Norman v. United States (FBAR Series)

Norman v. United States, U.S. Court of Appeals, Federal Circuit | November 8, 2019 | Damich, J. | No. 15-872T

Short Summary: Taxpayer brought action against the government, seeking refund of penalty assessed by the Internal Revenue Service (IRS) for willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR). The Court of Federal Claims, Edward J. Damich, Senior Judge, 138 Fed.Cl. 189, upheld the penalty. Taxpayer appealed.

Key Issue: First, whether plaintiff’s failure to file FBAR was willful. Second, whether penalty amount (50% of taxpayer’s foreign account balance) was appropriate.

Primary Holdings:

Taxpayer’s failure to file Foreign Bank Account Report (FBAR) was willful.
Imposition of penalty in amount of 50% of taxpayer’s foreign account balance was appropriate because statutory amendment rendered void Treasury Department’s regulation capping penalties for willful violations at $100,000.

Key points of law:

Court of Federal Claims did not clearly err in finding that taxpayer’s failure to file a Report of Foreign Bank and Financial Accounts (FBAR) was willful, such that larger maximum penalty for willful violations, as opposed to non-willful violations, applied, where taxpayer opened her foreign bank account as numbered account, taxpayer signed document preventing bank from investing in United States securities on her behalf, and bank account manager delivered money to taxpayer in cash when taxpayer withdrew money from her account.

Statutory amendment, increasing maximum penalty for willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR) to the greater of $100,000 or 50% of the balance in the account at the time of the violation, rendered void Treasury Department’s regulation capping penalties for willful violations at $100,000; amendment used the word “shall,” and regulation set forth maximum penalty that was inconsistent with maximum penalty mandated by amended statute.

Insight:

This case’s most unique contribution, relative to the others above, is the explicit rejection of Colliot’s treatment of the FBAR penalty scheme’s legislative history.[1] In Colliot, the court held that Congress’ 2004 amendment to § 5321 did not supersed a preexisting regulation which required that FBAR penalties cannot exceed $100,000.[2] By contrast, the 2004 amendment held that FBAR penalties may be the greater of $100,000 or 50% of the balance of the foreign account during the time of violation.[3] The Norman court held that the 2004 amendment did supersede the regulation (31 C.F.R. § 1010.820).[4] The court ruled that the plain language of the statute uses the word “shall” which is mandatory, not discretionary.[5] Therefore, the 1987 regulation is inconsistent with the penalty scheme required by the amended statue, so the 1987 regulation is invalid.[6]

Norman also tried to raise an Eighth Amendment argument on appeal, which was denied by the Federal Circuit.[7] This issue was procedural in nature because the court held that Norman failed to properly preserve the issue because she sent it in a post-trial letter to the Court of Federal Claims.[8] Because the letter was sent after her response to the government’s summary judgment motion, the Federal Circuit affirmed that the Court of Federal Claims was within their discretion to deny it.[9]

[1] See Colliot above

[2] See Colliot above

[3] 31 U.S.C. § 5321.

[4] Norman v. United States, 942 F.3d 1111, 1117 (Fed. Cir. 2019).

[5] Id.

[6] Id.

[7] Id. at 1118.

[8] Id.

[9] Id.