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Mr. FBAR’s Civil Penalty – Does 31 USC 5321(a)(5) Authorize The Imposition Of ANY Civil Penalty For Failure To File An FBAR?



Mr. FBAR's Civil Penalty - Does 31 USC 5321(a)(5) Authorize The Imposition Of ANY Civil Penalty For Failure To File An FBAR?

This is Post 6 in a series of posts describing the historical, statutory and regulatory evolution of Mr. FBAR*

These posts are organized on the page “The Little Red FBAR Book“.

Mr. FBAR Visits The Supreme Court Of The United States!

But, maybe the issue is whether a civil FBAR penalty can be imposed at all instead of how much of a penalty can be imposed?

All of which is explained in the following video discussion

Conclusion:

The existing statutory scheme 31 USC 5321(a)(5) combined with 31 USC 5314 does NOT authorize the imposition of a civil penalty on an individual for the failure to file an FBAR prescribed by 31 C.F.R. § 1010.350. Furthermore, the original 5321(a)(5)created in 1986 is written in the same way and fails to authorize the civil FBAR penalty for the same reasons.

For more extensive analysis and parsing of the statutes read on …

Introduction, purpose and commentary

On November 2, 2022 the Supreme Court of the United States will hear the Bittner case. The specific issue before the court is whether Treasury can impose a civil non-willful penalty for each account (resulting in numerous penalties) that was not reported on an FBAR or whether Treasury is restricted to one penalty based on the failure to file the form. This post is to argue that the interaction between 31 USC 5321(a)(5) and 31 USC 5314 results in the conclusion that NO penalty may be imposed under 31 USC 5321(a)(5) for the failure to file an FBAR.

This is because:

1. 5314 imposes an obligation on and only on the Treasury Secretary. The obligation imposed on the Secretary is to prescribe the FBAR regulations and form (which have been created under 31 C.F.R. § 1010.350).

2. 5321(a)(5) authorizes a penalty ONLY on a person who violates or causes the violation of 5314.

3. 5321(a)(5) does NOT authorize a penalty on a person who violates a regulation made under 5314.

4. In contrast to 5321(a)(5): 5321(a)(1), 5321(a)(2) and 5321(a)(3)) authorize a penalty for the violation of both a statute and a regulation made under statutes.

5321(a)(5) does NOT authorize a penalty for the failure to comply with a regulation made pursuant to 5314.

In summary, Mr. Bittner (and others) should have received NO penalty under 5321(a)(5) because:

A. The obligation under 5314 applies ONLY to the Secretary of the Treasury (the individual person cannot violate 5314); and

B. 5321(a)(5) does not authorize a penalty for the violation of a regulation made under 5314 (the FBAR rules and form).

31 USC 5314 and 31 USC 5321 – Considering the text of the statutes …

https://www.law.cornell.edu/uscode/text/31/5314

5314 imposes an obligation on and only on the Secretary of the Treasury.

31 U.S. Code § 5314 – Records and reports on foreign financial agency transactions

(a)Considering the need to avoid impeding or controlling the export or import of monetary instruments and the need to avoid burdening unreasonably a person making a transaction with a foreign financial agency, the Secretary of the Treasury shall require a resident or citizen of the United States or a person in, and doing business in, the United States, to keep records, file reports, or keep records and file reports, when the resident, citizen, or person makes a transaction or maintains a relation for any person with a foreign financial agency. The records and reports shall contain the following information in the way and to the extent the Secretary prescribes:

(1)the identity and address of participants in a transaction or relationship.
(2)the legal capacity in which a participant is acting.
(3)the identity of real parties in interest.
(4)a description of the transaction.

(b)The Secretary may prescribe—
(1)a reasonable classification of persons subject to or exempt from a requirement under this section or a regulation under this section;
(2)a foreign country to which a requirement or a regulation under this section applies if the Secretary decides applying the requirement or regulation to all foreign countries is unnecessary or undesirable;
(3)the magnitude of transactions subject to a requirement or a regulation under this section;
(4)the kind of transaction subject to or exempt from a requirement or a regulation under this section; and
(5)other matters the Secretary considers necessary to carry out this section or a regulation under this section.
(c)A person shall be required to disclose a record required to be kept under this section or under a regulation under this section only as required by law.

(Pub. L. 97–258, Sept. 13, 1982, 96 Stat. 997.)

https://www.law.cornell.edu/uscode/text/31/5321

5321(a)(5) authorizes a penalty on and only on “any person who violates, or causes any violation of, any provision of section 5314”. It does NOT authorize a penalty on a person who has violated a regulation made pursuant to 5314.

(5)Foreign financial agency transaction violation.—

(A)Penalty authorized.—

The Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314.

Conclusion: 5321(a)(5) authorizes a penalty on and only on the Secretary of the Treasury because 5314 imposes an obligation on and only on the Secretary of the Secretary.

Interestingly 5321(a)(1), 5321(a)(2) and 5321(a)(3) each authorizes a penalty for the violation of the statute AND for a regulation made under the statute. See for example:

(1)A domestic financial institution or nonfinancial trade or business, and a partner, director, officer, or employee of a domestic financial institution or nonfinancial trade or business, willfully violating this subchapter or a regulation prescribed or order issued under this subchapter (except sections 5314, 5315, and 5336 of this title or a regulation prescribed under sections 5314, 5315, and 5336), or willfully violating a regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508, is liable to the United States Government for a civil penalty of not more than the greater of the amount (not to exceed $100,000) involved in the transaction (if any) or $25,000. For a violation of section 5318(a)(2) of this title or a regulation prescribed under section 5318(a)(2), a separate violation occurs for each day the violation continues and at each office, branch, or place of business at which a violation occurs or continues.

(2)The Secretary of the Treasury may impose an additional civil penalty on a person not filing a report, or filing a report containing a material omission or misstatement, under section 5316 of this title or a regulation prescribed under section 5316. A civil penalty under this paragraph may not be more than the amount of the monetary instrument for which the report was required. A civil penalty under this paragraph is reduced by an amount forfeited under section 5317(b) of this title.

(3)A person not filing a report under a regulation prescribed under section 5315 of this title or not complying with an injunction under section 5320 of this title enjoining a violation of, or enforcing compliance with, section 5315 or a regulation prescribed under section 5315, is liable to the Government for a civil penalty of not more than $10,000.

This demonstrates that other sections of 5321(a) clearly authorize a penalty for failing to comply with a regulation made under Title 31. 5321(a)(5) fails to authorize a penalty for the failure to comply with the regulation made under 5314.

What about 5321(a)(4)?

(4)Structured Transaction Violation.—

(A)Penalty authorized.—
The Secretary of the Treasury may impose a civil money penalty on any person who violates any provision of section 5324.

A perusal of 5324 (Structuring Violations) reveals that 5324 prohibits violations of both a statute AND the regulations made under the statute!

What about 5322 – the criminal penalty provision?

https://www.law.cornell.edu/uscode/text/31/5322

31 U.S. Code § 5322 – Criminal penalties

(a)A person willfully violating this subchapter or a regulation prescribed or order issued under this subchapter (except section 5315, 5324, or 5336 of this title or a regulation prescribed under section 5315, 5324, or 5336), or willfully violating a regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508, shall be fined not more than $250,000, or imprisoned for not more than five years, or both.

Again, we see the clear authorization to impose a penalty based on the violation of the statute or a regulation.

Conclusion:

The existing statutory scheme 31 USC 5321(a)(5) combined with 31 USC 5314 does NOT authorize the imposition of a civil penalty on an individual for the failure to file an FBAR prescribed by 31 C.F.R. § 1010.350. Furthermore, the original 5321(a)(5)created in 1986 is written in the same way and fails to authorize the civil FBAR penalty for the same reasons.

Appendix

See the following twitter thread (created by threadreader) that outlines the argument for why there may be no authorization to impose a Civil 5321 penalty for failing to file an FBAR.

https://twitter.com/ExpatriationLaw/status/1566720169711394816

saved and organized the threadreaderapp …

https://threadreaderapp.com/thread/1566239483904856071.html

The basic argument is the individual violates the Treasury regulation found at 31 C.F.R. § 1010.350 and not 31 USC 5314. But, 31 USC 5321 imposes the penalty for violating 31 USC 5314. Note the difference between the language in 31 USC 5322 (which authorizes a penalty based on violating the Treasury regulation) and 31 USC 5321 (which does not).
_______________________________________________________________________

*Part 1: Mr. FBAR’s Civil Penalty – 5321(a)(5): Evolution – The Wonder Years, Those Teenaged Years, Young Adult, To Mature Thug
Part 2: Mr. FBAR’s Civil Penalty – 5321(a)(5): Interpreting The Penalty Provision – Asking The Right Questions
Part 3: Mr. FBAR’s Civil Penalty – 5321(a)(5): Schik – Willful Or Non-Willful And What Does Willful Even Mean?
Part 4: Mr. FBAR’s Civil Penalty – 5321(a)(5): Toth – Excessive Fine, Based On Willfulness Decreed By Sanction And Not Factual Determination
Part 5: Mr. FBAR’s Civil Penalty – 5321(a)(5): Bittner – Maximizing The Penalty By Imposing It On Each Account
Part 6: Mr. FBAR’s Civil Penalty – Does 31 USC 5321(a)(5) Authorize The Imposition Of ANY Civil Penalty For Failure To File An FBAR?

The Reality of U.S. Citizenship Abroad

My name is John Richardson. I am a Toronto based lawyer – member of the Bar of Ontario. This means that, any counselling session you have with me will be governed by the rules of “lawyer client” privilege. This means that:

“What’s said in my office, stays in my office.”

The U.S. imposes complex rules and life restrictions on its citizens wherever they live. These restrictions are becoming more and more difficult for those U.S. citizens who choose to live outside the United States.

FATCA is the mechanism to enforce those “complex rules and life restrictions” on Americans abroad. As a result, many U.S. citizens abroad are renouncing their U.S. citizenship. Although this is very sad. It is also the reality.

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2 thoughts on “Mr. FBAR’s Civil Penalty – Does 31 USC 5321(a)(5) Authorize The Imposition Of ANY Civil Penalty For Failure To File An FBAR?

  1. Juan Valdez says:

    The wording complexity makes it a violation of due process under the 5th & 6th Amendment. Also, Administrative rule making must be discussed. SCOTUS must hold Treasury does not have rule making authority.

  2. EddyB says:

    While I think it’s clear that Congress intended the penalties to apply, the literal text doesn’t support it. Since the current Supreme Court holds itself out as mere servants of the legislative text (you know, when it suits them, not like in West Virginia v. EPA), it seems like an easy claim!

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