United States v. Kahn
5f4th167
| 2d Cir. | 2021Background:
- Harold Kahn willfully failed to file his 2008 FBAR (due June 30, 2009) reporting two Credit Suisse accounts that together held $8,529,456.
- The IRS assessed a willful FBAR penalty equal to 50% of the aggregate balance ($4,264,728) under the 2004 amendment to 31 U.S.C. § 5321(a)(5).
- The Estate (co-executors Jeffrey and Joel Kahn) sued to contest collection, arguing a 1987 Treasury regulation (31 C.F.R. § 1010.820(g)(2)) caps willful FBAR penalties at $100,000 per account (here, $200,000 total).
- The district court granted summary judgment for the government, holding the 1987 regulation was superseded/inconsistent with the 2004 statutory amendment increasing the maximum penalty.
- On appeal the Second Circuit affirmed the district court; Judge Menashi dissented, invoking the Accardi principle that agencies must follow their own binding regulations.
Issues:
| Issue | Plaintiff's Argument (United States) | Defendant's Argument (Estate) | Held |
|---|---|---|---|
| Whether the 1987 Treasury regulation limits willful FBAR penalties to $100,000 per account | The 2004 statutory amendment raised the statutory maximum to the greater of $100,000 or 50% of aggregate balance; a later statute supersedes an inconsistent prior regulation | The 1987 regulation remains binding and caps penalties at $100,000 per account | The 2004 statute supersedes the 1987 regulation; the regulation is invalid to the extent it conflicts with the statute |
| Whether the phrase "shall be increased" in § 5321(a)(5)(C) mandates exposure to the new statutory ceiling (and thus eliminates agency power to set a lower regulatory cap) | "Shall be increased" is mandatory and Congress set the maximum penalty itself, not the Secretary | The statute leaves the Secretary discretion to impose any penalty up to the statutory maximum, so a regulatory cap is consistent | Court: "shall be increased" imposes a mandatory statutory ceiling; Secretary may impose less in individual cases but cannot enforce a regulation that nullifies the statutory maximum |
| Whether a parroting regulation that tracks an earlier statute retains force after Congress later amends the statute | Subsequent statutory amendment controls and voids any inconsistent preexisting regulation | Regulation still valid unless expressly repealed; Accardi principle requires agency to follow its own regulation | Court: later statute controls; inconsistent regulation is invalid and cannot limit penalties set by Congress |
| Whether the rule of lenity or ambiguity supports applying the regulatory cap | No ambiguity in 2004 statute's text; rule of lenity inapplicable | If statutory text ambiguous, resolve in defendant's favor to limit penalty | Court: statutory language is clear (no grievous ambiguity); rule of lenity does not apply |
Key Cases Cited
- Ragsdale v. Wolverine World Wide, Inc., 535 U.S. 81 (2002) (agency regulation cannot contradict statute)
- Mach Mining, LLC v. EEOC, 575 U.S. 480 (2015) ("shall" in statute is mandatory where appropriate)
- United States v. Vogel Fertilizer Co., 455 U.S. 16 (1982) (regulation invalid when fundamentally at odds with congressional design)
- Norman v. United States, 942 F.3d 1111 (Fed. Cir. 2019) (post-2004 cases holding the 1987 regulation superseded by statute)
- United States v. Horowitz, 978 F.3d 80 (4th Cir. 2020) (same holding; regulation abrogated by 2004 amendment)
- United States v. Rum, 995 F.3d 882 (11th Cir. 2021) (same holding; statute controls over older regulation)
- United States ex rel. Accardi v. Shaughnessy, 347 U.S. 260 (1954) (Accardi principle: agencies must follow their own regulations; relied on in dissent)
- Iglesias v. United States, 848 F.2d 362 (2d Cir. 1988) (a regulation that conflicts with Congress's will is a nullity)