District Court Holds Indicatively While Case on Appeal That Remand of FBAR Willful Penalty to IRS Did Not Vacate the Timely Assessments (2/27/24)

 In United States v. Kerr (D. AZ Dkt O. 2:19-CV-05432 Order dtd 2/23/24), TN here and CL here, the district court ruled indicatively clarifying the intended effect of the district court termination of the case after remand to the IRS of willful FBAR penalties for certain years. The intended effect was not to vacate those penalties but to provide a procedure to reconsider and modify the amount of the penalties for future district court judgment. In other words, the remand did not require a new assessment of FBAR willful penalties (for which the assessment statute of limitations had run). Rather, any IRS action would adjust the previously timely assessed FBAR penalties. After this indicative ruling, the appeal of the case can proceed in the Ninth Circuit.

Links to items related to this blog are:

• FRCP 62,1, titled Indicative Ruling on a Motion for Relief That is Barred by a Pending Appeal, here,
• FRAP 12.1, Remand After an Indicative Ruling by the District Court on a Motion for Relief That Is Barred by a Pending Appeal, here,
• Kerr docket entries for this civil case (FBAR penalty enforcement case): CL, here.
• Ninth Circuit Order staying Ninth Circuit proceedings pending the district court’s indicative ruling, here.

Prior blogs involving Mr. Kerr are (reverse chronological order):

Interesting Motion to Dismiss Government FBAR Willful Penalty Collection Suit (2/6/23)

In United States v. Lisenby (N.D. Ga. Case number 1:22-cv-04579), CL docket entries here, on November 17, 2021, the Government sued Lisenby for recovery of FBAR willful penalties for multiple years. (Dkt entry 1.) On January 31, 2023, Lisenby responded with a motion to dismiss. (Dkt entry 9, here.)  I write here about the memorandum in support of the motion to dismiss.

The memorandum seems to provide a well-written summary of the Government’s claims. The motion to dismiss makes the following claims:

1. The original FBAR assessments were based on the method of calculation that the 11^th Circuit rejected in United States v.  Schwarzbaum, 24 F.4th 1355 (11th Cir. 2022). As explained in the motion (p. 6):

The Government alleges that at some unspecified time following the Eleventh Circuit’s decision in United States v. Schwarzbaum, 24 F.4th 1355 (11th Cir. 2022), the IRS determined it would sua sponte recalculate the penalties assessed against Mr. Lisenby based upon that decision. (Compl. ¶ 61). Despite determining that the Government’s initial assessment was not in compliance with the law (Compl. ¶¶ 61-62), the Government has not alleged that it ever reassessed Mr. Lisenby or gave him an opportunity to pay based upon what it now asserts is the correct assessment.

The motion makes further arguments based on that claim (pp. 7-8). My sense is that the best that can come from this claim is to put Lisenby in the position of Schwarzbaum that, once having made an invalid assessment, the statute has expired on making a recalculated assessment. I think that, while that may be a good argument in Schwarzbaum on its current appeal, the 11^th Circuit is unlikely to accept it because it will certainly know that it screwed up the original Schwarzbaum opinion that they did not realize would give Schwarzbaum an opportunity to escape the penalty. Two mistakes may do rough justice. I have no idea what the court will do in the Lisenby case.

2. The motion claims (pp. 9-11) that, in any event, the assessments (original or recalculated) are out of time. Lisenby’s argument is that the Government's reliance on consents/waivers to extend the time for assessment are invalid because key consents/waivers were signed at some point after the statute of limitations had expired. Lisenby seeks to morph the clear statutory text of § 6501(c)(4) requiring that consents for tax purposes be signed while the statute is still open. The problem Lisenby must overcome is that there is no such statute applicable to the FBAR penalties, so the general rule applies that waivers to statute of limitations defenses can be made at any time. See Court Rejects Government Summary Judgment Motion in FBAR Willful Penalty Collection Suit (Federal 8/28/19), here, on a rejection of a similar defense in the district court Schwarzbaum.

District Court Muddles an FBAR Willful Penalty Case (3/21/20; 3/24/20)

I made a key revision on 3/24/20 at 4:00pm as indicated in red below to state with cites to the statute that the willful FBAR willful penalty limits (greater of $100,000 or 50% of unreported accounts) is a maximum penalty, thus giving the IRS authority to assert lesser FBAR penalty amounts than those maximums.  That reading of the willful penalty was implicit in the  rest of the discussion; I just thought it should be made explicit.  The changed language is marked in red below.

In United States v. Schwarzbaum (S.D. Fla. Dkt. 18-cv-81147, Order dated 3/20/20), here, in an FBAR collection suit, the court:

1. Held that Schwarzbaum was not liable for the FBAR willful penalty for 2006 but held open the possibility that the nonwillful penalty might apply. 

2. Held that Schwarzbaum was liable for the FBAR willful penalty for 2007, 2008 and 2009, but held that the IRS’s method of determining the penalty was arbitrary and capricious because it was not based on the June 30 values in the unreported offshore account, but the Court held that the parties were to confer to “in an effort to resolve the outstanding amount owed.”

The CourtListener docket for the case is here.

JAT Comments:

1.  I will not review the facts leading to the holding but will instead only deal with the legal issues in the opinion that I think are worthy of comment.

Statutes of Limitations for FBAR Noncompliance Related to Tax Noncompliance (3/12/13)

A person commenting on an earlier blog asked the following question (modified slightly for clarity):

Does the statute of limitations for the FBAR penalty (both civil and criminal) toll if the taxpayer is outside the U.S.? 

I answered at least the criminal part of the question in a comment reply.  I thought the question was worthy of a blog entry to expand the reply and alert readers who may not work their way to the comment and reply.

Suspension of the FBAR Criminal Penalty Statute of Limitations

Before I answer the question, I should first state why the question may be important.  A U.S. person with a concern of criminal prosecution for FBAR violations may absent himself from the U.S. until the statute has run on the FBAR violations and thereby hope to avoid prosecution.  That person, of course, would want to become compliant prospectively upon adopting the strategy, if it worked, so that, with enough time (5 years for FBAR prosecution), the risk of FBAR prosecution would go away.

With that background, I think the direct answer is that the FBAR criminal statute of limitations would be tolled (or suspended). 18 USC 3290, here, provides simply and cryptically "No statute of limitations shall extend to any person fleeing from justice." Title 18 is the general criminal code.  The immediate question, of course, is whether  § 3290 applies to crimes outside Title 18, such as the FBAR crime codified in Title 31.   I have not researched the issue in great detail.  But I did find a case where for an immigration crime (18 USC 1326, felony re-entry), the  Second Circuit applied  § 3290.  United States v. Rivera-Ventura, 72 F.3d 277, 284 (2d Cir. 1995).  Section 3290 requires that the person be "fleeing from justice" (whether inside or outside the U.S.).  I suppose the question then is what this means.  As I say in my Federal Tax Crimes book, the “majority rule” for §  3290 is that “intent to avoid arrest or prosecution must be proved” for § 3290's fugitive definition to apply; the minority rule is that mere absence from the jurisdiction, regardless of intent, is sufficient (I suppose just the objective fact of being absent from prosecution of justice is sufficient).