United States v. Colliot
1:16-cv-01281
| W.D. Tex. | May 16, 2018Background
- The IRS sued Dominique Colliot to reduce to judgment civil penalties for willful failures to timely file FBARs for 2007–2010; large penalties were assessed (including amounts exceeding $100,000 for certain years).
- The IRS assessed penalties relying on 31 U.S.C. § 5321(a)(5)(C) (as amended in 2004) authorizing up to 50% of account balance and a $100,000 minimum for willful violations.
- Treasury regulations previously promulgated (originally 31 C.F.R. § 103.57, later renumbered to 31 C.F.R. § 1010.820) capped willful-FBAR penalties at $100,000; that regulation was issued via notice-and-comment rulemaking and was not amended to reflect the 2004 statutory increase.
- Colliot moved for summary judgment arguing the IRS acted unlawfully by assessing penalties above the $100,000 regulatory cap; the IRS argued the statute superseded the regulation and permitted higher penalties.
- The Court found the regulation remained valid and that the statute did not implicitly repeal or supersede it; because the agency failed to follow the regulatory cap, the agency action was arbitrary and capricious in part.
- The Court granted Colliot's motion for modification of a prejudgment writ of garnishment to permit certain short-term Treasury purchases with seized funds (subject to limitations), and ordered the parties to brief appropriate relief (including whether dismissal with prejudice is warranted).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether IRS could assess willful-FBAR penalties above $100,000 despite 31 C.F.R. § 1010.820 cap | Colliot: the agency must apply the regulatory $100,000 cap; penalties above that are unlawful and arbitrary | IRS: the 2004 amendment to § 5321(a)(5) increased statutory maximums and implicitly superseded the regulatory cap, so higher penalties are lawful | The regulation remains valid; statute did not implicitly repeal it; IRS action was arbitrary and capricious to the extent it failed to apply the $100,000 cap. |
| Whether the agency regulation § 1010.820 is invalid because inconsistent with statute | Colliot: regulation governs and is consistent with § 5321 delegation of discretion; thus it constrains penalties | IRS: statute increased maximum and demonstrates Congressional intent to allow higher penalties, making the regulation inconsistent and superseded | Court: § 1010.820 is consistent with § 5321 and remains valid; regulations presumptively control unless repealed or amended via notice-and-comment. |
| Proper remedy for unlawful excess penalty assessments | Colliot: sought dismissal of action with prejudice and relief to remove/limit penalties | IRS: sought to enforce penalties consistent with its interpretation of statute | Court: granted summary judgment in part for Colliot on illegality of penalties above regulatory cap, but declined to dismiss with prejudice and ordered supplemental briefing on appropriate relief. |
| Modification of prejudgment writ of garnishment to UBS | Colliot: requested authority to buy/sell ≤1-year U.S. Treasury bills with seized funds; funds otherwise remain segregated | IRS: did not oppose the modification | Court: granted modification in part (authorized purchase/sale of short-term Treasuries) but denied transfer of accrued interest/proceeds at this time. |
Key Cases Cited
- Perez v. Mortgage Bankers Ass'n, 135 S. Ct. 1199 (2015) (agencies must use same notice-and-comment procedures to amend or repeal rules as used to issue them)
- United States v. Larionoff, 431 U.S. 864 (1977) (regulations must be consistent with the enabling statute to be valid)
- U.S. Pipe & Foundry Co. v. Webb, 595 F.2d 264 (5th Cir. 1979) (regulations are presumed valid unless shown unreasonable or contrary to enabling statute)
- Richardson v. Joslin, 501 F.3d 415 (5th Cir. 2007) (an agency must abide by its own regulations)
- United States ex rel. Accardi v. Shaughnessy, 347 U.S. 260 (1954) (agencies are bound to follow their own rules and procedures)