Wednesday, September 30, 2015

Court Denies Preliminary Injunction in FATCA and FBAR Challenge (9/30/15)

In Crawford v. United States Dep't of the Treasury, 2015 U.S. Dist. LEXIS 131496 (SD OH 9/29/2015), here, the Court denied a preliminary injunction in the case seeking the following relief:
Plaintiffs seek preliminary injunctive relief on all claims. The first claim challenges the validity of the Canadian, Czech, Israeli, and Swiss IGAs used by the Treasury Department. The second claim addresses the information reporting provisions FATCA and the IGAs impose not on Plaintiffs, but on foreign financial institutions. The third claim aims at the heightened reporting requirements for foreign bank accounts under FATCA, the IGAs, and the FBAR. These reporting requirements require U.S. citizens to report information about their foreign bank accounts. The fourth claim challenges the 30% tax imposed by FATCA on payments to foreign financial institutions from U.S. sources when these foreign institutions choose not to report to the IRS about the bank accounts of their U.S. customers (the "FFI Penalty"). Similarly, the fifth claim challenges the 30% tax imposed by FATCA on account holders who exercise their rights under the statute not to identify themselves as American citizens to their banks and to refuse to waive privacy protections afforded their accounts by foreign law (the "Passthrough Penalty"). The sixth claim challenges the penalty imposed under the Bank Secrecy Act for "willful" failures to file an FBAR for foreign accounts, which can be as much as the greater of $100,000 or 50% of the value of the unreported account (the "Willfulness Penalty").
The case is not particularly noteworthy from a legal perspective.  It just denied a preliminary injunction.  The likelihood of getting any ultimate relief in the case, preliminary or otherwise, is minimal.  (The pursuit of the case is more a way to make a statement and perhaps encourage those who can be encouraged by such futile statements to make contributions to the people and organizations who proclaim such futile statements.)

In a sense, though, the case is interesting.  I cut and paste certain excerpts that I found interesting:

On Claims by Senator Rand Paul (Wikipedia entry here).
Senator Paul seeks to base legal standing for Counts 1 and 2 in his role as a U.S. Senator, charged with the institutional task of advice and consent under the Constitution. He contends that the IGAs exceed the proper scope of Executive Branch power and should have been submitted for Senate approval. ¶¶ 28, 29. Senator Paul's argument that the Executive Branch is usurping Congress's powers by not submitting the IGAs for a vote-that he has a "right to vote"-is a claim that the Executive Branch is not acting in accordance with the law and that he may remedy such violation in his official capacity as a senator. In Raines v. Byrd, several members of Congress challenged the constitutionality of the Line Item Veto Act of 1996, asserting that the statute infringed on their power as legislators. 521 U.S. at 816. The Supreme Court held that they lacked Article III standing. It noted that their claim asserted "a type of institutional injury (the diminution of legislative power), which necessarily damages all Members of Congress and both Houses of Congress equally." Id. at 821. Because Plaintiffs' "claim of standing [was] based on a loss of political power, not loss of any private right," their asserted injury was not "concrete" for the purposes of Article III standing. Id. Raines bars Senator Paul's claims. This is true even if he frames the conduct he challenges as a "usurpation" of congressional authority. See Chenoweth v. Clinton, 181 F.3d 112, 116 (D.C. Cir. 1999) (a claim of usurpation of congressional authority is not sufficient to satisfy the standing requirement); see also Walker v. Cheney, 230 F. Supp. 2d 51, 73 (D.D.C. 2002) ("the role of Article III courts has not historically involved adjudication of disputes between Congress and the Executive Branch based on claimed injury to official authority or power."). 
Senator Paul has not been authorized to sue on behalf of the Senate. This fact also weighs against finding standing. See Raines, 521 U.S. at 829 ("We attach some importance to the fact that appellees have not been authorized to represent their respective Houses of Congress in this action[.]"). Members of Congress possess an adequate remedy (since they may repeal the Act or exempt appropriations bills from funding its implementation). Raines, 521 U.S. at 829. 
Nor can Senator Paul base his standing on a more generalized interest in "vindication of the rule of law." See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 106 (1998); see also Hollingsworth v. Perry, 133 S. Ct. 2652, 2662 (2013) ("[A]n asserted right to have the Government act in accordance with law is not sufficient, standing alone[.]" (quotation omitted)). A legislator does not hold any legally protected interest in proper application of the law that is distinct from the interest held by every member of the public. Senator Paul thus fails to allege a particularized, legally cognizable injury by his claim that the Executive Branch is not adhering to the law. See Campbell v. Clinton, 203 F.3d 19, 22 (D.C. Cir. 2000) (Congressional plaintiffs do not "have standing anytime a President allegedly acts in excess of statutory authority"). 
Senator Paul has "not been singled out for specially unfavorable treatment." Raines, 521 U.S. at 821. All Plaintiffs here, including Senator Paul, have an adequate remedy to challenge the reporting requirements and penalties that they oppose: they may work toward repeal of the laws through the legislative process. Id. Of course, FATCA, the IGAs, and the FBAR requirements are not exempt from constitutional challenge, but they must be challenged by an individual who has suffered a judicially cognizable injury. Id. Plaintiffs in this case do not qualify. 
In sum, Paul has alleged no injury to himself as an individual, the institutional injury he alleges is wholly abstract and widely dispersed, and his attempt to litigate this dispute at this time and in this form is contrary to historical experience. Raines, 521 U.S. at 829.
JAT Comment:  Rand Paul's appearance in this futile case is just another instance of congressmen posturing for their base rather than really trying to solve problems.

On the FBAR penalty:

The willful FBAR penalty also survives a facial challenge because the maximum penalty will be constitutional in at least some circumstances. A maximum penalty fixed by Congress is due substantial deference from the courts. See Bajakajian, 524 U.S. at 336 ("[J]udgments about the appropriate punishment for an offense belong in the first instance to the legislature."); see also United States v. 817 N.E. 29th Drive, Wilton Manors, Fla., 175 F.3d 1304, 1309 (11th Cir. 1999). Congress increased the maximum FBAR penalty to its present level in 2004. See 31 U.S.C. § 5321(a)(5)(C). Congress chose this penalty range because FBAR reporting furthers an important law enforcement goal. The Senate Finance Committee explained: 
The Committee understands that the number of individuals involved in using offshore bank accounts to engage in abusive tax scams has grown significantly in recent years . . . . The Committee is concerned about this activity and believes that improving compliance with this reporting requirement is vitally important to sound tax administration, to combating terrorism, and to preventing the use of abusive tax schemes and scams. 
S. Rep. 108-257, at 32 (2004) (explaining increase in maximum willful penalty and creation of new civil non-willful penalty). Indeed, FBARs are available not only to the IRS but also to a variety of law enforcement agencies investigating crimes like money laundering and terrorist financing. See, e.g., Amendment to the Bank Secrecy Act Regulations-Reports of Foreign Financial Accounts, 75 Fed. Reg. 8844, 8844 (Feb. 26, 2010). Setting the maximum willful penalty as a substantial proportion of the account ensures that the willful penalty is not merely a cost of doing business for tax evaders, terrorists, and organized criminals. 
A 50% willful FBAR penalty-the maximum permitted by statute-is severe. But given the ills it combats, it is an appropriate penalty in at least some circumstances. Accordingly, the Plaintiffs' facial challenge to it under the Eighth Amendment fails.
JAT Comment:  This follows anecdotal but important suggestions that full bore application of the FBAR willful penalty of 50% for multiple years may be a problem.  The IRS's recent guidelines on the application of the FBAR penalties generally limiting the amount of the willful penalties to 50% of the high amount in the open years seems to mitigate the potential for a court finding the penalty excessive.  See New IRS FBAR Penalty Guidance (Federal Tax Crimes Blog 5/29/15; 6/1/15), here.

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