District Court Confuses Analysis in Approving Magistrate's R&R Imposing FBAR Willful Penalty (9/26/19)

I previously reported on the Magistrate's Report and Recommendation in United States v. Rum (M.D. Fla. No. 8:17-cv-826-T-35AEP). See Magistrate Recommends Sustaining Imposition of FBAR Willful Penalty (Federal Tax Crimes Blog 8/28/19), here.  Rum objected before the district court.  By order dated 9/26/19, the district court has confirmed and adopted the Magistrate's Report and Recommendation as part of the district court's order.  See Order, here.

The district court's order is short and fairly perfunctory. But, I do think the district court confused its analysis of what the Magistrate did.  In relevant part, the Magistrate found that (i) the summary judgment evidence was sufficient to grant judgment for the Government on the issue of willfulness and (ii) the administrative record was adequate to show that the IRS had not acted arbitrarily and capriciously under the APA in exercising its discretion in setting the amount of the willful FBAR penalty.

The district court,  however, seems to conflate the two issues.  Here is the key paragraph (with footnotes):

For this reason, too, Mr. Rum’s challenge to the Magistrate Judge’s decision on the basis that the Judge “Did Not Apply the Correct Standard of Review for A Motion for Summary Judgment” also fails. (Dkt. 72 at 19) Mr. Rum seems to suggest that the Magistrate Judge improperly engaged in fact-finding at the summary judgement stage of the case. (Dkt. 72 at 20) This assertion is plainly wrong. The Magistrate Judge was not making a de novo determination that Mr. Rum’s testimony was not credible or deciding whether Mr. Rum acted willfully. Rather, the Magistrate Judge reviewed the administrative record, as he was constrained to do, n1 to determine whether the record supported the Agency’s decision that Mr. Rum acted willfully. His evaluation of that record was sound, and his conclusion was correct. n2 
   n1 This disposes of Objection VII in which Rum suggests the Magistrate Judge committed error in declining to go outside the administrative record to consider his challenges to the Agency’s decision. (Dkt. 72 at 17-18) The Magistrate Judge correctly observed that “a court shall only review the record before it to ensure that the agency engaged in reasoned decision-making.” (Dkt. 71 at 20). The Supreme Court’s decision in Dep’t of Commerce v. New York, 139 S. Ct. 2551 (2019), does not alter that longstanding precedent except in very limited circumstances not present on this record.
   n2 The remaining objections, not specifically addressed herein, are either bound up in the matters here discussed, or are just a rehash of arguments made in the summary judgment motion, which were thoroughly and correctly disposed of by the Magistrate Judge’s Report and Recommendation.

I have bold-faced the troubling analysis.  Under the Magistrate's R&R (and the law), the administrative record did not limit the scope of the inquiry on the issue of willfulness but rather only on the amount of the FBAR penalty over which the IRS had discretion.

For further information, I link here the Government's response brief on the objections to the R&R.