Case Information
*1 r IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS MAY Pu 14:50 AUSTIN DIVISION t.LEr UNITED STATES OF AMERICA,
-vs- CAUSE NO.:
AU-16-CA-01281-SS DOMINIQUE G. COLLIOT,
Defendant.
[II7 ]
BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and specifically, Defendant Dominique Colliot's Motion for Summary Judgment [#52], the United States America (the IRS)'s Response [#57] in opposition, Colliot's Reply [#58] in support, and the IRS's Surreply' [#59-2] in opposition as well as Colliot's Unopposed Motion to Modify Order on Prejudgment Writ of Garnishment UBS [#6 1]. Having reviewed the documents, the relevant law, and the case file as whole, the Court now enters the following opinion and orders.
Background In December the Internal Revenue Service (IRS) initiated this lawsuit reduce judgment outstanding civil penalties assessed against Colliot. Compi. [#1] The penalties were assessed for repeated and willful failures to timely file Form TD F 90-22.1, entitled "Report Foreign Bank Financial Accounts" and commonly referred as an "FBAR," from 2007 to 2010. Mot. Summ. [#52]. For 2007, assessed penalties of
The Court herein considers the arguments raised in the surreply and the IRS's Motion for Leave File Surreply [#59] GRANTED. Additionally, the IRS's Motion for Extension Time to File Response [#55] Motion to Withdraw Motion for Extension Time to File Response [#56] are both DISMISSED as moot.
$548,773 for four separate FBAR violations. Resp. Mot. Summ. J. [#57] at 15. For 2008, IRS assessed penalties of $196,082 for another four FBAR violations. Id. at 16. IRS also assessed smaller penalties in 2009 and 2010. Id. at In forms provided to Colliot in connection with the assessment of these penalties, the stated the penalties were authorized under 5321(a)(5) and c.F.R. 1010.820(g)(2). Mot. Summ. J. [#52-12] Ex. L at
These underlying facts are not in dispute. now moves for summary judgment on the ground the incorrectly applied the law when it calculated the monetary penalties assessed against Colliot. Mot. Summ. [#52]. This pending motion is ripe for review.
Analysis
I. Motion for Summary Judgment Legal Framework
A. To understand argument, it first necessary to briefly review the history the provision used to impose penalties upon Colliot, 532 1(a)(5). A previous version 532 1(a)(5) allowed the Secretary of Treasury impose civil monetary penalties amounting to the greater $25,000 or the balance the unreported account up to $100,000. See Resp. Mot. Summ. A related regulation promulgated by the Department the Treasury via notice-and-comment rulemaking, 103.57, reiterated that "[f]or any . the Secretary may assess upon any willful violation committed after October . . . not exceed the greater the amount (not exceed $100,000) person, a civil penalty[] . . equal the balance in the account the time the violation, or $25,000." Amendments Implementing Regulations Under the Bank Secrecy Act, 52 Fed. Reg. 11436, 11445-46 (1987).
In 2002, the Treasury delegated the authority assess penalties 532 1(a)(5) to Financial Crimes Enforcement Network (FinCEN). Order 180-01, 67 Fed. Reg. 64697 *3 (2002). In addition this delegation of enforcement authority, Order 180-01 provided that related regulations were unaffected this transfer of power and should continue in effect "until superseded or revised." Id. Roughly six months later, FinCEN redelegated the authority assess penalties 532 1(a)(5) and its related regulation, 103.57, to the IRS. Mot. Summ. [#52-5] Ex. E (Memorandum of Agreement Delegation of Authority for Enforcement of FBAR Requirements).
In 2004, Congress amended 5321 to increase the maximum civil penalties that could be assessed for willful failure to file an FBAR. 31 532 1(a)(5); American Jobs Creation Act of 2004, Pub. L. No. 108-357, 118 Stat. 1418 (2004). Under the revised statute, civil monetary penalties for willful failure file an FBAR increased to a minimum $100,000 and a maximum percent the balance in the unreported account at the time the violation. 5321(a)(5)(C).
Despite this change, the regulations promulgated in reliance on the prior version statute remained unchanged. Thus, 103.57 continued indicate the maximum penalty for willful failure file an FBAR was capped at $100,000. FinCEN subsequently renumbered 103.57it now C.F.R. 1010.820as part large-scale reorganization regulatory provisions. It also amended part regulation account for inflation. Civil Monetary Penalty Adjustment and Table, Fed. Reg. (2016). FinCEN did not, however, revise the regulation account for the increased maximum penalty now authorized under (a)(5). 31 Nevertheless, the did not let (now 1010.820) constrain its enforcement authority, and since 2004, has repeatedly levied penalties for willful FBAR violations in excess the $100,000 regulatory cap. Resp. Mot. Summ. [#57]
B. Application
Under 5 U.S.C. § 706(2), a court must hold unlawful and set aside agency actions which are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." argues the IRS acted arbitrarily and capriciously by assessing penalties against Colliot in excess of those allowed by § 1010.820. Mot. Summ. J. [#52] at 4-5 (arguing penalties imposed in excess the $100,000 cap set forth in § 10 10.820 are "not in accordance with the law"). In turn, the IRS argues § 1010.820 is inconsistent with the 2004 amendments to § 5321 (a)(5)(C) and was therefore implicitly superseded or invalidated by those statutory revisions. Resp. Mot. Summ. [#57] at 5, 7 (arguing the IRS followed "the actual law" instead the agency's superseded regulation); see also United States v. Larionoff 431 U.S. (1977) ("[I]n order to be valid[,] [regulations] must be consistent with the statute under which they are promulgated."). If the amendments § 5321 (a)(5) vitiated the lower penalty threshold set out in § 1010.820, then the cannot have acted arbitrarily or capriciously by failing to apply 10 10.820 to cap the penalties levied on Colliot.
Unfortunately for the IRS, there is little reason believe 5321 (a)(5)(C) implicitly superseded or invalidated Section 5321(a)(5) sets a ceiling for penalties assessable for willful FBAR violations, but it does not set a floor.2 5321(a)(5). Instead, 5321 (a)(5) vests the Secretary the Treasury with discretion determine the amount the penalty be assessed so long that penalty not exceed the ceiling set 532 1(a)(5)(C). argues Congress clearly intended increase penalties for willful FBAR violations when it amended 5321(a)(5), and therefore, implicitly supersedes 1010.820. Resp. Mot. Summ. This argument foreclosed by the unambiguous text 5321 (a)(5), which allows the Secretary the Treasury to assess larger penalties than those provided for by but ultimately leaves decision whether or not do so within Secretary Treasury's discretion. See 5321 (a)(5) (providing the Secretary "may impose penalty" falling within the penalty threshold set (a)(5)(C) (emphasis added)).
ni *5 Id. And § 1010.820a regulation validly issued by the Treasury via notice-and-comment rulemakingpurports to cabin that discretion capping penalties at $1 OO,OOO.3 C.F.R. 1010.820. Thus, considered in conjunction with § § 1010.820 is consistent with § 5321's delegation discretion to determine the amount penalties to be assessed. See US. Pipe & Foundry Co. v. Webb, 595 F.2d (5th Cir. 1979) ("Regulations are presumed valid unless they are shown be unreasonable or contrary to the provisions the enabling statute."). Since 1010.820 can be applied consistent with 5321(a)(5), the Court concludes 5321(a)(5) not implicitly invalidate or supersede 10 10.820.
In sum, 1010.820 is a valid regulation, promulgated via notice-and-comment rulemaking, which caps penalties for willful FBAR violations $100,000. C.F.R. issued via notice-and-comment rulemaking must be repealed via Rules notice-and-comment rulemaking. See Perez v. Mortgage Bankers Ass 'n, 135 S. Ct. 1199, 1206 (2015) (requiring agencies to "use to the same procedures when they amend or repeal rule as they used to issue the rule in the first instance"). Section 1010.820 has not been so repealed therefore remained good law when the FBAR penalties in question were assessed against Colliot. Consequently, IRS acted arbitrarily capriciously when it failed apply the regulation cap the penalties assessed against Colliot. 706(2) (requiring agency action be "in accordance with law"); see also Richardson v. Joslin, F.3d 415, (5th Cir. 2007) ("[A]n agency must abide its own regulations.") (citing United States ex rel. Accardi v. Shaughnessy, 347 U.S. 260 (1954)).
If FinCEN or the IRS wished preserve their discretion award the maximum possible penalty for willful FBAR violations under 5321(a)(5), they might easily have written or revised 1010.820 to do so. For example, might have incorporated (a)(5) 's maximum penalty thresholds by reference, or alternatively, the IRS might have revised 1010.820 reflect increased penalty limits. Instead, FinCEN and the enacted and then left in place the $100,000 penalty cap. *6 II. Motion Modify Order on Prejudgment Writ of Garnishment also asks the Court modify its Order on Prejudgment Writ Garnishment UBS [#19]. Mot. Modify [#6 1]. Specifically, Colliot asks the Court modify the order authorize the purchase and sale U.S. Treasury bills with a maturity date one year or less using funds withheld by writ garnishment. Id. [#61] at The funds are otherwise remain segregated with UBS the terms the original order. Id. The Court finds the terms these proposed modifications the order reasonable and unopposed the IRS, and therefore the Court grants Colliot's request for the modifications specified above. However, the Court not at this time consent the transfer increases in the segregated funds resulting from interest accruals or proceeds from the sale or maturity the Treasury bills.
Conclusion Court agrees with Colliot that the cannot assess penalties in excess threshold set However, neither party has briefed the Court on what relief might be appropriately afforded Colliot in these circumstances, and at this time, the Court declines Colliot's unsupported request that the Court dismiss the entire action with prejudice. See Mot. Summ. Instead, the Court orders the parties provide additional briefing on the appropriate next steps in this case.
Accordingly,
IT IS ORDERED Motion for Summary Judgment GRANTED fl' PART and DENIED 1N PART described in this opinion; IT IS FURTHER ORDERED the parties shall within THIRTY (30) days file with Court brief memo no more than TEN (10) pages regarding whether the Court should dismiss this case with prejudice and citing to legal authority in support; and *7 IT IS FINALLY ORDERED that Unopposed Motion Modify Order on Prejudgment Writ Garnishment to UBS [#61] GRANTED IN PART DENIED IN PART described in this opinion.
SIGNED this /5y May
SAM PA
SENIOR UNITED STA S DISTRICT JUDGE