36 F.4th 487
3rd Cir.2022Background
- Richard Collins, a dual U.S.-Canadian citizen and longtime academic, maintained undeclared foreign bank accounts (France, Canada, Switzerland); his Swiss account exceeded $800,000 by 2007.
- Collins never filed FBARs and repeatedly checked "No" on Schedule B (Form 1040); he first amended returns and submitted FBARs in 2010 via the IRS Offshore Voluntary Disclosure Program, then withdrew.
- IRS audit uncovered unpaid PFIC tax and assessed additional tax; after withdrawal from the program the IRS assessed willful FBAR penalties under 31 U.S.C. § 5321(a)(5), ultimately mitigating to $308,064 for 2007–2008.
- District Court (bench trial) found Collins’s failure to report willful, upheld the IRS penalty as not arbitrary or an abuse of discretion, and awarded interest and failure-to-pay penalties under the Federal Claims Collection Act (31 U.S.C. § 3717).
- Collins appealed, arguing (1) non-willfulness, (2) IRS abused discretion in penalty calculation, (3) improper limitation on discovery, and (4) § 3717 does not apply to FBAR penalties; the Third Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was Collins’s FBAR nonreporting "willful"? | Collins: voluntary disclosure, prompt tax payments, and advice from counsel/accountant show innocent mistake, not willfulness. | U.S.: Schedule B notices, constructive knowledge, false tax representations, and evasive conduct show willfulness/recklessness. | Court: Willful (clear-error review); Collins should have known and acted to avoid disclosure. |
| Was the IRS penalty calculation an abuse of discretion? | Collins: record scant; penalty excessive and arbitrary. | U.S.: agent followed Internal Revenue Manual, computed balances, applied mitigation and additional reductions; rational link to facts. | Court: Not arbitrary or abuse of discretion; record supports computation and mitigation. |
| Was discovery improperly limited about IRS internal reasoning? | Collins: needed supervisor communications to show arbitrary adjustment and prejudice. | U.S.: IRS produced core documents and agent testimony; internal opinions irrelevant and manual authorized supervisory review. | Court: No abuse of discretion; Collins showed no substantial prejudice. |
| Do Collection Act interest and late-payment penalties (§ 3717) apply to FBAR penalties? | Collins: FBAR penalties are revenue-related and ambiguous; Bedrosian suggests they function like taxes—should not be subject to § 3717 charges. | U.S.: FBAR penalty is a nontax debt under 31 U.S.C. § 5321 and thus § 3717 applies; no statutory provision fixes alternative interest/charges. | Court: § 3717 applies; interest and failure-to-pay penalties mandatory on the debt/judgment. |
Key Cases Cited
- Bedrosian v. United States, 912 F.3d 144 (3d Cir. 2018) (FBAR willfulness standard includes recklessness; discussed jurisdictional context)
- Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007) (recklessness defined as objective high risk standard)
- United States v. Carrigan, 31 F.3d 130 (3d Cir. 1994) (elements for willfulness inquiry articulated)
- Kimble v. United States, 991 F.3d 1238 (Fed. Cir. 2021) (taxpayer has inquiry notice of FBAR requirement despite not reading Schedule B)
- United States v. Klausner, 80 F.3d 55 (2d Cir. 1996) (post-cooperation does not negate earlier willfulness)
- Prometheus Radio Project v. FCC, 373 F.3d 372 (3d Cir. 2004) (agency action review requires rational connection between facts and decision)
- Burlington Truck Lines v. United States, 371 U.S. 156 (1962) (standard for reviewing agency decisions: rational connection)
- Frisby v. U.S. Dep’t of Hous. & Urb. Dev., 755 F.2d 1052 (3d Cir. 1985) (upholding agency determinations when rationally supported)
- United States v. Hyundai Merch. Marine Co., Ltd., 172 F.3d 1187 (9th Cir. 1999) (Collection Act applies unless another statute explicitly fixes interest/charges)