Monday, July 16, 2018

Update on Colliot Limitation on Discretion for FBAR Willful Penalty (7/16/18; 7/18/18)

I have written on the Colliot summary judgment limiting the IRS FBAR willful penalty to $100,000.  United States v. Colliot (W.D. Texas No. AU-16-CA-01281-SS), here;  see District Court Caps IRS Authority to Assess Willful FBAR Penalty at $100,000 (Federal Tax Crimes Blog 5/19/18), here.  I have two follow through items.

1.  The Government is asserting in other cases that Colliot was incorrectly decided.  Kimble v. United States (Court Fed. Cl. Dkt. 170521 T, Dkt entry 29), here.

2.  In Colliot, the Government filed an Additional Memorandum dated 6/14/18, here, seeking to mitigate the damage caused by the opinion.  The Government argues that, based on the number and balances in the accounts, even applying the limitation imposed by the court in the opinion, the Government is entitled to most of the penalties assessed.  The key to the claim is that the FBAR willful penalty with the limitation imposed by the court is based per account per year.  Each account could, under the court's opinion, be assessed FBAR willful penalties as follows: (i) $100,000 penalty per account with an amount of $100,000 or more; (ii) the amount in the account when the amount is between $100,000 and $25,000, and (iii) $25,000 when the amount in the account is $25,000 of less.  In Colliot, the defendants had a number of accounts with varying amounts, so the disaggregation of the accounts makes a substantial difference.

The Government argues that the maximum allowed under the Colliot opinion for 14 of the 16 accounts involved would have been $871,300, but that, for those accounts, the Government only assessed $445,314.  (See Table on p. 6.)  The Government thus argues that for those 14 penalties, the assessments “are within the maximum limits set forth in the regulation, and remain unaffected by the Court’s Order” and thus the IRS did not act arbitrarily or capriciously in assessing those penalties.  Further, the Government argues (pp. 7-10), the Court’s order affects only two of the accounts to cap the penalty at $100,000 or $25,000, so that the total penalties assessed for those two accounts is $378,784 and the amount allowed under the court’s order is $125,000.  In net, under the Government’s calculations, the reduction in FBAR willful penalty for those two accounts would be $253,784.

And, if the IRS had assessed all accounts based on the authority the court recognized in the opinion, the aggregate penalties could have been higher than the penalties the IRS actually assessed because of the number and amounts in the accounts.  Thus, according to the totals on tables 1 and 2, the potential FBAR willful penalties under the courts opinion in the aggregate was $996,300, whereas for those accounts the IRS only assessed $824,098. (See my table below.)

Total Under Court
Assessed Order
Table 1 - 14 accounts (p. 6) $445,314 $871,300
Table 2 - 2 accounts (p. 7) $378,784 $125,000
Total $824,098 $996,300

Correction 7/18/18 12:00pm

In my original posting, I had a concluding paragraph noting that it was not clear to me how the IRS made the assessments it made.  The assessments are in Tables 1 and 2 in the Additional Memorandum linked above. I invited readers to offer me their insights.  Benjamin Heidinger, Associate Attorney, Robert J. Fedor Esq., LLC, here, responded by email that all FBAR assessments except the UBS account assessment appear to be based on the IRM FBAR penalty Mitigation Guidelines.  The Guidelines are in the IRM.  IRM Exhibit 4.26.16-1, FBAR Penalty Mitigation Guidelines for Violations Occurring After October 22, 2004, here.  I think he is right, but I have not independently worked the numbers to confirm it.  Thanks to that Benjamin.

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