Government Maintains Argument That 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

REPLY 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

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TABLE OF CONTENTS

Table of contents

Table of authorities

Introduction

Argument

Conclusion

Certificate of Service

Certificate of Compliance

TABLE OF AUTHORITIES

Cases:

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

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

Crandon v. United States, 494 U.S. 152 (1990)

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

Kimble v. United States, 141 Fed. Cl. 373 (2018)

Kimble v. United States, 991 F.3d 1238 (Fed. Cir. 2021)

Leocal v. Ashcroft, 543 U.S. 1 (2004)

Rand v. Commissioner, 141 T.C. 376 (2013)

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

Shular v. United States, 140 S. Ct. 779, 206 L. Ed. 2d 81 (2020)

United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021)

United States v. Reagan, 596 F.3d 251 (5th Cir. 2010)

United States v. Thompson/Center Arms Co., 504 U.S. 505 (1992)

Statutes:

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

31 U.S.C.:

Pub. L. 114-113, Div. Q, § 209(a), 129 Stat. 2242, 3084 (2015)

Regulations:

31 C.F.R.:

Legislative History:

H.R. Rep. 108-548(I) (2004)

Hearings Before the Subcommittee on Oversight of the Committee on Ways and Means, House of Representatives, Ninety-Sixth Congress, First Session

Other Authorities:

https://www.google.com/books/edition/Reproducible_Federal_Tax_Forms_for_Use_i/yv7KQ5I3cmAC?hl=en&gbpv=1&d q=TD+F+90-22.1+%2210/92%22&pg=PA231&printsec=frontcover

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INTRODUCTION

Congress directed the Secretary of the Treasury to require information reporting by any U.S. person who “maintains a relation . . . with a foreign financial agency,” i.e., maintains a foreign bank account. 31 U.S.C. § 5314(a). During the years at issue, the prescribed annual reporting form instructed filers to report all such accounts on a single form (as opposed to filing a separate form for each account).

Section 5321(a)(5) authorizes the Secretary to impose a civil monetary penalty on any person “who violates, or causes any violation of, any provision of section 5314.” 31 U.S.C. § 5321(a)(5)(A). Except in the case of willful violations, the amount of any such penalty “shall not exceed $10,000.” 31 U.S.C. § 5321(a)(5)(B)(i), (C). The issue presented in the government's cross-appeal is whether the $10,000 cap applicable to non-willful violations (1) applies on a per-account basis, as the government maintains, or (2) applies on a per-annual-form basis, as cross-appellee Bittner maintains (and the district court held).

In our principal brief, we demonstrated that each unreported or misreported account represents a separate violation of § 5314(a), such that the $10,000 cap applies on a per-account basis. We now respond to Bittner's counterarguments.

ARGUMENT

The penalty authorized by 31 U.S.C. § 5321(a)(5)(A) applies to each failure to report a reportable account

A. The inquiry regarding what constitutes a violation of § 5314 must begin with the text of § 5314, which mandates an account-reporting requirement

As explained in our principal brief (Gov't Br. 55-57), the district court erred in positing that “[i]t is . . . violations of the . . . implementing regulations [under § 5314] to which § 5321(a)(5)'s civil penalties attach.” (ROA.1568.) Section 5321(a)(5) by its terms applies to “violation[s] of . . . any provision of section 5314,” not violations of regulations under §5314. 31 U.S.C. § 5321(a)(5)(A); cf. id. § 5321(a)(3) (imposing a penalty on “[a] person not filing a report under a regulation prescribed under section 5315”). The “provision of section 5314” that is relevant here is the reporting requirement that applies when a U.S. person “maintains a relation . . . with a foreign financial agency.” 31 U.S.C. §5314(a). Thus, a violation of that provision occurs when a U.S. person fails to report such a relation (account).

Echoing the district court's misplaced reliance on California Bankers Ass'n v. Shultz, 416 U.S. 21 (1974), Bittner argues that § 5314 “does not itself impose any requirement to report foreign bank accounts” (Br. 8) and that “the text [of § 5314(a)] does not require a private person to do anything at all.” (Br. 11.) While it is true that the statutory predecessor of § 5314(a) was not self-executing — i.e., it required administrative activation — it simply does not follow that the words “violation of[ ] any provision of section 5314” in § 5321(a)(5) should be interpreted without regard to the language of § 5314. Regulations implementing § 5314 rightly prescribe how the requirement to report a foreign account may be violated — for instance, by prescribing the timing and frequency of compliance — but they cannot redefine the subject of the violation.

The decision in Shultz is not to the contrary. First, the government did not, as Bittner contends (Br. 12), argue that Shultz is inapposite “because the penalties therein were dependent on the issuance of regulations.” Rather, we argued that the Shultz Court's observation in that regard, i.e., that “the statute is not self-executing,” 416 U.S. at 64 — does not support the district court's statement that “[i]t is . . . violations of the . . . implementing regulations [under § 5314] to which § 5321(a)(5)'s civil penalties attach.” (ROA.1568.) As we explained in our opening brief, the Shultz Court was merely making the point that, because the statute is not self-executing, the lower court should have framed the constitutional “overbreadth” issue in terms of 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 64. Because Shultz does not interpret any penalty provision of the Act, much less § 5321(a)(5), its relevance here is tangential at best.

The Shultz Court did note that “[v]iolations of the reporting requirement of [§ 5314] as implemented by the regulations are . . . subject to civil and criminal penalties.” 416 U.S. at 37. In essence, Bittner reads this statement (Br. 13) as standing for the proposition that the penalty under § 5321(a)(5) “can be imposed only because th[e] regulations [under § 5314] exist.” But the fact that regulations were necessary to activate the reporting requirement of § 5314 does not support Bittner's argument that violations of the reporting requirement are determined by reference to the language of the regulations rather than the language of the statute. Had the Shultz Court intended to convey that meaning, it would have referred to violations of the regulations implementing the reporting requirement of § 5314, not “[v]iolations of the reporting requirement of [§ 5314] as implemented by the regulations.” 416 U.S. at 37. Indeed, the Court's recognition of “the reporting requirement of [section 5314]” (id.), i.e., the reporting of “a transaction . . . or a relation . . . with a foreign financial agency,” 31 U.S.C. § 5314(a), supports the government's position, not Bittner's. As discussed below, the implementing regulations merely activate the statutory reporting requirement and provide the procedure for how that requirement is to be satisfied.

B. The regulations merely activate and implement the statute's reporting requirement

The relevant regulations — chiefly, 31 C.F.R. §§ 1010.350(a) and 1010.306(c) — do nothing more than to activate and implement Congress's reporting mandate. The first portion of § 1010.350(a), paraphrasing § 5314(a), achieves the activation: “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. . . .” Cf. 31 C.F.R. § 103.24 (1973) (initial predecessor). The remainder of the first sentence of §1010.350(a) pertains to implementation, providing that the person must report the 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 second sentence of § 1010.350(a) elaborates: “The form prescribed under section 5314 is the Report of Foreign Bank and Financial Accounts (TD-F 90-22.1), or any successor form.”¹ And § 1010.306(c), in addition to providing a $10,000 floor for the reporting requirement, see 31 U.S.C. § 5314(b)(1), provides that “[r]eports required to be filed by § 1010.350 shall be filed with FinCEN on or before June 30 of each calendar year with respect to [reportable accounts] maintained during the previous calendar year.”

In light of the foregoing, the district court correctly stated that “the failure to file an annual FBAR . . . triggers the civil penalty provisions” of § 5321(a)(5) (ROA.1568), but erred in concluding (id.) that such failure is also “the violation contemplated” in that provision. As Judge Ikuta explained in her dissent in United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021), “the obligation to report each account (as set out in the first clause of § 1010.350(a))” — the language that activates the statutory reporting requirement — “is independent of the obligation to file a reporting form (as set out in the second clause of § 1010.350(a))” — the language that implements the procedure for satisfying the statutory reporting requirement. Id. at 1088 (Ikuta, J., dissenting).² Thus, a single violation of the procedural requirement (i.e., a failure to file that is limited to a particular year) may encompass multiple violations — penalizable under § 5321(a)(5) — of the substantive requirement to report “a relation . . . with a foreign financial agency” (or, as expressed in the regulation, to “report such relationship”). 31 U.S.C. § 5314(a); 31 C.F.R. § 1010.350(a).

For this reason, Bittner errs when he argues (Br. 32) that “it makes no sense to distinguish between the obligation to report and the form created for that purpose, nor is there any basis to do so.” On the contrary, it makes perfect sense, and there is a basis for doing so. Again, § 5321(a)(5) authorizes penalties for violations of “any provision of § 5314,” not violations of the regulations implementing the procedures for complying with such provisions. And § 5321(a)(5) stands in stark contrast with other provisions of § 5321(a) that penalize, or authorize penalties for, violations of procedural filing requirements (as opposed to substantive reporting requirements). See 31 U.S.C. §5321(a)(2) (authorizing the Secretary to impose a penalty on any person “not filing a report, or filing a report containing a material omission or misstatement, under section 5316 . . . or a regulation prescribed under section 5316), (a)(3) (imposing a penalty for “not filing a report under a regulation prescribed under section 5315”). That Congress failed to use similar language in § 5314 further supports the conclusion that the violation of § 5314 contemplated by (and thus subject to penalty under) § 5321(a)(5) is the failure to report “a relation . . . with a foreign financial agency,” not the failure to file the form on which such relationships are collectively reported. See Russello v. United States, 464 U.S. 16, 23 (1983) (“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.”).

Moreover, Bittner's argument — viz., that the penalty authorized by § 5321(a)(5) applies to violations of the procedure prescribed by the Secretary for satisfying the reporting requirement of § 5314 — presupposes that Congress intended to grant the Secretary the power to dictate the maximum aggregate penalty applicable under any given set of facts simply by changing the procedure for satisfying the statutory reporting requirement. Nothing in the statute suggests that Congress intended such a result.

C. The text of § 5321(a)(5)(D)(ii) forecloses Bittner's reliance on the regulations under § 5314

As we explained in our principal brief (Gov't Br. 64), 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 Boyd, 991 F.3d at 1089 (Ikuta, J., dissenting) (“Regardless of the mens rea, the actus reus is the same: 'any violation of, any provision of section 5314.'”). Although the district court rejected the government's argument that “the underlying violation [is] the same” (ROA.1572) regardless whether willful or non-willful conduct is involved, Bittner expressly (and correctly) breaks with the district court in that regard: “Whether the conduct of an individual was willful or non-willful, the underlying violation is the same.” (Br. 22 (emphasis in original).) Thus, Bittner concedes that if the text of § 5321(a)(5)(C) or (D) — each dealing with willful conduct — establishes that the term “violation of, any provision of section 5314” connotes a failure to timely or accurately report a reportable account (as opposed to a failure to timely or accurately file the form prescribed for collectively reporting such accounts), then that connotation would apply in the context of non-willful conduct as well. In other words, Bittner concedes that the presumption of consistent usage — i.e., “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,” IBP, Inc. v. Alvarez, 546 U.S. 21, 34 (2005) — applies to the term “violation of . . . any provision of section 5314” (or the shorthand “violation”) as used in § 5321(a)(5). See Gov't Br. 65-68.

Section 5321(a)(5)(C) provides that, in the case of any willful violation of § 5314, the maximum penalty is increased to the greater of $100,000 or “50 percent of the amount determined under subparagraph (D).” 31 U.S.C. § 5321(a)(5)(C)(i). Subparagraph (D), in turn, provides that “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,” the amount to be multiplied by 50% is “the balance in the account at the time of the violation.” 31 U.S.C. §5321(a)(5)(D)(ii). Thus, the plain language of subparagraph (D)(ii) establishes that one type of violation of § 5314 “involv[es] a failure to report the existence of an account” (or information regarding that account).³ See Boyd, 991 F.3d at 1089, 1091 (Ikuta, J., dissenting) (because “subparagraph (D) explicitly establishes that the word 'violation' refers to the failure to report the existence of an account,” “any failure to report a foreign account is an independent violation, subject to independent penalties”).

Bittner argues that the government “confuses what constitutes a 'violation' under the statute with the calculation of the penalty.” (Br. 20 (emphasis in original).) In other words, Bittner suggests that one cannot identify the violation to which a penalty applies based on the language of a provision governing the calculation of the penalty. Bittner fails to explain why that would be so, particularly in the situation where (as here) the calculation provision describes the violation. See 31 U.S.C. § 5321(a)(5)(D)(ii) (referring to “a violation involving a failure to report the existence of an account”). Congress certainly could have made the violation form-based while making the penalty calculation account-based; for instance, it could have provided that, “in the case of a violation of § 5314 involving a willful failure to file the form prescribed by the Secretary for reporting foreign accounts, the maximum amount of the penalty shall be 50% of the aggregate balance of the accounts required to be reported on the form.” But that is not the statute Congress enacted.

Bittner essentially contends that Congress did enact that statute, but the fallacy of his argument is apparent on its face. According to Bittner, the maximum penalty for a willful violation of § 5314 — in his view, for willfully “[f]ailing to file an FBAR” — is “calculated based on the balances in the unreported account(s).” (Br. 22, 23 (emphasis in original).) Of course, subparagraph (D) does not refer to the “balances” in the “account(s)” (id. at 23); it refers to “the balance in the account.” 31 U.S.C. § 5321(a)(5)(D)(ii).⁴ And it does so because it applies “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.” Id. (emphasis added). Thus, Bittner's form-based interpretation of the “violation” language in § 5321(a)(5) — which is based solely on regulations issued under § 5314 — only makes sense if other language in § 5321(a)(5) is altered.⁵

For this reason, Bittner goes awry when he argues (Br. 22) that “the number of foreign accounts an individual willfully fails to report is irrelevant; the penalty is based on the total balances in those accounts regardless of the number.” To the contrary, because the specified “violation” is “a failure to report the existence of an account,” a failure to report the existence of multiple accounts constitutes multiple violations, each giving rise to a maximum penalty determined in part by reference to the balance in that particular account.⁶ See Kimble v. United States, 991 F.3d 1238, 1243 (Fed. Cir. 2021) (referring to “the statutory maximum civil penalty” as applied to one of two unreported accounts).⁷

Bittner is therefore wrong when he argues (Br. 22) that “if a person willfully failed to report 10 accounts on an FBAR with balances totaling $500,000, he is subject to a willful penalty amount capped at $250,000 not ten times $100,000.” Rather, under § 5321(a)(5)(C)(i) and (D)(ii), such a person would be subject to a separate penalty with respect to each account, and the maximum amount of each penalty would depend on the balance in that particular account. If, for example, one of the accounts had a balance of $410,000 and the other nine each had a balance of $10,000 (an aggregate total of $500,000), then the total maximum penalty would be $1,105,000: (i) 50 percent of $410,000 ($205,000) (because $205,000 is greater than $100,000), plus (ii) $100,000 for each of the remaining nine unreported accounts ($900,000) (because $100,000 is greater than 50 percent of $10,000, the balance in each of those accounts).

D. The text of § 5321(a)(5)(B)(ii) confirms that the relevant “violation” is account-specific

As explained in our principal brief (Gov't Br. 67-68, 74-75), the reasonable cause exception applicable to non-willful violations of § 5314 provides additional support for the conclusion that the word “violation” in § 5321(a)(5)(A) refers to account-based failures rather than form-based failures. Section 5321(a)(5)(B)(i) provides that, “[e]xcept as provided in subparagraph (C),” which deals with willful violations, “the amount of any civil penalty imposed under subparagraph (A) shall not exceed $10,000.” Standing alone, that limitation sheds no light on what constitutes a violation of § 5314. Subparagraph (B)(ii), however, provides that “[n]o penalty shall be imposed . . . with respect to any violation” if “(I) such violation was due to reasonable cause, and (II) the amount of the transaction or the balance in the account at the time of the transaction was properly reported.” Although subclause (II) is less than a model of clarity,⁸ the reference therein to “the account,” coupled with the references to “any violation” and “such violation” elsewhere in subparagraph (B)(ii), is entirely consistent with the reference to “a violation involving a failure to report the existence of an account” in subparagraph (D)(ii). Like the language of subparagraph (D)(ii), the language of subparagraph (B)(ii) “indicates that the failure to report . . . a single account . . . constitutes a violation” of § 5314. Boyd, 991 F.3d at 1089 (Ikuta, J., dissenting).

Bittner demurs, insisting (Br. 19) that “the statutorily permissible excuse for noncompliance is completely independent from the violation itself.” To the contrary, the required action for remedying the violation — here, “proper[ ] report[ing]” of “the balance in the account” in due course — necessarily informs the nature of the violation itself. For instance, if the failure to file an FBAR were the relevant violation, then one would expect the required remedial action to be phrased in terms of properly reporting the balances of all accounts that were required to be reported on the FBAR. That the required remedial action pertains instead to “the balance in the account” indicates that the violation itself is account-based, not form-based.

Bittner similarly contends that the government improperly focuses on subparagraph (B)(ii), arguing (Br. 19) that “the focus should be on the statutory provisions that actually authorize the penalty (§ 5321(a)(5)(A)) and calculate the amount for non-willful violations (§ 5321(a)(5)(B)(i))—neither which mention the word 'account.'”⁹ As explained in our principal brief (Gov't Br. 63), there is a simple reason why the word “account” appears in subparagraph (D)(ii) but not in subparagraph (B)(i): unlike the maximum penalty for a willful account-reporting violation, the maximum penalty for a non-willful account-reporting violation is a fixed amount that has nothing to do with the balance in the unreported account. Likewise, there is a straightforward explanation for why the word “account” appears in subparagraph (B)(ii) but not in subparagraph (B)(i): unlike the reasonable cause exception of subparagraph (B)(ii), which differentiates between a transaction-reporting violation and an account-reporting violation in order to describe what must be “properly reported” in due course in order to qualify for relief (i.e., the “amount of” the transaction or the “balance in” the account), there simply was no need for such differentiation in subparagraph (B)(i); the maximum penalty for either type of non-willful violation is $10,000.

E. Bittner's remaining arguments are meritless

1. The de minimis filing exception and the special rule for owners of 25 or more accounts do not alter the analysis

Bittner argues (Br. 24) that the regulation excusing the reporting of accounts when their aggregate balance is less than $10,000 (see 31 C.F.R. § 1010.306(c)) makes imposing penalties on a per-account basis illogical. He similarly argues that the special rule allowing holders of 25 or more foreign accounts to simply list the number of accounts held (see 31 C.F.R. § 1010.350(g)(1), (2)) renders an account-based penalty “especially absurd.” (Br. 24.) But neither does anything of the sort. Section 5314 expressly directs the Secretary to consider “the need to avoid burdening [foreign-account holders] unreasonably.” 31 U.S.C. §5314(a). As explained in our principal brief (Gov't Br. 60-61 & n.10), the de minimis $10,000 aggregate filing exception, and the special rule for holders of 25 or more accounts, are nothing more than an application of that mandate. In particular, the Secretary likely determined that the statutory goals of criminal, tax, or regulatory enforcement are unlikely to be implicated where the aggregate balance is less than $10,000, regardless of the number of accounts held. And holders of 25 or more accounts are “required to provide detailed information concerning each account when so requested.” 31 C.F.R. § 1010.350(g)(1). Neither of these exceptions exempts an accountholder from penalties under §5321(a)(5)(A) for a violation of § 5314's account reporting requirement where, for example, he is associated with dozens of reportable foreign accounts but, as Bittner initially did here (see ROA.420-435), reports the existence of only one on his annual FBAR.

Bittner's argument demonstrates why the district court's focus on the FBAR form itself (ROA.1566) is misplaced. Section 5321(a)(5)(A) penalizes violations of “any provision of § 5314,” i.e., any failure to report a relation with a foreign financial agency. By focusing solely on the procedural mechanism the Secretary devised for that reporting, Bittner and the district court (as well as the majority in Boyd, see 991 F.3d at 1090 (Ikuta, J., dissenting)) ignore the statute's substantive reporting requirement.

2. The legislative history does not support Bittner's position

Bittner incorrectly asserts that the “legislative history confirms the district court's contextual interpretation.” (Br. 25.) He begins by explaining that the statute originally penalized only willful violations, and notes that the statute expressly defined the violation subject to penalty as “involving a failure to report the existence of an account or any identifying information required to be provided with respect to such account.” (Br. 26 (quoting Money Laundering Control Act of 1986, Pub. L. No. 99-570, Subtit. H, 100 Stat. 3207, § 1357(a)(5)(B)(2) (emphasis added).) He then explains (Br. 26) that Congress added the penalty for non-willful violations in 2004, but nowhere does he argue, nor does the history indicate, that the violation subject to penalty — whether willful or non-willful — changed from the failure to report the existence of an account or any identifying information required to be provided with respect to such account. Indeed, he quotes the relevant House report, which explained that “[t]he provision adds an additional civil penalty that may be imposed on any person who violates this reporting requirement (without regard to willfulness).” H.R. Rep. 108-548(I), at 275 (2004). That report continues: “The penalty may be waived if any income from the account was properly reported on the income tax return and there was reasonable cause for the failure to report.” Id. at 276. Thus, if anything, the legislative history suggests that Congress understood § 5314 to require the reporting of each foreign transaction or account, that penalties had previously been imposed for each willful failure to report a foreign transaction or account, and that the penalty should be extended to each non-willful failure to report a foreign transaction or account.

Bittner attempts to bolster his argument by asserting that Congress enacted this provision “with the understanding that the reporting requirement was accomplished through the BSA regulations, which have always required a single form.” (Br. 26-27.) But that is not true. In fact, the Secretary has previously required the filing of multiple forms where an accountholder had more than one (but fewer than 25) accounts. See Offshore Tax Havens: Hearings Before the Subcommittee on Oversight of the Committee on Ways and Means, House of Representatives, Ninety-Sixth Congress, First Session, April 24, 25, 1979 (Serial 96-26) at 156 (reproduction of FBAR requiring, at line 9, “a separate TD F 90-22.1 [FBAR] for each” separate account). Indeed, separate FBARs were required as late as 1992. See https://www.google.com/books/edition/Reproducible_Federal_Tax_Forms _for_Use_i/yv7KQ5I3cmAC?hl=en&gbpv=1&dq=TD+F+90-22.1+%2210/92%22&pg=PA231&printsec=frontcover. And again, under §5314 the Secretary remains free to determine the procedural requirements for carrying out the statutorily mandated account reporting requirement, including the number of forms to be filed.

3. The rule of lenity has no application here

Bittner argues incorrectly that § 5321(a)(5)(A) must be strictly construed against the government and that the rule of lenity “requires that any ambiguity be resolved in the Defendant's favor.” (Br. 33.) Yet he concedes that that rule generally only applies to criminal statutes, and only where there is “ambiguity in the statute not resolved by ordinary rules of statutory construction.” (Id.) But there is no criminal penalty involved here, and as demonstrated above, ordinary rules of statutory construction resolve any potential ambiguity present in §5321(a)(5)(A). Accordingly, the rule of lenity has no application here.

As Bittner properly recognizes, the rule of lenity applies only when, after consulting traditional canons of statutory construction, a penal statute remains ambiguous. Shular v. United States, 140 S. Ct. 779, 787, 206 L. Ed. 2d 81 (2020). “In other words, a court must first employ all of the traditional tools of statutory interpretation, and a court may resort to the rule of lenity only after seizing everything from which aid can be derived.” Id. at 787–88 (Kavanaugh, J., concurring) (internal quotations omitted). The “simple existence of some statutory ambiguity is not sufficient to warrant application of that rule, for most statutes are ambiguous to some degree.” Id. at 788 (internal quotations omitted). Rather, “the rule of lenity applies only in cases of grievous ambiguity—where the court, even after applying all of the traditional tools of statutory interpretation, can make no more than a guess as to what Congress intended.” Id.

In this case, even if the parties disagree on the proper interpretation of § 5321(a)(5)(A), there is no “grievous ambiguity” that persists such that a court, “even after applying all of the traditional tools of statutory interpretation, can make no more than a guess as to what Congress intended.” Shular, 140 S. Ct. at 788. Rather, as demonstrated above, traditional tools of statutory construction readily resolve any potential ambiguity here. The presumption of consistent usage — which Bittner concedes applies here (Br. 22) — requires that the term “violation of, any provision of § 5314” mean the same thing throughout § 5321(a)(5). Applying that rule, it is clear that the violation contemplated by Congress is the failure to report an individual relationship with a foreign financial agency. And § 5321(a)(5)(B)(i) imposes a maximum $10,000 penalty for each such violation. There is no basis to resort to the rule of lenity here.

The cases cited by Bittner are not to the contrary. First, Bittner cites three cases that stand for the proposition that if resolution of an ambiguity in a civil statute could result in liability under a parallel criminal statute, the rule of lenity may serve as a guide in interpreting both provisions. See Crandon v. United States, 494 U.S. 152 (1990) (where standard governing civil penalty was set forth in a criminal statute, it was appropriate to apply rule of lenity to resolve ambiguity regarding that standard); United States v. Thompson/Center Arms Co., 504 U.S. 505, 518 n.10 (1992) (same); Leocal v. Ashcroft, 543 U.S. 1, 11 n.8 (2004) (same). Here, however, § 5321(a)(5)(A) has no criminal counterpart in the context of non-willful violations, see 31 U.S.C. §5322(a), (b), so resolution of the “violation” issue in the government's favor would not subject Bittner to criminal liability. The cited cases therefore are not on point.

Nor does the case of Commissioner v. Acker, 361 U.S. 87 (1959), support Bittner. That case involved the imposition by the IRS of two penalties for one violation: “the failure of a taxpayer to file a declaration of estimated income tax.” Id. at 87. The IRS not only imposed the penalty authorized for failure to file such a declaration, but also imposed a penalty for a “substantial underestimate” of tax on the ground that failure to file a declaration amounted to a declaration that the tax owed was zero. Id. at 89. The IRS did so in reliance on a regulation that provided, “in the event of a failure to file the required declaration, the amount of the estimated tax for purposes of [the statute imposing a penalty for substantial underestimate of tax due] is zero.” Id. at 89-90.

The Supreme Court held that the imposition of the penalty for substantial underestimate of tax due was invalid because nothing in the statute itself indicated any intention by Congress that the mere failure to file an estimate of tax due should be construed as a declaration that the tax due was zero; i.e., the regulation was invalid. 361 U.S. at 91-92. Indeed, the statute “contain[ed] no words or language to that effect,” and in fact “seem[ed] necessarily to contemplate, and to apply only to, cases in which the declaration of 'the estimated tax' has been made and filed.” Id. at 92. “[T]o uphold this addition to the tax would be to hold that it may be imposed by regulation, which, of course, the law does not permit.” Id. Ironically, in the present case, that is what Bittner argues should be allowed (in reverse): that the statutory penalty for “violat[ing] . . . any provision of section 5314” be narrowed by regulations that allow holders of multiple reportable accounts to report such accounts collectively on a single form. In any event, unlike in Acker, here the government is relying upon the plain language of a statute, § 5321(a)(5), and that statute does contain “words or language to th[e] effect” that the relevant violation is account-based. Id. at 92. Acker is inapposite.

Bittner's reliance (Br. 35) on Rand v. Commissioner, 141 T.C. 376 (2013) (superseded by statute, Pub. L. 114-113, Div. Q, § 209(a), 129 Stat. 2242, 3084 (2015)), is similarly misplaced. Rand involved the calculation of a penalty for underpayment of a tax required to be shown on a return (26 U.S.C. § 6662(a)). That question required the court to interpret the term “the amount shown as the tax” on the taxpayers' return (26 U.S.C. § 6664(a)(1)(A)). That in turn required the court to determine whether certain “refundable credits” improperly claimed by the taxpayers should be included in the computation of — thereby reducing — “the amount shown as the tax” on the return. Rand, 141 T.C. at 377. If, as the Commissioner argued, those refundable credits were included, the taxpayers would have shown on their return a tax of -$7,327 (resulting in a higher penalty), but if they were not included, the taxpayers would have shown on their return a tax of $144 (resulting in a lower penalty). Id. Ultimately, the Tax Court determined that “[a] series of canons of statutory construction lead to the conclusion that refundable credits must be taken into account when determining the amount shown as the tax by the taxpayer but that those credits cannot reduce that amount below zero.” Id. at 385. That is, using traditional tools of statutory construction, the court concluded that the statute did not support imposition of the penalty as calculated by the Commissioner. The court's conclusion that the rule of lenity also supported the result (id. at 393) is therefore dicta.

In short, the rule of lenity has no application here. And even if it did, Bittner's “construction of the relevant statutes and regulations is not 'strict'; rather, it is strained and unpersuasive.” Boyd, 991 F.3d at 1091 (Ikuta, J., dissenting). As Judge Ikuta correctly observed, “[u]nder the most natural reading of the relevant statutes and regulations, each failure to report a foreign account is a separate violation.” Id.

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,

PAUL A. ALLULIS 

JUNE 24, 2021