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United States v. Colliot

United States District Court, W.D. Texas, Austin Division

May 17, 2018

UNITED STATES OF AMERICA,
v.
DOMINIQUE G. COLLIOT, Defendant.

          ORDER

          SAM SPARKS SENIOR UNITED STATES DISTRICT JUDGE

         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 of America (the IRS)'s Response [#57] in opposition, Colliot's Reply [#58] in support, and the IRS's Surreply[1] [#59-2] in opposition as well as Colliot's Unopposed Motion to Modify Order on Prejudgment Writ of Garnishment to UBS [#61]. Having reviewed the documents, the relevant law, and the case file as a whole, the Court now enters the following opinion and orders.

         Background

         In December 2016, the Internal Revenue Service (IRS) initiated this lawsuit to reduce to judgment outstanding civil penalties assessed against Colliot. Compl. [#1] at 1. The penalties were assessed for Colliot's repeated and willful failures to timely file Form TD F 90-22.1, entitled "Report of Foreign Bank and Financial Accounts" and commonly referred to as an "FBAR, " from 2007 to 2010. Mot. Summ. J. [#52]. For 2007, the IRS assessed penalties of $548, 773 for four separate FBAR violations. Resp. Mot. Summ. J. [#57] at 15. For 2008, the IRS assessed penalties of $196, 082 for another four FBAR violations. Id. at 16. The IRS also assessed smaller penalties in 2009 and 2010. Id. at 17. In forms provided to Colliot in connection with the assessment of these penalties, the IRS stated the penalties were authorized under 31 U.S.C. § 5321(a)(5) and 31 C.F.R. § 1010.820(g)(2). Mot. Summ. J. [#52-12] Ex. L at 2.

         These underlying facts are not in dispute. Colliot now moves for summary judgment on the ground the IRS incorrectly applied the law when it calculated the monetary penalties assessed against Colliot. Mot. Summ. J. [#52]. This pending motion is ripe for review.

         Analysis

         I. Motion for Summary Judgment

         A. Legal Framework

         To understand Colliot's argument, it is first necessary to briefly review the history of the provision used to impose civil penalties upon Colliot, 31 U.S.C. § 5321(a)(5). A previous version of § 5321(a)(5) allowed the Secretary of the Treasury to impose civil monetary penalties amounting to the greater of $25, 000 or the balance of the unreported account up to $100, 000. See Resp. Mot. Summ. J. [#57] at 2. A related regulation promulgated by the Department of the Treasury via notice-and-comment rulemaking, 31 C.F.R. § 103.57, reiterated that "[f]or any willful violation committed after October 26, 1986 ... the Secretary may assess upon any person, a civil penalty[] . . . not to exceed the greater of the amount (not to exceed $100, 000) equal to the balance in the account at the time of the violation, or $25, 000." Amendments to Implementing Regulations Under the Bank Secrecy Act, 52 Fed. Reg. 11436, 11445-46 (1987).

         In 2002, the Treasury delegated the authority to assess penalties under § 5321(a)(5) to the Financial Crimes Enforcement Network (FinCEN). Treasury Order 180-01, 67 Fed. Reg. 64697 (2002). In addition to this delegation of enforcement authority, Treasury Order 180-01 provided that related regulations were unaffected by this transfer of power and should continue in effect "until superseded or revised." Id. Roughly six months later, FinCEN redelegated the authority to assess penalties under § 5321(a)(5) and its related regulation, § 103.57, to the IRS. Mot. Summ. J. [#52-5] Ex. E (Memorandum of Agreement and 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 U.S.C. § 5321(a)(5); American Jobs Creation Act of 2004, Pub. L. No. 108-357, § 821, 118 Stat. 1418 (2004). Under the revised statute, the civil monetary penalties for willful failure to file an FBAR increased to a minimum of $100, 000 and a maximum of 50 percent of the balance in the unreported account at the time of the violation. 31 U.S.C. § 5321(a)(5)(C).

         Despite this change, the regulations promulgated in reliance on the prior version of the statute remained unchanged. Thus, § 103.57 continued to indicate the maximum civil penalty for willful failure to file an FBAR was capped at $100, 000. FinCEN subsequently renumbered § 103.57-it is now 31 C.F.R. § 1010.820-as part of a large-scale reorganization of regulatory provisions. It also amended part of the regulation to account for inflation. Civil Monetary Penalty Adjustment and Table, 81 Fed. Reg. 42503, 42504 (2016). FinCEN did not, however, revise the regulation to account for the increased maximum penalty now authorized under § 5321(a)(5). 31 C.F.R. § 1010.820. Nevertheless, the IRS did not let § 103.57 (now § 1010.820) constrain its enforcement authority, and since 2004, the IRS has repeatedly levied penalties for willful FBAR violations in excess of the $100, 000 regulatory cap. Resp. Mot. Summ. J. [#57] at 3.

         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 ...


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