SCOTUS Reports

Tag: FBAR Penalties

  • Jenner v. Commissioner, 163 T.C. No. 7 (2024): FBAR Penalties and Collection Due Process Rights

    Jenner v. Commissioner, 163 T. C. No. 7 (U. S. Tax Court 2024)

    In Jenner v. Commissioner, the U. S. Tax Court ruled that Foreign Bank Account Reporting (FBAR) penalties are not taxes and thus not subject to the collection due process (CDP) hearing requirements of I. R. C. §§ 6320 and 6330. The court dismissed the case for lack of jurisdiction, clarifying that the IRS was not obligated to provide a CDP hearing for FBAR penalties, which are governed by Title 31, not Title 26 of the U. S. Code.

    Parties

    Stephen C. Jenner and Judy A. Jenner, petitioners, v. Commissioner of Internal Revenue, respondent.

    Facts

    Stephen C. Jenner and Judy A. Jenner were assessed FBAR penalties under 31 U. S. C. § 5321 for failing to file foreign bank account reports for the years 2005 through 2009. The Department of the Treasury’s Bureau of the Fiscal Service (BFS) informed the Jenners that funds would be withheld from their monthly Social Security benefits under the Treasury Offset Program (TOP) to satisfy their debts. The Jenners requested collection due process (CDP) hearings, but the IRS denied these requests, asserting that FBAR penalties are not taxes and thus not subject to I. R. C. § 6330 requirements. The Jenners subsequently filed a petition with the U. S. Tax Court, alleging they were deprived of their CDP rights.

    Procedural History

    The Jenners filed their petition with the U. S. Tax Court on June 5, 2023, while residing in Florida. The Commissioner moved to dismiss the case for lack of jurisdiction on July 19, 2023, arguing that the collection of FBAR penalties is not subject to the notice and other requirements of I. R. C. § 6330. The Tax Court, in its opinion dated October 22, 2024, granted the Commissioner’s motion and dismissed the case for lack of jurisdiction.

    Issue(s)

    Whether Foreign Bank Account Reporting (FBAR) penalties are subject to the requirements of I. R. C. §§ 6320 and 6330, which mandate collection due process (CDP) hearings for unpaid taxes?

    Rule(s) of Law

    The Internal Revenue Code, specifically I. R. C. §§ 6320 and 6330, mandates collection due process (CDP) hearings for unpaid taxes. FBAR penalties are authorized and imposed by Title 31 of the U. S. Code, specifically 31 U. S. C. § 5321, and are not considered taxes under the Internal Revenue Code. The U. S. Tax Court has jurisdiction over cases involving unpaid taxes as per I. R. C. § 7442.

    Holding

    FBAR penalties are not taxes imposed by the Internal Revenue Code and thus are not subject to the requirements of I. R. C. §§ 6320 and 6330. The U. S. Tax Court lacks jurisdiction over the Jenners’ petition because FBAR penalties do not fall within the court’s jurisdiction.

    Reasoning

    The court’s reasoning was based on the statutory distinction between Title 26 (Internal Revenue Code) and Title 31 (Money and Finance) of the U. S. Code. FBAR penalties, governed by Title 31, are considered nontax debts to the United States, and their collection is subject to different procedures than those for taxes under Title 26. The court emphasized that the CDP procedures under I. R. C. §§ 6320 and 6330 apply only to unpaid taxes, as evidenced by the language in these sections that consistently refers to “tax. ” The court cited previous decisions, such as Goza v. Commissioner and Williams v. Commissioner, to support its conclusion that FBAR penalties are not subject to the deficiency procedures or CDP requirements. The court also noted that the collection mechanism for FBAR penalties is a civil action, not a lien or levy, further distinguishing them from taxes. The court rejected the Jenners’ arguments that the administrative offsets on their Social Security benefits constituted levies by the Secretary that entitled them to a CDP hearing, stating that such offsets are governed by Title 31, not Title 26.

    Disposition

    The U. S. Tax Court dismissed the case for lack of jurisdiction.

    Significance/Impact

    Jenner v. Commissioner clarifies that FBAR penalties are not subject to the collection due process (CDP) requirements of I. R. C. §§ 6320 and 6330. This decision reinforces the distinction between Title 26 and Title 31 penalties, impacting how taxpayers and the IRS handle FBAR penalty assessments and collections. The ruling may influence future litigation regarding the applicability of tax court jurisdiction to penalties imposed under other titles of the U. S. Code. Practitioners must advise clients that FBAR penalties are not subject to the same procedural protections as tax liabilities, potentially affecting strategies for challenging such penalties.

  • Whistleblower 22716-13W v. Commissioner, 146 T.C. 84 (2016): Exclusion of FBAR Penalties from Whistleblower Award Thresholds

    Whistleblower 22716-13W v. Commissioner, 146 T. C. 84 (2016)

    The U. S. Tax Court ruled that Foreign Bank Account Report (FBAR) penalties, which are assessed under Title 31, do not count toward the $2 million threshold for mandatory whistleblower awards under I. R. C. § 7623(b). This decision clarifies that only penalties under the Internal Revenue Code can be considered for eligibility in such awards, impacting how whistleblowers can qualify for nondiscretionary rewards in cases involving offshore accounts.

    Parties

    Whistleblower 22716-13W, the petitioner, sought review of the IRS Whistleblower Office’s denial of his claim for an award. The Commissioner of Internal Revenue, the respondent, moved for summary judgment, contending that the petitioner’s claim did not meet the $2 million threshold for a nondiscretionary award under I. R. C. § 7623(b).

    Facts

    In 2010, the petitioner filed a Form 211 with the IRS Whistleblower Office, alleging cooperation with the Department of Justice and IRS Criminal Investigation Division concerning an investigation into two Swiss bankers, Martin Lack and Renzo Gadola. The petitioner claimed that his cooperation led to information about these bankers’ involvement in tax evasion by U. S. persons using undeclared offshore accounts. In 2011, the petitioner filed a claim for an award after learning that Taxpayer 1, who had been assisted by Gadola, agreed to pay a substantial FBAR civil penalty as part of a guilty plea for filing a false tax return. Taxpayer 1 admitted to using Swiss bank accounts to conceal income and assets from U. S. authorities, and agreed to pay an FBAR penalty exceeding $2 million and a small amount of restitution for unpaid federal income tax. The petitioner’s claim was based on the total amount paid by Taxpayer 1, asserting that his involvement in Gadola’s arrest led to Taxpayer 1’s arrest and subsequent penalties.

    Procedural History

    The IRS Whistleblower Office initially informed the petitioner of a legal opinion concluding that FBAR penalties, being assessed under Title 31, were not eligible for nondiscretionary awards under I. R. C. § 7623(b). The petitioner sought immediate review in the U. S. Tax Court, but the court dismissed the case for lack of jurisdiction, as no final determination had been made. On September 6, 2013, the IRS issued a final determination letter denying the petitioner’s claim on two grounds: the government obtained information about Taxpayer 1’s offshore accounts directly from the Swiss bank without the petitioner’s assistance, and the claim did not meet the $2 million threshold because FBAR penalties were not considered “additional amounts” under I. R. C. § 7623(b)(5)(B). The petitioner timely petitioned the Tax Court for review. The Commissioner filed an answer, raising the $2 million threshold as an affirmative defense. On May 29, 2015, the Commissioner moved for summary judgment based on the petitioner’s failure to satisfy the $2 million threshold, which the court granted.

    Issue(s)

    Whether FBAR civil penalties assessed under Title 31 constitute “additional amounts” within the meaning of I. R. C. § 7623(b)(5)(B), thereby counting towards the $2 million threshold for eligibility for a nondiscretionary whistleblower award?

    Rule(s) of Law

    I. R. C. § 7623(b)(5)(B) provides that a whistleblower is eligible for a nondiscretionary award only if “the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000. ” The term “additional amounts” is a term of art in the Internal Revenue Code, specifically referring to civil penalties set forth in Chapter 68, Subchapter A, which are assessed, collected, and paid in the same manner as taxes. FBAR penalties are assessed under 31 U. S. C. § 5321, not under the Internal Revenue Code, and thus are not “additional amounts” as defined by I. R. C. § 6665(a)(1).

    Holding

    The U. S. Tax Court held that FBAR civil penalties do not constitute “additional amounts” within the meaning of I. R. C. § 7623(b)(5)(B) and therefore must be excluded in determining whether the $2 million “amount in dispute” requirement has been satisfied for eligibility for a nondiscretionary whistleblower award.

    Reasoning

    The court’s reasoning was based on a textual analysis of the statute. It noted that the term “additional amounts” is a term of art in the Internal Revenue Code, consistently used to refer to specific civil penalties under Chapter 68, Subchapter A. The court referenced prior decisions such as Bregin v. Commissioner and Pen Coal Corp. v. Commissioner, which established that “additional amounts” refers to penalties assessed, collected, and paid in the same manner as taxes under the Internal Revenue Code. The court also cited Williams v. Commissioner, which held that FBAR penalties do not fall within the court’s jurisdiction as “additional amounts. ” The court rejected the petitioner’s arguments based on the broader language of I. R. C. § 7623(a) and the term “collected proceeds” in § 7623(b)(1), emphasizing that the specific language of § 7623(b)(5)(B) controlled the issue at hand. The court also dismissed policy arguments suggesting that FBAR penalties should be treated as taxes for whistleblower purposes, stating that any gaps in the statute could only be addressed by Congress.

    Disposition

    The court granted the Commissioner’s motion for summary judgment, ruling that the petitioner’s claim did not satisfy the $2 million threshold under I. R. C. § 7623(b)(5)(B) and was therefore ineligible for a nondiscretionary whistleblower award.

    Significance/Impact

    This decision has significant implications for whistleblowers seeking awards under I. R. C. § 7623(b), particularly in cases involving undisclosed offshore accounts. By excluding FBAR penalties from the calculation of the $2 million threshold, the court’s ruling may reduce the incentives for whistleblowers to report such violations, as these penalties can often exceed the related income tax liabilities. The decision underscores the importance of statutory text in determining eligibility for whistleblower awards and highlights the distinction between penalties under Title 26 and Title 31. Subsequent courts have followed this interpretation, and it remains a key precedent in whistleblower litigation involving offshore accounts and FBAR penalties.

  • Williams v. Comm’r, 131 T.C. 54 (2008): Jurisdiction of the U.S. Tax Court Over FBAR Penalties, Unassessed Interest, and Tax Liabilities

    Williams v. Commissioner of Internal Revenue, 131 T. C. 54 (U. S. Tax Court 2008)

    In Williams v. Commissioner, the U. S. Tax Court ruled it lacked jurisdiction over three issues: the petitioner’s 2001 tax liability, unassessed interest on tax liabilities, and penalties for failure to report foreign bank accounts (FBAR penalties). The court clarified that its jurisdiction is limited to matters expressly provided by statute, thus excluding these claims from its purview. This decision underscores the Tax Court’s restricted jurisdiction and the necessity for explicit statutory authorization for it to hear specific types of cases.

    Parties

    Joseph B. Williams, III, was the Petitioner. The Commissioner of Internal Revenue was the Respondent. The case was heard in the U. S. Tax Court.

    Facts

    Joseph B. Williams, III, filed a timely petition seeking redetermination of deficiencies in his federal income tax for the years 1993 through 2000. In addition to challenging these deficiencies, Williams also attempted to raise issues regarding his 2001 tax liability, unassessed interest on asserted tax liabilities, and penalties under 31 U. S. C. sec. 5321(a) for failing to file Foreign Bank and Financial Accounts Reports (FBARs) related to his Swiss bank accounts. The Commissioner moved to dismiss these additional claims for lack of jurisdiction.

    Procedural History

    The Commissioner issued a notice of deficiency dated October 29, 2007, for Williams’ federal income tax liabilities from 1993 to 2000. Williams filed a petition challenging these deficiencies and included additional claims concerning 2001 tax liabilities, unassessed interest, and FBAR penalties. The Commissioner filed a motion to dismiss these additional claims for lack of jurisdiction, which the Tax Court granted.

    Issue(s)

    1. Whether the U. S. Tax Court has jurisdiction to redetermine the petitioner’s income tax liability for the year 2001, which was not included in the notice of deficiency?
    2. Whether the U. S. Tax Court has jurisdiction to review unassessed interest on asserted tax liabilities?
    3. Whether the U. S. Tax Court has jurisdiction to review the imposition of FBAR penalties under 31 U. S. C. sec. 5321(a)?

    Rule(s) of Law

    1. The Tax Court’s jurisdiction is limited to matters expressly provided by statute. Breman v. Commissioner, 66 T. C. 61, 66 (1976).
    2. Jurisdiction over a deficiency depends on the issuance of a notice of deficiency by the Commissioner. 26 U. S. C. secs. 6212(a), 6214(a).
    3. The Tax Court has limited jurisdiction over interest issues, which is contingent upon an assessment of interest and the Commissioner’s final determination not to abate such interest. 26 U. S. C. secs. 6404(e), 6404(h).
    4. The Tax Court’s jurisdiction does not extend to FBAR penalties, which are governed by Title 31 of the U. S. Code, not Title 26. 31 U. S. C. sec. 5321.

    Holding

    1. The U. S. Tax Court does not have jurisdiction to redetermine the petitioner’s income tax liability for the year 2001, as it was not included in the notice of deficiency.
    2. The U. S. Tax Court does not have jurisdiction to review unassessed interest on asserted tax liabilities, as jurisdiction under 26 U. S. C. sec. 6404(h) requires an assessment of interest and a final determination by the Commissioner.
    3. The U. S. Tax Court does not have jurisdiction to review the imposition of FBAR penalties, as these penalties fall outside the scope of the Tax Court’s jurisdiction, which is limited to Title 26 of the U. S. Code.

    Reasoning

    The court reasoned that its jurisdiction is strictly limited to matters expressly provided by statute. Since the notice of deficiency did not include 2001, the court lacked jurisdiction over that year’s tax liabilities. Regarding interest, the court noted that jurisdiction under section 6404(h) is contingent upon an assessment of interest and a final determination by the Commissioner, neither of which had occurred. The court further reasoned that FBAR penalties, governed by Title 31, are outside its jurisdiction, which is confined to Title 26. The court emphasized that the absence of statutory authorization for jurisdiction over these matters precluded its ability to hear them. The court also addressed the petitioner’s arguments, noting that the Tax Court’s jurisdiction does not extend to pre-assessment review of interest or to FBAR penalties, as these fall outside the scope of the deficiency procedures and the Tax Court’s jurisdiction.

    Disposition

    The court granted the Commissioner’s motion to dismiss for lack of jurisdiction and ordered the striking of references to 2001 tax liabilities, unassessed interest, and FBAR penalties from the petition.

    Significance/Impact

    This decision underscores the limited jurisdiction of the U. S. Tax Court and the necessity for explicit statutory authorization for the court to hear specific types of cases. It clarifies that the Tax Court cannot review tax liabilities for years not included in a notice of deficiency, unassessed interest, or penalties governed by statutes outside Title 26. The ruling has implications for taxpayers seeking to challenge such matters in the Tax Court, emphasizing the need to adhere to the jurisdictional limits set by Congress. Subsequent cases have cited Williams to reinforce the principle that the Tax Court’s jurisdiction is strictly defined by statute.