internal mitigation guidelines to reduce the penalty assessed against Boyd from $130,000.00 to $47,279.00, assuming, arguendo, that the statutory maximum penalty was $130,000.00 instead of $10,000.00. Minute Order at p. 9, ER p. 12. Thus, the District Court thus did not address Boyd's argument that the non-willful penalty should have been reduced below $10,000.00 based on the IRS's internal “mitigation guidelines.”

The District Court issued a minute order explaining the basis of its ruling on April 23, 2019 and issued a judgment in favor of the United States on that same day. Docket Nos. 47, 48. Boyd filed a timely Notice of Appeal on May 22, 2019. Docket No. 51, ER p. 1.

VI. STATEMENT OF FACTS

The following facts were not disputed by the parties, which is why the District Court was able to resolve the issue now on appeal by cross motions for summary judgment. The citations to the Excerpts of Record are to the statements contained in the District Court's Minute Order, except where the Minute Order does not discuss a particular fact.

During the year 2010, Jane Boyd, a U.S. citizen, had a financial interest in, and signature authority over, fourteen (14) financial accounts located in the United Kingdom (“UK”). ER p. 5. The total funds in these accounts exceeded $10,000.00 in the aggregate during 2010, triggering the requirement that Ms. Boyd file an FBAR for 2010. Id. Ms. Boyd failed to timely file her 2010 FBAR. That is because she was unaware of the requirement that she file an FBAR at the time her 2010 FBAR was due. Exhibit 59 to Plaintiff's Motion for Summary Judgment, p. USA_0275, at ¶12, ER p. 32.

Ms. Boyd became aware of the requirement to file a 2010 FBAR in 2012. She then applied for and was accepted into the IRS's Offshore Voluntary Disclosure Program (“OVDP”), an initiative designed to encourage non-compliant taxpayers with foreign bank accounts and other foreign assets to become compliant with U.S. FBAR laws and income tax laws. In October of 2012, Boyd filed an FBAR for the year 2010. She also amended her 2010 income tax return to report previously unreported interest income from her UK bank accounts. Boyd's UK bank accounts consisted primarily of funds which Boyd had inherited from her family in the UK. Id., at ¶¶7-9, ER p. 32. Boyd also filed FBARs and amended income tax returns for other years not at issue in the present case.

Boyd then requested to “opt out” of the OVDP. ER p. 5. By opting out of the OVDP, Boyd agreed that the IRS could audit her amended income tax returns, could review her failure to timely file FBARs, and could assert penalties for her failure to timely file FBARs if the IRS determined that such penalties were warranted. Id.²

The IRS investigated Boyd's 2010 FBAR and the circumstances resulting in her late filing of the 2010 FBAR. The IRS determined that Boyd's 2010 FBAR was complete and accurate, and the IRS further determined that Boyd's failure to timely file her 2010 FBAR was not intentional, i.e., that is was non-willful, for purposes of 31 U.S.C. §5321(a)(5). ER p. 5. The IRS thus determined that Boyd was liable for a non-willful penalty under §5321(a)(5)(A) for her failure to file a timely FBAR for 2010. ER pp. 5-7.

For purposes of computing the non-willful 2010 FBAR penalty, the IRS looked at the number of Boyd's foreign bank accounts during 2010. ER pp. 5-7. There were thirteen of these foreign accounts to which the IRS looked for purposes of computing the non-willful penalty assessed against Boyd. Id. While the IRS contends that it could have imposed a total non-willful penalty of up to $130,000.00, the IRS determined that Boyd qualified for a somewhat reduced total penalty based on the IRS's internal “mitigation guidelines” set forth in Exhibit 4.26.16-2 of the Internal Revenue Manual (“IRM”). Id. Using these mitigation guidelines, the IRS computed the total penalty as follows. For each of Boyd's seven UK bank accounts which contained at least $50,000.00 during 2010, the IRS included $5,000.00 in the total penalty, i.e., 7 multiplied by $5,000.00, for a subtotal of $35,000.00. For each of Boyd's six UK bank accounts which contained less than $50,000.00 during 2010, the IRS included 10% of the high account balance in each account in the total penalty, for a subtotal of $12,279.00. This resulted in a total non-willful FBAR penalty of $47,279.00. ER p. 6.

The IRS assessed this $47,279.00 penalty on June 9, 2016. ER p. 7.The IRS filed a timely suit to reduce this assessment to judgment on January 31, 2018. Docket No. 1, ER p. 7.

VII. SUMMARY OF ARGUMENT

The District Court erred when it concluded that the IRS can impose a penalty of up to $10,000.00 “per account” against a person who non-willfully fails to timely file a single FBAR. The Court should have held that the maximum possible penalty in this situation is $10,000.00. That is so for a number of reasons.

First, when a person non-willfully files an untimely FBAR that is accurate and complete, that person has complied with the law with one exception: they filed late. Because there is only one non-willful violation of the law, only be one penalty of up to $10,000.00 can be imposed by the IRS.

Second, a mere non-willful failure to timely file a single FBAR does not constitute multiple violations of the statute or regulations. The focus of the statute and regulation which impose the requirement to file FBARs is the filing of reports. The regulations make clear that only one FBAR per year is required to be filed. Because all of the information required to be reported to the IRS is contained in a single FBAR, it logically follows that the failure to timely file an FBAR is a single violation of the law, regardless of how many foreign accounts were involved.

The rationale relied upon by the District Court below and by the IRS would, if carried to its logical conclusion, permit the IRS to assess non-willful penalties of hundreds of thousands of dollars against a person who failed to timely file a single FBAR. The District Court concluded that a person with multiple foreign bank accounts who fails to timely file a single FBAR has committed multiple violations — one for each bank account that should have been disclosed on a timely filed FBAR, each of which is subject to a penalty of up to $10,000.00, because the applicable regulation requires every person who has control over a foreign bank account “to report such relationship” to the IRS “for each year in which the relationship exists . . .”

But this regulation also requires each person to “provide such information as shall be specified” in the FBAR. Because a person filing an FBAR must complete at least sixteen different fields and may have to complete well over 100 fields on the FBAR depending on the number foreign accounts involved, the logic behind the District Court's holding would permit the IRS to impose a non-willful penalty for failing to timely file an FBAR equal to $10,000.00 multiplied by the number of fields that the person was required to complete on the FBAR. That would permit the IRS to impose a penalty for a single non-willful failure to timely file an FBAR of hundreds of thousands of dollars. This result makes no sense.

The District Court below failed to address this point. The District Court improperly deferred to the position of the IRS merely because the IRS stated that its position is that “one, and only one, FBAR penalty may be assessed with respect to an undisclosed or improperly disclosed foreign financial account.” The District Court, instead of deferring to the government's own statement of its position, should have examined the logic behind the government's stated position and should have then determined whether this logic, if carried to its logical conclusion, would permit the government to take a position that leads to a nonsensical result.

Third, it makes no sense to permit the IRS to impose a “per account” penalty for a failure to timely file an FBAR, given that the number of foreign accounts held by a person is irrelevant for purposes of determining whether that person is required to file an FBAR. The only criteria for determining whether a person must file an FBAR is whether the value of that person's foreign accounts ever exceeded $10,000.00 in a given year. It would be incongruous to impose a non-willful penalty for failure to timely file an FBAR based on the number of the person's foreign accounts when the number of the person's foreign accounts is not used to determine whether or not an FBAR must be filed in the first place.

Fourth, the language of the subsections of the statute which authorizes the IRS to impose a non-willful penalty for the failure to timely file an FBAR, 31 U.S.C. §§5321(a)(5)(A) and (B), makes no mention of “accounts” or “relationships.” Nor does this language indicate that such a penalty can be imposed on a “$10,000.00 per account” basis. In fact, the statutory language indicates that a non-willful penalty for a failure to timely file an FBAR should never exceed $10,000.00.

The absence of any language permitting the IRS to impose a non-willful penalty for untimely filing an FBAR on a “per account” basis provides particularly compelling support for Boyd's position, given that Congress has made clear in other statutes that it knows how to impose a late-filing penalty for a form or report by looking to the number of people or the number of “things” to which the form or report relates. See, e.g., 26 U.S.C. §6699, which imposes a penalty for late filing of a Form 1120S, Corporate Income Tax Return for Subchapter S Corporations, based on the number of shareholders of the corporation.

Fifth, the Court below erred in looking to the language of §5321(a)(5)(B)(ii) in an effort to justify its holding. This particular subsection does not impose any penalties. Rather, this subsection permits persons who violate the FBAR provisions to potentially avoid penalties for failing to timely file an FBAR if the failure to timely file was due to reasonable cause. The District Court should have looked to the subsection of the statute which imposes the penalty to resolve the issue at hand, not to the subsection of the statute which allows those who violated the rules to avoid the imposition of the penalty.

Furthermore, the use of the word “account,” instead of the word “accounts,” in §5321(a)(5)(B)(ii), has no legal significance in the context of the present matter. Congress, in enacting 1 U.S.C. §1, provided that, for purposes of interpreting a federal statute, “words importing the singular include and apply to several persons, parties or things,” unless the context indicates otherwise. The context in the present matter is that the subsection upon which the District Court relied was enacted for the benefit of those who have violated the FBAR laws. Thus, it is not appropriate to rely on the use of the word “account” (as opposed to “accounts”) in this subsection to permit the IRS to impose significant non-willful penalties for failure to timely file an FBAR.

Sixth, the contrasting language in subsection 5321(a)(5)(C), which permits the IRS to impose significantly larger penalties for willful violations of the FBAR rules, supports the conclusion that any penalty for a non-willful failure to timely file an FBAR should be limited to no more than $10,000.00.

Seventh, the government's position in the present case that a person with multiple foreign bank accounts who non-willfully fails to timely file one FBAR has committed multiple “violations” of the FBAR rules, each of which can be penalized up to $10,000.00, is completely at odds with the government's position as to what constitutes a “violation” for purposes of the parallel criminal provisions in §5322. When prosecuting defendants for a criminal failure to file an FBAR under §5322, the government has taken the position that a single failure to file an FBAR constitutes a single “violation” of the FBAR rules. The government's position in criminal FBAR cases is consistent with Boyd's position in the present case and is completely inconsistent with the government's position in the present case. If the government's position in the present case were extended to criminal cases, a criminally willful failure to file a single FBAR involving a defendant with multiple foreign bank accounts would permit the government to charge the defendant with one count for each of the foreign accounts over which the defendant had control. A defendant with 10 foreign accounts thus could be imprisoned for up to 50 years for criminally willful failure to file a single FBAR. Such a result makes no sense.

Eighth, statutes imposing penalties are to be strictly construed against the government. Given the absence of any language in subsections 5321(a)(5)(A) and (B) stating that the IRS may impose a “$10,000.00 per account” penalty for a failure to timely file a single FBAR, this rule of lenity supports a conclusion that the maximum possible penalty that may be assessed against Boyd for her non-willful failure to timely file her 2010 FBAR is $10,000.00.

The government did not argue below that its interpretation of the statute as set forth in the regulations was entitled to deference under cases such as Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984). The District Court noted the government's failure to make this argument but commented in its ruling that any such deference would only bolster the government's case. Such a comment illustrates the problematical nature of the District Court's holding. The regulations at issue in this case do not purport to interpret the language of subsections 5321(a)(5)(A) and (B), the subsections which impose non-willful penalties for a failure to timely file an FBAR. Thus, there is no position in the regulations on this issue to which the Courts can defer.

Finally, Boyd notes that the government argued below that the IRS's internal mitigation guidelines are not “binding” on the IRS and that the IRS is free to disregard these internal guidelines whenever the IRS deems it appropriate to do so. This fact illustrates that this Court cannot rely on any representations by the government that the existence of the mitigation guidelines eliminates the need to be concerned about the IRS imposing large non-willful FBAR penalties if the holding of the District Court is affirmed.

VIII. ARGUMENT

A. The Maximum Possible Penalty Where a U.S. Person Non-Willfully Fails to Timely File an FBAR for a Given Year is $10,000.00

The Court below erred in concluding that the IRS may impose a penalty for a non-willful failure to timely file an FBAR for a single year of more than $10,000.00. There are multiple reasons why this is so, including the fact that neither the statutory language nor the language of the applicable regulations support such a result. Before setting forth all of the reasons why the maximum possible non-willful penalty is limited to $10,000.00 in this situation, Boyd reiterates the circumstances under which the IRS seeks to impose a “per account” penalty that totals more than $10,000.00 for Boyd's non-willful failure to timely file a 2010 FBAR.

First, Boyd was unaware of the requirement to file her 2010 FBAR as of June 30, 2011, the “due date” of Boyd's 2010 FBAR. Second, in 2012 Boyd became aware that she had been required to file an FBAR for 2010. Third, after becoming aware that she had been required to file an FBAR for 2010, Boyd promptly entered the OVDP and filed her 2010 FBAR. Fourth, the IRS reviewed Boyd's 2010 FBAR and agreed that it was complete and correct. Finally, the IRS agreed that Boyd's failure to timely file her 2010 FBAR was unintentional, i.e., it was not “willful” for purposes of §5321(a)(5).

B. The Statutory and Regulatory Scheme

1. The Provisions Which Impose the Requirement to File FBARs

Congress enacted the Bank Secrecy Act, 31 U.S.C. §§ 5311-5325, in 1970. Pub. L. 91-508, 84 Stat. 1114. Section 5314(a) of Title 31 obligates the Secretary of the Treasury to require U.S. citizens (and certain other persons) to keep records and file reports when such citizens (or other persons) make a transaction or maintain a relation for any person with a foreign financial agency. This statute thus mandates the filing of “reports,” but the statute only broadly defines the type of information to be included in the reports that must be filed with the government. This statute also grants the Secretary the authority to determine what information must be included in the reports to be filed with the government and to create exemptions from the reporting requirements. The statute requires the Secretary, in determining what information to include in the reports, to “[consider] the need to avoid burdening unreasonably a person making a transaction with a foreign financial agency.” 31 U.S.C. § 5314(a).

31 C.F.R. § 1010.350 sets forth more detailed requirements regarding the reports relating to foreign bank accounts that must be filed pursuant to §5314(a). Subsection (a) of this regulation provides in relevant part:

(a) In general. Each United States person having a financial interest in, or signature or other 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. The form prescribed under section 5314 is the Report of Foreign Bank and Financial Accounts (TD-F 90-22.1), or any successor form.

Other subsections of this regulation address topics such as 1) what persons are required to file these reports (subsection b), the types of foreign accounts to which the reporting requirement applies (subsection c), the definition of “foreign country' (subsection d), the definition of a “financial interest” in a foreign account (subsection e), the definition of “signature or other authority” over a foreign account (subsection f), and “special rules” (subsection g).

Subsection (c) of 31 C.F.R. § 1010.306 provides that, if the foreign accounts over which a person has control cumulatively exceed $10,000.00 in value during a year, an FBAR must be filed by June 30 of the year after the year to which the FBAR relates. Subsection (d) of this same regulation provides that reports required by, inter alia, § 1010.350, must be filed on forms prescribed by the Secretary and must include all information called for in such forms.

The last important source of the requirements governing the filing of FBARs is the FBAR itself and the instructions accompanying the FBAR, since neither the statute nor the regulations specify a particular format for the report. A copy of a blank 2010 FBAR (Form TD-F 90-22.1), including the instructions, can be viewed at this link: (https://www.fincen.gov/sites/default/files/shared/f9022-1_fbar.pdf (last viewed November 2, 2019) and can be found at ER pp. 37-40.

A review of the statute, the regulations, and the FBAR itself reveals several important points. First, FBARs are filed on an annual basis, i.e., only one report per year is required to be filed, regardless of the number of foreign accounts over which the person filing the FBAR has control in a given year. 31 C.F.R. § 1010.350(a). For the year 2010, FBARs were required to be filed by June 30, 2011. 31 C.F.R. § 1010.306.

Second, a person is not required to file an FBAR for a particular year unless the aggregate value of the person's foreign accounts exceeds $10,000.00 during that year. 31 C.F.R. § 1010.306(c). This threshold filing requirement is not tied to the number of foreign bank accounts over which a person has control during a particular year. Rather, the filing threshold is instead tied to the total value of a person's foreign bank accounts. If a person has control over fifteen foreign bank accounts the cumulative value of which never exceeds $10,000.00 during the year, no FBAR is required to be filed. Conversely, if a person has control over one foreign bank account the value of which exceeds $10,000.00 during the year, an FBAR is required to be filed.

Third, the FBAR requires the filer of that form to provide detailed information regarding the person/entity filing the FBAR. Part I of the FBAR contains fourteen different fields of information that the filer of the FBAR must complete.

Fourth, the filer of the FBAR is required to provide detailed information regarding each foreign bank account over which they have control, but only if the filer of the FBAR has control over 24 or fewer foreign bank accounts. Part II of the 2010 FBAR contains 9 separate fields of information that the filer of the FBAR is required to complete for each foreign account which the filer owns separately. Part III. of the 2010 FBAR contains 19 separate fields of information that the filer of the FBAR is required to complete for each foreign account which the filer owns jointly. Part IV of the 2010 FBAR contains 19 separate fields of information that the filer of the FBAR is required to complete for each foreign account over which the filer has signature authority but no financial interest in the account(s). Part V of the 2010 FBAR contains 16 fields of information which the filer is required to complete where the filer is filing a consolidated report.

But, if the filer has control over 25 or more foreign accounts, the filer is not required to include any information regarding the foreign bank accounts for which the filer is the sole owner or a joint owner. Rather, the filer includes only the required information regarding the filer in Part I, checks the box indicating that they have control over 25 or more foreign accounts, and leaves blank Parts II and III. of the FBAR. See 31 C.F.R. §1010.350(g)(1) and (2), 2010 FBAR, Part 1, field 14, General Instructions to 2010 FBAR, page 7, item 14.

2. The Statutory Penalties for Failure to Comply With the FBAR Filing Requirements

The penalties for failure to comply with the FBAR filing requirements are set forth in separate sections of Title 31, §§5321 and 5322. There are three types of penalties that may be imposed on a person required to file an FBAR who fails to timely file that FBAR: 1) a civil penalty for a non-willful failure to timely file an FBAR, imposed pursuant to 31 U.S.C. §§5321(a)(5)(A) and (B), 2) a civil penalty for a willful failure to timely file an FBAR, imposed pursuant to 31 U.S.C. §5321(a)(5)(C), and c) criminal penalties for a criminally willful failure to timely file an FBAR, imposed pursuant to 31 U.S.C. §5322(a).

Section 5321(a)(5)(A) permits the Secretary of the Treasury to impose a civil money penalty on any person who violates, or causes any violation of any provision of §5314. Section 5321(a)(5)(B)(i) provides that, except as provided by §5321(a)(5)(C), which applies to willful violations, “the amount of any civil penalty imposed under subparagraph (A) shall not exceed $10,000.”

Section 5321(a)(5)(B)(ii) permits persons who have non-willfully violated the FBAR rules to avoid the imposition of any penalty if the violation was due to reasonable cause and “the amount of the transaction or the balance in the account at the time of the transaction was properly reported.”

Subsection 5321(a)(5)(C) sets forth the maximum possible civil penalty when there has a been a willful violation of section 5314. Subsection 5321(a)(5)(C) provides that, “[i]n the case of any person willfully violating, or willfully causing any violation of, any provision of section 5314”, the maximum penalty under subparagraph (B)(i) shall be the greater of $100,000, or 50 percent of the “amount determined under subparagraph (D).” That amount is the “balance in the account at the time of the violation.”

Section 5322 provides that a person willfully violating the provisions of subchapter II of Chapter 53 of Subtitle IV of Title 31, which consists of sections 5311 through 5332, or a person willfully violation a regulation or order issued under that subchapter, may be imprisoned for up to 5 years and/or fined up to $250,000.00.

Thus, there effectively is a three-tiered penalty system: 1) civil penalties for non-willful violations, 2) civil penalties for willful violations, and criminal penalties for criminally willful violations. Only the degree of culpability of the person who violates the relevant statutes and regulations distinguishes these types of penalties. The conduct which violates the law, resulting in either civil penalties or incarceration and criminal fines, is the same under each of the three penalty tiers.

Prior to 2004, only “willful” violations of the FBAR statutes and regulations could result in the imposition of a civil penalty under section 5321(a)(5). As the result of the enactment of the American Jobs Creation Act of 2004, Pub. L No. 108-357, 118 Stat. 1418 (2004), at section 821, 118 Stat. 1586, the provisions in subsections 5321(a)(5)(A) and (B) allowing the imposition of a civil penalty for non-willful violations of the FBAR statutes and regulations were added. A discussion of this provision is contained in the Conference Report accompanying this legislation. H.R. Conf. Report 108-755 at pp. 614-615. A copy of the relevant language of this Report is set forth in the Addendum.

C. The Reasons Why The Maximum Possible Non-Willful Penalty for Boyd's Failure to Timely File Her 2010 FBAR is $10,000.00

Boyd now explains the reasons why, in light of the statutes and regulations discussed above, the maximum possible non-willful penalty for her failure to timely file her 2010 FBAR is $10,000.00. In this regard, Boyd focuses on the language of the relevant statutes and regulations. The legislative history of the 2004 amendments to the Bank Secrecy Act, to the extent legislative history remains relevant to interpreting the statute, is not very helpful to a resolution of this appeal. See H.R. Conf. Report 108-755, supra, at pp. 614-615.

1. Boyd Violated Only One Regulation When She Filed Her 2010 FBAR Late And Thus Is Only Liable for One Penalty of up to $10,000.00

When Boyd failed to file her 2010 FBAR timely, she violated the provisions of 31 C.F.R. § 1010.306(c), which required her to file her 2010 FBAR by June 30, 2011. Boyd, when she untimely filed her 2010 FBAR, otherwise complied with the relevant provisions in Title 31 and the applicable regulations. She filed the report required by section §5314 and 31 C.F. R. § 1010.350. The 2010 FBAR filed by Boyd was both accurate and complete; the IRS verified that it contained all of the necessary information required by 31 C.F.R. § 1010.350 and the instructions accompanying the FBAR, in compliance with 31 C.F.R. § 1010.306(d).

Because Boyd, in filing an untimely 2010 FBAR, only violated a single regulation, 31 C.F.R. § 1010.306(c), she only did one thing wrong. Simple logic dictates that she should be liable for one penalty of no more than $10,000.00. That should be the beginning and the end of the matter.

2. The Failure to Timely File an FBAR Does Not Constitute Multiple “Violations” of the Law

The heart of the government's position, and of the District Court's ruling below, is that a person who fails to timely file an FBAR for a given year has failed to timely disclose the existence of the foreign bank accounts to the government and thus has committed a separate “violation” of the law for each foreign bank account over which the person had control. ER pp. 8-12. It appears that basis of this argument is the language in 31 C.F. R. § 1010.350, which states that every person who has control over a foreign bank account “shall report such relationship to the Commissioner of Internal Revenue for each year in which such relationship exists.” Per the government, each account constitutes a separate “relationship” which needs to be “reported” to the IRS. Each failure to timely report a “relationship” is supposedly a separate “violation” which supposedly can be penalized with a penalty of up to $10,000.00.

Both the District Court's and the government's logic is flawed. First, the focus of §5314 and 31 C.F. R. §1010.350 is the filing of “reports.” As is discussed above, the applicable regulations require that only one report per year be filed. Because all “relationships” in a given year are reported on a single FBAR, it logically follows that the failure to timely file an FBAR is a single violation of the law.

Second, the regulation does not just require persons to “report such relationship” to the IRS; the regulation also requires persons to “provide such information as shall be specified in a reporting form prescribed under 31 U.S.C. §5314 to be filed by such persons.” Thus, using the same flawed logic applied by the government and by the Court below, the untimely filing of an FBAR arguably constitutes multiple violations of the law, one for each field of information shown on the FBAR which the person was required to complete and submit on a timely filed FBAR, each of which supposedly can be punished with a $10,000.00 penalty if the failure to timely file the FBAR was not willful.

Given that the number of fields required to be filled in on an FBAR can range from 14 fields at the very minimum to well over 100 fields,³ under the position urged by the government and adopted by the Court below, the IRS would be permitted to assert non-willful penalties totaling hundreds of thousands of dollars based on a single non-willful failure to timely file an FBAR by a person such as Boyd, who had thirteen foreign bank accounts in 2010. In Boyd's case, the number of fields that Boyd was required to complete exceeded 100. ER pp. 33-36. Applying the District Court's flawed logic, the potential non-willful penalty for Boyd could have exceeded $1 million.

Adopting an interpretation of the law which would permit the IRS to impose hundreds of thousands of dollars (or more) in penalties for a single non-willful failure to timely file an FBAR leads to absurd results. There is no indication that Congress intended to give the IRS the authority to assert non-willful penalties of this magnitude, based on a single failure to timely file an FBAR.

Notably, when a person has 25 or more foreign bank accounts, the number of fields which that person must complete on the FBAR declines significantly. See ap. 18-19, supra, 31 C.F.R. § 1010.350(g). Thus, applying the flawed logic of the Court below, those persons who have 25 or more bank accounts would face significantly reduced monetary exposure for penalties in the event of a non-willful failure to timely file an FBAR, as compared to the monetary exposure of those persons who had more than 1 but less than 25 foreign accounts. This result is likewise absurd.

The Court below, when faced with Boyd's arguments on this point, stated that “[t]his question, however, is not presented in this action,” and further stated that “[i]n any event, the Government's position is that 'one, and only one, FBAR penalty may be assessed with respect to an undisclosed or improperly disclosed foreign financial account.'” ER p. 11.

The District Court's approach permits the government to prevail under the doctrine of “ipse dixit.” That is impermissible. See Loving v. IRS, 742 F.3d 1013, 1016 (D.D.C. 2014). The fact that the government is relying on a flawed rationale to support its position does not make that rationale any less flawed merely because the government currently is refusing to carry that rationale to its logical conclusion when imposing non-willful penalties under §5321(a)(5)(A). The Court below erred in deferring to the IRS's position merely because the IRS is failing to follow the logic upon which it relies to its logical conclusion. That error is particularly pronounced given that the IRS has not argued for any deference by the Courts to its position. See infra, at pp. 41-42.

The Courts have a duty to determine whether the rationale relied upon by the IRS in support of its position would, if carried to its logical conclusion, lead to odd or absurd results. See Rucker v. Davis, 237 F.3d 1113, 1119 (9^th Cir. 2001) (“We will not assume that Congress intended a statute to create odd or absurd results”). In the present case, the rationale relied upon by the Court below (and relied upon by the government in support of its position) would, if carried to its logical conclusion, lead to absurd results by allowing the IRS to assess massive non-willful FBAR penalties based on a single failure to timely file and FBAR. Thus, the District Court erred in sustaining the government's position.

3. It Makes No Sense to Permit the IRS to Impose a “Per Account” Penalty Given the Nature of the Filing Threshold

The District Court's holding that the number of accounts is relevant to determining the maximum possible penalty for a non-willful failure to timely file an FBAR was erroneous for an additional reason. The number of foreign bank accounts held by a person is irrelevant for purposes of determining whether that person is required to file and FBAR for any given year. A person can have 20 (or more) foreign bank accounts in a given year, but if the cumulative value of these foreign bank accounts never exceeds $10,000.00 in a given year, that person is not required to file an FBAR.

The event triggering the requirement to file an FBAR is the cumulative value of the foreign accounts exceeding $10,000, not the number of foreign accounts. 31 C.F.R. §1010.306. It is incongruous to impose a penalty for a non-willful failure to timely file an FBAR on a “per account” basis when the number of bank accounts is irrelevant to determining whether the FBAR is required to be filed in the first place. That is so particularly in the absence of any language in the statute which specifically allows a penalty for a non-willful failure to timely file an FBAR to be computed on a “per account” basis.

4. The Statutory Language Indicates That the Penalty for Non-Willful Failure(s) to Comply with the FBAR Provisions Should Never Exceed $10,000.00

The language of §§5321(a)(5)(A) and (B), which authorizes the IRS to impose a penalty for a non-willful failure to timely file an FBAR, likewise supports Boyd's position that the maximum possible penalty for Boyd's non-willful failure to timely file her 2010 FBAR is $10,000.00. This language makes no mention whatsoever of “accounts” or “relationships.” A review of the language in the portion of the statute which governs the imposition of non-willful FBAR penalties, §§5321(a)(5)(A) and (B), shows that there is no language whatsoever stating (or even suggesting) that a non-willful penalty should be computed on a “per account” basis.

The statutory language strongly suggests just the opposite. It states that the IRS “may impose a civil penalty on any person who violates, or causes any violation of, any provision of section 5314.” 31 U.S.C. §5321(a)(5)(A). The language then goes on to state that, subject to §5321(a)(5)(C), “the amount of any civil penalty . . . shall not exceed $10,000.” 31 U.S.C. §5321(a)(5)(B)(i).

This language supports a holding that a non-willful penalty for a failure to comply with the FBAR rules for a given year should never exceed $10,000.00. Under this logical reading of the statute, the entire subject of the “number of foreign accounts,” and whether there are multiple “violations” of the law as the result of a single non-willful failure to timely file an FBAR, become irrelevant for purposes of determining the maximum possible non-willful penalty. Congress viewed non-willful violations of the FBAR rules as relatively minor infractions and directed the IRS to treat them as such by limiting the total penalty to $10,000.00 whenever the person's failure to comply with the rules was non-willful. This renders moot any discussion of whether there were multiple “violations” of the law. Such a result makes far more sense than the implausible interpretation adopted by the District Court below, which would permit the IRS to impose large penalties for non-willful failures to timely file FBARs.

The complete absence in the statutory language of any reference to the use of the number of foreign bank accounts to compute a non-willful penalty for a failure to timely file an FBAR is particularly compelling support for Boyd's position, given that Congress has, in other contexts, made it very clear when they want to compute the penalty for the failure to timely file a single form by looking to the number of people or to the number of “things” to which the form relates.

For example, 26 U.S.C. §6699 imposes a penalty for the late filing of a single income tax return (Form 1120S) of a so-called “Subchapter S corporation.” Subchapter S corporations generally pay no income taxes themselves. Rather, as a general matter, the income of Subchapter S corporations flows through to and is reported by the shareholders of those corporations. In this regard, a Form 1120S normally is an “information return” similar to an FBAR. Forms 1120S, like FBARs, are filed on an annual basis. 26 U.S.C. §§6037, 6072.

Under §6699, if the S Corporation files an untimely Form 1120S, a penalty is imposed for the late filing of that return. Per the statutory language, the penalty is computed as follows for each month for which the Form 1120S is late:

(1) $195, multiplied by (2) the number of persons who were shareholders in the S corporation during any part of the taxable year.

This illustrates that Congress knows how to impose a non-willful penalty for the failure to timely file a form such as an FBAR that is computed by looking to the number of accounts required to be reported on an FBAR. See also 26 U.S.C. § 6704 (imposing a penalty for failure to keep records computed by multiplying $50 by the number of persons for whom records are required to be kept).

Congress failed to include in 31 U.S.C. §5321(a)(5)(A) any language that is comparable to the explicit language contained in 26 U.S.C. §6699. The absence of any such language supports a conclusion that the non-willful penalty for a failure to timely file an FBAR should not be computed on a “per account” basis.

5. It is Improper to Look to the Language of §5321(a)(5)(B)(ii) to Determine the Manner in Which a Penalty for a Non-Willful Failure to Timely File an FBAR Is Computed; And in Any Event, the Language of This Subsection Does Not Support the Holding of the District Court

The District Court relied on the language of §5321(a)(5)(B)(ii) in support of its holding that the maximum possible penalty for a non-willful failure to timely file an FBAR is determined on a “per account” basis. The District Court erred in relying on this language.

Subsection 5321(a)(5)(B)(ii) sets forth an exception to the rule permitting the IRS to impose a penalty for a non-willful violation of §5314. This subsection permits persons who non-willfully violate the FBAR rules to escape the imposition of a penalty for such violation if they demonstrate that the violation was “due to reasonable cause” and if “the amount of the transaction or the balance in the account at the time of the transaction was properly reported.” The District Court thought it significant that the statute uses the word “account” as opposed to the word “accounts,” and held that the absence of the letter “s” at the end of the word “account” means that the penalty for a non-willful failure to timely file and FBAR should be computed on a “per account” basis. ER p. 10.

The District Court simply looked in the wrong place for the relevant statutory language. For purposes of determining how to compute the maximum possible penalty for a non-willful failure to timely file an FBAR, the appropriate language to consider is the language which permits the IRS to impose the penalty, not the language which allows persons to avoid the imposition of the penalty. The language which imposes the penalty is contained in subsections 5321(a)(5)(A) and (B). The language imposing the penalty is not contained in subsection 5321(a)(5)(C), which contains the language that was relied upon the District Court.

It is most unusual that the District Court relied upon a subsection that was enacted for the benefit of persons potentially subject to a penalty for non-compliance with the FBAR provisions, i.e., the “reasonable cause” clause, to support a conclusion that permits the IRS to impose very large penalties on persons who non-willfully fail to timely file their FBARs. The logical focus of the Court's inquiry should have been the language of subsections 5321(a)(5)(A) and (B), not subsection 5321(a)(5)(C). The language of subsections 5321(a)(5)(A) and (B) does not contain the word “account” or “accounts.”

Not only did the District Court look at the wrong subsection for purposes of determining the maximum possible penalty that can be imposed for a non-willful failure to timely file an FBAR, the District Court also attached far too much significance to the absence of a letter “s” at the end of the word “account.” Congress, in 1 U.S.C. §1, provided that “[i]n determining the meaning of any Act of Congress, unless the context indicates otherwise — words importing the singular include and apply to several persons, parties or things.”

As was mentioned immediately above, the subsection that contains the word “account” is a subsection that was enacted for the benefit of persons potentially subject to FBAR penalties. Thus, the “context” of the use of the word “account” indicates that the use of the singular word “account” was not intended to promote a construction of subsections 5321(a)(5)(A) and (B) which allows the IRS to impose large penalties for a person's non-willful failure to timely file an FBAR. Rather, the context indicates that the Courts should apply the provisions of 1 U.S.C. §1 and conclude that the word “account” also refers to and include “accounts” for the purpose of allowing persons to escape the imposition of the penalty where there is “reasonable cause” for the violation.

Although Boyd argued in her Opposition to the government's Motion for Summary Judgment that the District Court below should rely on 1 U.S.C. §1 to rule in Boyd's favor, the District Court failed to mention 1 U.S.C. §1 in its Minute Order and otherwise failed to address this argument in its Minute Order.

6. The Contrasting Language Used in the Section Imposing Willful Penalties Also Supports a Reversal of the District Court's Holding

A review of the language in subsection 5321(a)(5)(C) permitting the IRS to impose significantly larger penalties for willful violations of the FBAR rules also supports Boyd's position. That language, in contrast to the language in subsections 5321(a)(5)(A) and (B), does include the word “account.” The failure by Congress to include the word “account” in subsections 5321(a)(5)(A) and (B), while including the word “account” in subsection 5321(a)(5)(C), strongly suggests that Congress did not intend to compute the penalty for a non-willful failure to timely file an FBAR on a “per account” basis.

Moreover, the use of the word “account” in subsection 5321(a)(5)(C) does not expressly indicate that the number of accounts is relevant for purposes of computing the penalty for a willful failure to timely file an FBAR. Rather, the statutory language indicates that such a penalty is computed by looking to the balances in the account or accounts as of the date of the violation, rather than by looking to the number of accounts. In other words, it appears that the provisions of 1 U.S.C. §1 apply to subsection 5321(a)(5)(C) as well. Thus, the number of accounts is not relevant to the computation of a penalty for a willful failure to timely file an FBAR either.

7. The District Court's (And IRS's) Interpretation of the Law Results in Inconsistent Treatment of Similarly Situated Taxpayers

The District Court's holding that the maximum penalty for a non-willful failure to timely file an FBAR should be determined on a “per account” basis, with a statutory penalty cap of $10,000.00 “per account,” will result in significantly different treatment of similarly situated taxpayers. That becomes obvious when considering the facts in the present case.

The government contends that Boyd may be penalized up to $130,000.00 because she had 13 foreign bank accounts. Suppose, however, that Boyd had closed all but one of her foreign accounts prior to 2010 and had placed all of her UK funds in that one foreign account. In that situation, the IRS could only penalize Boyd $10,000.00 for her non-willful failure to timely file her 2010 FBAR.

Thus, under the District Court's (and IRS's) interpretation of the law, persons who have identical amounts of money in foreign bank accounts can be penalized for a non-willful failure to timely file an FBAR in vastly different amounts, merely because one of them has multiple foreign accounts and the other has only one foreign account. Such disparate treatment of similarly situated persons does not make sense.

A second hypothetical further illustrates the absurd results that can occur based upon the holding of the District Court below. Suppose that Person 1 has ten foreign accounts, each with $10,000.00, and that Person 1 non-willfully fails to timely file an FBAR. Per the District Court, the IRS can impose a penalty of up to $100,000.00 on Person 1. Suppose that Person 2 has a single foreign account with $900,000.00 and that Person 2 non-willfully fails to timely file an FBAR. The IRS can only penalize Person 2 up to $10,000.00. Thus, Person 2, who has nine times the amount of funds in foreign accounts compared to Person 1, has a maximum non-willful penalty exposure that is only 11% of Person 1's maximum non-willful penalty exposure. This result makes no sense. Thus, the “$10,000.00 per account” approach to determining the maximum possible non-willful penalty for a failure to timely file an FBAR is improper.

8. The Government's Interpretation of §5321 Is Inconsistent with the Government's Interpretation of §5322, Even Though Both Statutes Impose Penalties for the Same Conduct

The government's position as to what constitutes a “violation” for purposes of the criminal penalty provisions in 31 U.S.C. § 5322 is completely inconsistent with the government's position as to what constitutes a “violation” for purposes of the civil penalty provisions of 31 U.S.C. §5321(a)(5), even though both sections “punish” identical conduct. In the present case, the government contends that, where a person that has multiple foreign accounts fails to timely file an FBAR, there are as many “violations” under 5321(a)(5) (each supposedly punishable by up to $10,000.00 if the failure to file the FBAR was non-willful) as there were foreign accounts in existence during the relevant year.

The government, to the best of Boyd's knowledge, has never taken the position that a single failure to file an FBAR by a person with multiple foreign accounts constitutes multiple criminal violations in a criminal case brought under 5322 for failure to file an FBAR. Rather, the government has taken the position that each annual failure to file an FBAR constitutes a single “violation” of the law under §5322, even where the defendant had control over multiple foreign bank accounts. This point is illustrated by the government's superseding indictment brought against Paul Manafort on February 22, 2018, a copy of which can be found at https://www.courtlistener.com/docket/6314202/9/united-states-v-manafort/ (last viewed November 5, 2019).

In that superseding indictment at paragraph 15, the government alleged that Manafort controlled many different foreign accounts held in the names of nominee foreign corporations during the four years covered by the indictment. Yet at paragraphs 49 and 50 of this superseding indictment, the government charged Manafort with only one count of willfully failing to file and FBAR for each of these four years.

Even though (to the best of Boyd's knowledge) the government has never charged a criminal defendant who failed to file an FBAR for a particular year with more than one criminal “violation” for that year under §5322, even where that person had multiple foreign accounts, the government has consistently maintained that persons with multiple foreign accounts who failed to timely file an FBAR have committed multiple “violations” for purposes of §5321(a)(5). That is so even though sections 5321(a)(5) and 5322 “punish” exactly the same conduct.

The government's interpretation of §5321(a)(5), if applied to §5322, would permit the government to charge a criminal defendant who has multiple foreign bank accounts and who failed to file one FBAR with multiple criminal counts, each punishable by five years in prison. A criminal defendant with ten foreign accounts who failed to file one FBAR thus could be imprisoned for 50 years for a single failure to file an FBAR. Such a result makes no sense, just as it makes no sense for the government to be able to impose a “$10,000.00 per account” civil penalty based upon a person's failure to file a single FBAR.

There is no logical way to reconcile the government's inconsistent positions, and the position consistently maintained by the government in criminal cases brought under §5322 completely undermines its position in the present litigation.

The fact that the government has been taking these inconsistent positions was brought to the attention of the District Court below in the pleadings filed by Boyd in support of her Motion for Summary Judgment. The District Court completely failed to address this argument by Boyd below

9. Statutes Imposing a Penalty Are to Be Strictly Construed Against the Government

Both the Supreme Court and the Ninth Circuit have held that statutes which impose penalties are to be strictly construed against the government. See Commissioner v. Acker, 361 U.S. 87, 91 (1959) (“We are here concerned with a taxing Act which imposes a penalty. The law is settled that 'penal statutes are to be construed strictly,' * * * and that one 'is not to be subjected to a penalty unless the words of the statute plainly impose it' [citations omitted]). See also Bradley v. United States, 817 F.2d 1400, 1402-1403 (9th Cir. 1987), Wood v. Commissioner, 95 T.C. 364, 372 (1990), rev'd on other grounds, 955 F.2d 908 (4th Cir. 1992).

The present case involves a situation analogous to the situation in Commissioner v. Acker, supra. The government seeks to impose a “per account” penalty of $10,000.00 for Boyd's non-willful failure to timely file her 2010 FBAR. But the subsection of the statute that imposes a non-willful penalty says nothing at all about imposing a “per account” non-willful penalty. Nor do the applicable regulations. Rather, the statute indicates that a penalty for non-willful conduct should never exceed $10,000.00. A “strict” construction of the statute supports Boyd's position.

The District Court below, while acknowledging that there is support in the case law for applying a rule of lenity generally with respect to the imposition of penalties, declined to apply that rule in the present case. The Court concluded that, “[i]n light of the prominence of 'transactions' and 'accounts' in the language of §5321, the Court determines that the statute contemplates that the relationship with each foreign financial account constitutes the non-willful FBAR violation.” Minute Order at p. 8, ER p.11.

The District Court's conclusion regarding the purported prominence of the words “transactions” and “accounts” in §5321, and its conclusion that the statute's use of these words somehow negates the application of the rule of lenity, is puzzling. As is explained above, the subsections imposing a penalty for non-willful conduct, §§5321(a)(5)(A) and (B), do not mention either of these words.

Furthermore, the most “prominent” characteristic of subsections 5321(a)(5)(A) and (B) is the fact there is no language whatsoever that states that a penalty for a non-willful failure to timely file a single FBAR should be computed by multiplying $10,000.00 for each of the person's foreign financial accounts. The fact that the statute requires that annually filed FBARs report the existence of foreign bank accounts and related “relationships” does not mean that a non-willful failure to timely file an FBAR can be penalized by multiplying the number of foreign bank accounts by $10,000.00. There is no language in the statute imposing the penalty which supports this approach to computing such a penalty. Thus, under the rule of lenity, Boyd's position should prevail.

10. A Reminder — The Government Did not Argue Below That the Government's Interpretation of the Statute as Set Forth in the Regulations Was Entitled to Any Deference

The Court below noted that the government had not argued that the government's interpretation of the statute contained in the applicable regulations was entitled to deference under Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984) or Skidmore v. Swift & Co., 323 U.S. 134 (1944). The Court stated further that “[a]ny sort of deference to the agency would bolster the Government's position.” Minute Order at p. 9, ER p. 12. Boyd brings up the District Court's comments here because these comments illustrate the fact that the District Court engaged in problematical reasoning in deciding the case below.

The regulations at issue in this appeal do not contain any interpretations of the relevant statute to which a Court can defer. None of the regulations at issue here purport to interpret §§5421(a)(5)(A) and (B) or to otherwise define the maximum possible non-willful penalty that can be imposed when a person who has multiple foreign financial accounts fails to timely file an FBAR. The District Court's comments were completely out of place, given that there is no interpretation of §§15321(a)(5)(A) and (B) contained in the regulations to which the Courts may defer.

Even deference under Auer v. Robbins, 519 U. S. 452 (1997), the holding of which has since been modified by the Supreme Court's opinion in Kisor v. Wilkie, __ U.S. __, 139 S. Ct. 2400 (2019), would have been out of place had the government raised the argument that Auer deference was appropriate. (The government did not raise this argument below.) There is no ambiguity in the regulations to interpret because the applicable regulations make no effort to interpret the statutory cap for non-willful penalties contained in subsection 5321(a)(5)(B)(i). Kisor v. Wilkie, supra, at 2415 (“First and foremost, a court should not afford Auer deference unless the regulation is genuinely ambiguous”).

The Court below, in reaching the conclusion that it did, had to rely on the relevant statutory language. The District Court misinterpreted this statutory language, for the reasons explained herein. But given the absence of any effort by the regulations to define the statutory $10,000.00 cap on non-willful penalties set forth in subsections 5321(a)(5)(A) and (B), the District Court's comments regarding deference were inappropriate.

11. A Reminder — The Government Argued Below that the IRS May Disregard Its Own Internal Mitigation Provisions

Boyd brings to this Court's attention the fact that the government, in opposing Boyd's motion for summary judgment below, argued that the IRS's internal mitigation guidelines are not “binding” on the IRS and that the IRS is free to disregard these internal guidelines whenever the IRS deems it appropriate to do so. See Government's Memorandum of Points and Authorities in Support of Motion for Summary Judgment at page 6 (IRS's mitigation guidelines contained in the Internal Revenue Manual “do not have the force of law and do not confer rights on taxpayers”), Docket No. 31. The IRS made the same argument in its Opposition to Boyd's Motion for Summary Judgment at page 6. Docket No. 37, ER p. 26.

To the extent that the government suggests on appeal that, due to the existence of the IRS's internal mitigation guidelines, the Courts need not be concerned about the possibility that the IRS will run amok imposing large non-willful FBAR penalties if the District Court's holding is upheld on appeal, such a suggestion is inappropriate. Given that the IRS contends that it is not legally required to follow its own internal mitigation guidelines, any such argument will ring hollow.

The IRS cannot have it both ways. It cannot insist that it has the discretion to impose the maximum possible non-willful penalty (based upon the IRS's view that the statute authorizes the IRS to impose non-willful penalties of up to $10,000.00 on a “per account” basis) in any given case if the IRS itself chooses to do so while simultaneously suggesting to this Court that the Court need not be concerned about the possibility that the IRS will seek to impose non-willful penalties in excess of the amounts set forth in the IRS's internal mitigation guidelines.

In any event, the IRS's use of its internal mitigation guidelines has no bearing on the legal issue of whether the maximum possible non-willful penalty that can be assessed against Boyd is $10,000.00, regardless of the number of foreign accounts involved. That issue is determined by looking to the intent of Congress, not by examining the IRS's mitigation guidelines. The intent of Congress is this matter is clear: Congress intended to limit the amount of a non-willful penalty for a failure to timely file a single FBAR to no more than $10,000.00.

IX. CONCLUSION

For the reasons set forth above, Boyd respectfully requests that the Court reverse the holding of the District Court and hold that the maximum possible FBAR penalty that can be assessed against Boyd is $10,000.00. Boyd further requests that this Court remand the case to the District Court for a determination of whether Boyd is entitled to a reduction of the FBAR penalty below the statutory maximum of $10,000.00.

In this appellate case of first impression, this Court's ruling will potentially have a wide ranging effect. A ruling for the government could have significant adverse implications for criminal defendants who are charged with violating §5322. A ruling for Boyd could have a significant effect on other pending litigation involving FBAR penalties, depending on the rationale used by the Court to decide the case. Ms. Boyd thanks the Court for its consideration of the present appeal and respectfully requests that the Court reverse the judgment of the District Court below and remand the case for a resolution of the remaining issue in the case.

Respectfully submitted,

Law Offices of A. Lavar Taylor, LLP

A. LAVAR TAYLOR
JONATHAN T. AMITRANO

Attorneys for Appellant, Jane Boyd

Dated: November 8, 2019