United States v. Kahn
Opinion
19-3920 USA v. Kahn
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3 ------
4 August Term, 2020
5 (Argued: December 17, 2020 Decided: July 13, 2021)
6 Docket No. 19-3920
7 _________________________________________________________
8 UNITED STATES OF AMERICA,
9 Plaintiff-Appellee,
10 - v. -
11 JEFFREY KAHN, as co-executor of the estate of HAROLD KAHN, 12 and JOEL KAHN, as co-executor of the estate of HAROLD KAHN,
13 Defendants-Appellants. 14 _________________________________________________________
15 Before: KEARSE, BIANCO, and MENASHI, Circuit Judges.
16 Appeal from a judgment of the United States District Court for the
17 Eastern District of New York, Kiyo A. Matsumoto, Judge, in favor of the government 1 against defendants as co-executors of the estate of Harold Kahn ("Kahn"), in the
2 principal penalty amount of $4,264,728, plus statutory additions and interest, for
3 Kahn's undisputedly willful failure, in violation of 31 U.S.C. § 5314, to file in 2009 a
4 Report of Foreign Bank and Financial Accounts ("FBAR") for his two foreign bank
5 accounts whose balances, at the time of his failure to file, totaled $8,529,456. The
6 district court granted the government's motion for summary judgment on the ground
7 that, under 31 U.S.C. § 5321 as amended in 2004, the maximum penalty for Kahn's
8 failure to file an FBAR is 50 percent of the aggregate balance in the accounts at the
9 time of that failure; the court rejected defendants' contention that a 1987 Treasury
10 Department regulation, 31 C.F.R. § 1010.820(g)(2), limits the government's authority
11 to impose penalties for willful FBAR violations to $100,000 per account. See United
12 States v. Kahn, 17-cv-7258, 2019 WL 8587295 (E.D.N.Y. Sept. 23, 2019). On appeal,
13 defendants pursue their contention that the regulation trumps the later-amended
14 statute. We conclude that the district court correctly ruled that the penalty limitation
15 provided in the 1987 regulation, which had tracked the penalty provision enacted in
16 a prior version of the statute, was superseded by the 2004 statutory amendment
17 increasing the penalty maximum.
18 Affirmed.
-2- 1 Judge Menashi dissents in a separate opinion.
2 JULIE CIAMPORCERO AVETTA, Tax Division, 3 Department of Justice, Washington, D.C. (Richard E. 4 Zuckerman, Principal Deputy Assistant Attorney 5 General, Joshua Wu, Deputy Assistant Attorney 6 General, Francesa Ugolini, Geoffrey J. Klimas, 7 Attorneys, Tax Division, Department of Justice, 8 Washington, D.C.; Seth D. DuCharme, Acting United 9 States Attorney for the Eastern District of New York, 10 New York, New York, on the brief), for Plaintiff- 11 Appellee.
12 JAMES N. MASTRACCHIO, Washington, D.C. (Daniel G. 13 Strickland, Eversheds Sutherland (US), Washington, 14 D.C., on the brief), for Defendants-Appellants.
15 KEARSE, Circuit Judge:
16 Defendants Jeffrey and Joel Kahn, as co-executors of the estate of Harold
17 Kahn ("Kahn"), appeal from a judgment of the United States District Court for the
18 Eastern District of New York, Kiyo A. Matsumoto, Judge, in favor of the United States
19 against defendants as co-executors of the Kahn estate (the "Estate") in the principal
20 penalty amount of $4,264,728, plus statutory additions and interest, for Kahn's
21 undisputedly willful failure, in violation of 31 U.S.C. § 5314, to file in 2009 a Report
22 of Foreign Bank and Financial Accounts ("FBAR") for his two foreign bank accounts
23 whose balances, at the time of the failure to file, totaled $8,529,456. The district court
-3- 1 granted the government's motion for summary judgment on the ground that, under
2 31 U.S.C. § 5321 as amended in 2004 (the "2004 Statute"), the maximum permissible
3 penalty for Kahn's failure to file an FBAR is 50 percent of the aggregate balance in the
4 accounts at the time of the failure to file; the court rejected the Estate's contention that
5 the government's authority to impose penalties for willful FBAR violations is limited
6 by a 1987 Treasury Department (or "Treasury") regulation, 31 C.F.R. § 1010.820(g)(2),
7 to $100,000 per account (the "1987 Regulation"). On appeal, the Estate pursues its
8 contention that the 1987 Regulation trumps the later-amended statute. We conclude
9 that the district court correctly ruled that the penalty limitation provided in the 1987
10 Regulation--which reflected the penalty provision in the 1986 version of the statute--
11 was superseded by the 2004 amendment to the statute increasing the penalty
12 maximum; and we affirm the judgment.
13 I. BACKGROUND
14 As discussed in greater detail in Part II below, a United States person
15 with an interest in foreign financial accounts having an aggregate value of more than
-4- 1 $10,000 is required each year to file an FBAR. See 31 U.S.C. § 5314; 31 C.F.R.
2 § 1010.350(a); 31 C.F.R. § 1010.306(c).
3 A. The Facts
4 The facts of this case are not in dispute, as the parties have stipulated as
5 follows:
6 1. Harold Kahn . . . willfully failed to file Form 7 TD F 90-22.1, Report of Foreign Bank and Financial Accounts 8 ("FBAR") for the 2008 year as required by 31 U.S.C. § 5314 and 9 implementing regulations.
10 2. The filing due date for the 2008 FBAR was June 30, 2009.
11 3. The 2008 FBAR should have reported two bank accounts 12 held by Mr. Kahn at Credit Suisse, Switzerland.
13 4. Each account held over $100,000 and the aggregate value 14 in the two Credit Suisse accounts was $8,529,456, as of June 30, 15 2009.
16 5. The Internal Revenue Service assessed a willful penalty 17 for the failure to file the 2008 FBAR in the amount of $4,264,728, 18 which represents 50% of the aggregate account balance as of June 19 30, 2009, pursuant to 31 U.S.C. § 5321(a)(5).
20 (Stipulation of Fact dated September 14, 2018.)
-5- 1 It was also undisputed that after the Internal Revenue Service ("IRS")
2 assessed the penalty, Kahn passed away without making payment and that the
3 assessment has not been paid by the Estate. (See, e.g., Complaint ¶ 36; Answer ¶ 36.)
4 The government commenced the present action seeking judgment against the Estate
5 in the amount of the assessment, plus additional statutory penalties and interest.
6 Given the above stipulated facts, the dispute centered on the maximum
7 amount the IRS was allowed to assess as a penalty. The government contended that
8 the 2004 Statute, 31 U.S.C.
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19-3920 USA v. Kahn
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3 ------
4 August Term, 2020
5 (Argued: December 17, 2020 Decided: July 13, 2021)
6 Docket No. 19-3920
7 _________________________________________________________
8 UNITED STATES OF AMERICA,
9 Plaintiff-Appellee,
10 - v. -
11 JEFFREY KAHN, as co-executor of the estate of HAROLD KAHN, 12 and JOEL KAHN, as co-executor of the estate of HAROLD KAHN,
13 Defendants-Appellants. 14 _________________________________________________________
15 Before: KEARSE, BIANCO, and MENASHI, Circuit Judges.
16 Appeal from a judgment of the United States District Court for the
17 Eastern District of New York, Kiyo A. Matsumoto, Judge, in favor of the government 1 against defendants as co-executors of the estate of Harold Kahn ("Kahn"), in the
2 principal penalty amount of $4,264,728, plus statutory additions and interest, for
3 Kahn's undisputedly willful failure, in violation of 31 U.S.C. § 5314, to file in 2009 a
4 Report of Foreign Bank and Financial Accounts ("FBAR") for his two foreign bank
5 accounts whose balances, at the time of his failure to file, totaled $8,529,456. The
6 district court granted the government's motion for summary judgment on the ground
7 that, under 31 U.S.C. § 5321 as amended in 2004, the maximum penalty for Kahn's
8 failure to file an FBAR is 50 percent of the aggregate balance in the accounts at the
9 time of that failure; the court rejected defendants' contention that a 1987 Treasury
10 Department regulation, 31 C.F.R. § 1010.820(g)(2), limits the government's authority
11 to impose penalties for willful FBAR violations to $100,000 per account. See United
12 States v. Kahn, 17-cv-7258, 2019 WL 8587295 (E.D.N.Y. Sept. 23, 2019). On appeal,
13 defendants pursue their contention that the regulation trumps the later-amended
14 statute. We conclude that the district court correctly ruled that the penalty limitation
15 provided in the 1987 regulation, which had tracked the penalty provision enacted in
16 a prior version of the statute, was superseded by the 2004 statutory amendment
17 increasing the penalty maximum.
18 Affirmed.
-2- 1 Judge Menashi dissents in a separate opinion.
2 JULIE CIAMPORCERO AVETTA, Tax Division, 3 Department of Justice, Washington, D.C. (Richard E. 4 Zuckerman, Principal Deputy Assistant Attorney 5 General, Joshua Wu, Deputy Assistant Attorney 6 General, Francesa Ugolini, Geoffrey J. Klimas, 7 Attorneys, Tax Division, Department of Justice, 8 Washington, D.C.; Seth D. DuCharme, Acting United 9 States Attorney for the Eastern District of New York, 10 New York, New York, on the brief), for Plaintiff- 11 Appellee.
12 JAMES N. MASTRACCHIO, Washington, D.C. (Daniel G. 13 Strickland, Eversheds Sutherland (US), Washington, 14 D.C., on the brief), for Defendants-Appellants.
15 KEARSE, Circuit Judge:
16 Defendants Jeffrey and Joel Kahn, as co-executors of the estate of Harold
17 Kahn ("Kahn"), appeal from a judgment of the United States District Court for the
18 Eastern District of New York, Kiyo A. Matsumoto, Judge, in favor of the United States
19 against defendants as co-executors of the Kahn estate (the "Estate") in the principal
20 penalty amount of $4,264,728, plus statutory additions and interest, for Kahn's
21 undisputedly willful failure, in violation of 31 U.S.C. § 5314, to file in 2009 a Report
22 of Foreign Bank and Financial Accounts ("FBAR") for his two foreign bank accounts
23 whose balances, at the time of the failure to file, totaled $8,529,456. The district court
-3- 1 granted the government's motion for summary judgment on the ground that, under
2 31 U.S.C. § 5321 as amended in 2004 (the "2004 Statute"), the maximum permissible
3 penalty for Kahn's failure to file an FBAR is 50 percent of the aggregate balance in the
4 accounts at the time of the failure to file; the court rejected the Estate's contention that
5 the government's authority to impose penalties for willful FBAR violations is limited
6 by a 1987 Treasury Department (or "Treasury") regulation, 31 C.F.R. § 1010.820(g)(2),
7 to $100,000 per account (the "1987 Regulation"). On appeal, the Estate pursues its
8 contention that the 1987 Regulation trumps the later-amended statute. We conclude
9 that the district court correctly ruled that the penalty limitation provided in the 1987
10 Regulation--which reflected the penalty provision in the 1986 version of the statute--
11 was superseded by the 2004 amendment to the statute increasing the penalty
12 maximum; and we affirm the judgment.
13 I. BACKGROUND
14 As discussed in greater detail in Part II below, a United States person
15 with an interest in foreign financial accounts having an aggregate value of more than
-4- 1 $10,000 is required each year to file an FBAR. See 31 U.S.C. § 5314; 31 C.F.R.
2 § 1010.350(a); 31 C.F.R. § 1010.306(c).
3 A. The Facts
4 The facts of this case are not in dispute, as the parties have stipulated as
5 follows:
6 1. Harold Kahn . . . willfully failed to file Form 7 TD F 90-22.1, Report of Foreign Bank and Financial Accounts 8 ("FBAR") for the 2008 year as required by 31 U.S.C. § 5314 and 9 implementing regulations.
10 2. The filing due date for the 2008 FBAR was June 30, 2009.
11 3. The 2008 FBAR should have reported two bank accounts 12 held by Mr. Kahn at Credit Suisse, Switzerland.
13 4. Each account held over $100,000 and the aggregate value 14 in the two Credit Suisse accounts was $8,529,456, as of June 30, 15 2009.
16 5. The Internal Revenue Service assessed a willful penalty 17 for the failure to file the 2008 FBAR in the amount of $4,264,728, 18 which represents 50% of the aggregate account balance as of June 19 30, 2009, pursuant to 31 U.S.C. § 5321(a)(5).
20 (Stipulation of Fact dated September 14, 2018.)
-5- 1 It was also undisputed that after the Internal Revenue Service ("IRS")
2 assessed the penalty, Kahn passed away without making payment and that the
3 assessment has not been paid by the Estate. (See, e.g., Complaint ¶ 36; Answer ¶ 36.)
4 The government commenced the present action seeking judgment against the Estate
5 in the amount of the assessment, plus additional statutory penalties and interest.
6 Given the above stipulated facts, the dispute centered on the maximum
7 amount the IRS was allowed to assess as a penalty. The government contended that
8 the 2004 Statute, 31 U.S.C. § 5321(a)(5)(C), which provided that the maximum
9 assessable penalty was the greater of $100,000 or 50 percent of the aggregate account
10 balance at the time of the violation--in this case $4,264,728--is to be applied. The
11 Estate contended that the permissible penalty was limited to $100,000 per account--or
12 a total of $200,000--under 31 C.F.R. § 1010.820(g)(2), the 1987 Regulation. Each side
13 moved for summary judgment.
14 B. The District Court's Decision
15 In a well-reasoned opinion, the district court granted the government's
16 motion and denied that of the Estate. See United States v. Kahn, 17-cv-7258, 2019 WL
17 8587295 (E.D.N.Y. Sept. 23, 2019) ("D.Ct. Op."). The court noted that the Bank Secrecy
-6- 1 Act ("BSA"), as enacted in 1970, required United States persons to report their
2 relationships with foreign financial institutions. See id. at *4. Congress authorized the
3 Secretary of the Treasury (the "Secretary") to promulgate regulations for
4 implementation and enforcement of the reporting requirement; and the Secretary
5 adopted the FBAR form. See id.
6 In 1986, focusing on money-laundering-related violations of the BSA,
7 Congress added a civil money penalty that could be levied against private individuals
8 for their willful failures to file FBARs. The maximum penalty was set at "the greater
9 of" $25,000 or "an amount (not to exceed $100,000) equal to the balance in the account
10 at the time of the violation." 31 U.S.C. § 5321(a)(5)(B)(ii)(I)-(II) (1988) (the "1986
11 Statute"). In 1987, the Secretary promulgated the 1987 Regulation on which the Estate
12 relies, currently located at 31 C.F.R. § 1010.820(g), which reflected the 1986 Statute's
13 maximum penalty provision "almost verbatim," D.Ct. Op, 2019 WL 8587295, at *5.
14 The 2004 Statute increased the civil penalty for willful behavior to its
15 present level, making the maximum penalty for failure to file an FBAR the greater of
16 $100,000 or 50 percent of the aggregate balance in the accounts at the time of the
17 violation. See id. at *6; 31 U.S.C. § 5321(a)(5)(C)(i). The district court noted that
18 despite that 2004 statutory change, the Secretary did not amend the 1987 Regulation's
-7- 1 now-inconsistent FBAR penalty provision. The IRS, which 2 enforced the penalty provision, took the position that revisions 3 were not necessary as the statute was "self-executing." Internal 4 Revenue Manual, 4.26.16.4.5.1--FBAR Willfulness Penalty (July 1, 5 2008). The IRS thus began to impose penalties in excess of the 6 regulatory cap, which it considered to be superseded. See id. And 7 as of June 30, 2009, the FBAR penalty regulation, despite its 8 apparent obsolescence, remained codified in the Code of Federal 9 Regulations.
10 D.Ct. Op, 2019 WL 8587295, at *7.
11 Although the Estate argued that the regulation stating that the Secretary
12 "may assess . . . a civil penalty" on any person who willfully violates the FBAR
13 requirement, 31 C.F.R. § 1010.820(g) (emphasis added), is not inconsistent with the
14 2004 statutory language, the district court rejected that contention. The court noted
15 that while the regulation states that the Secretary may impose such a penalty only up
16 to a maximum of $25,000, the statute provides that the maximum "'shall be increased
17 to the greater of (I) $100,000, or (II) 50 percent'" of the unreported aggregate balance.
18 D.Ct. Op, 2019 WL 8587295, at *8 (quoting 31 U.S.C. § 5321(a)(5)(C)(i) (emphasis in
19 D.Ct. Op)). The court reasoned that the use of the mandatory "shall be" phrase
20 "shows that Congress did not intend to delegate the determination of the maximum
21 penalty to the Secretary." D.Ct. Op, 2019 WL 8587295, at *9 (internal quotation marks
22 omitted). The court stated that
-8- 1 [t]he Secretary may, on a case-by-case basis, impose penalties 2 below the statutory maximum. But he cannot effectively abrogate the 3 statute and the maximum penalty specifically set by Congress by 4 promulgating (or failing to repeal) a regulation providing a different 5 penalty ceiling.
6 Id. (emphasis added).
7 Concluding that the regulation is inconsistent with the plain language
8 of the amended statute, the court granted summary judgment in favor of the
9 government on the ground that the 1987 Regulation is no longer valid, and that the
10 assessment against the Estate of $4,264,728, i.e., 50 percent of the aggregate balance
11 in Kahn's two foreign accounts at the time of his willful violation--the statutory
12 maximum--was therefore permissible.
13 II. DISCUSSION
14 On appeal, the Estate contends that the district court erred in refusing to
15 limit the per-willful-violation maximum penalty for failure to file an FBAR to the
16 $100,000-per-account maximum set by the 1987 Regulation, arguing principally that
17 the regulation is not inconsistent with the 2004 Statute, that the court misinterpreted
18 the statute's use of the word "shall," and that in any event, the rule of lenity requires
-9- 1 that any ambiguity be resolved in the Estate's favor. Because the parties have
2 stipulated to the facts, the "only inquiry is which party is entitled to judgment as a
3 matter of law." Ace Auto Body & Towing, Ltd. v. City of New York, 171 F.3d 765, 771 (2d
4 Cir. 1999). Reviewing that question de novo, we conclude that, in granting summary
5 judgment to the government, the district court made no error.
6 A. The Statutory Provisions and the 1987 Regulation
7 The BSA, as enacted by Congress in 1970, introduced a requirement that
8 United States persons report their relationships with foreign financial institutions.
9 See 31 U.S.C. § 1121(a) (1970). The BSA authorized the Secretary to promulgate
10 regulations for the implementation and enforcement of that reporting requirement.
11 See 31 U.S.C. § 1053-54 (1970). But with respect to willful failures to comply, Congress
12 authorized imposition of civil monetary penalties only on "domestic
13 financial institutions" and their agents--not on individuals; and it gave the Secretary
14 discretion to determine, on a case-by-case basis, whether to impose such a penalty,
15 but only up to $1,000. 31 U.S.C. § 1056(a) (1970). In 1972, the Secretary issued a
16 regulation--tracking the 1970 statutory language nearly verbatim--permitting the
17 Secretary to assess a civil penalty of up to $1,000 on domestic financial institutions
- 10 - 1 and their agents that willfully violated BSA-related regulations. See 31 C.F.R. § 103.47
2 (1972); 37 Fed. Reg. 6912, 6915 (April 5, 1972).
3 In the 1986 Statute, for willful failures to file an FBAR, Congress added
4 authorization for the Secretary to impose a civil monetary penalty on individuals.
5 The 1986 Statute provided that "[t]he amount" of a "civil money penalty" for "a failure
6 to report" a foreign account "shall not exceed"
7 the greater of--
8 (I) an amount (not to exceed $100,000) equal to the balance in 9 the account at the time of the violation; or
10 (II) $25,000.
11 31 U.S.C. § 5321(a)(5)(B)(ii) (1988) (emphases added). In 1987, the Secretary issued the
12 1987 Regulation stating that, "after October 27, 1986"--the effective date of the 1986
13 Statute--"[f]or any willful" "failure to report" a foreign account, "the Secretary may
14 assess"
15 a civil penalty not to exceed the greater of the amount (not to 16 exceed $100,000) equal to the balance in the account at the time of 17 the violation, or $25,000.
18 31 C.F.R. § 1010.820(g)(2). Thus, the 1987 Regulation tracked the civil penalty
19 provision introduced by the 1986 Statute.
- 11 - 1 In 1990, the Secretary established, within the Treasury Department, the
2 Financial Crimes Enforcement Network ("FinCEN"), whose mission includes
3 collecting and maintaining information filed under the BSA. In 2002, the Secretary
4 granted the Director of FinCEN the authority to "implement and administer the [BSA]
5 . . . including, but not limited to, the promulgation and amendment of regulations and
6 the assessment of penalties," with the proviso that all regulations "in effect or in use
7 on the date of enactment of the USA Patriot Act of 2001, shall continue in effect . . .
8 until superseded or revised." Treasury Order 180-01; Financial Crimes Enforcement
9 Network, 67 Fed. Reg. 64697 (Oct. 21, 2002) ("Treasury Order 180-01") (emphasis
10 added). A year later, FinCEN delegated its authority for the enforcement of the FBAR
11 requirements--including the authority to assess and collect civil penalties under 31
12 U.S.C. § 5321 and 31 C.F.R. § 1010.820--to the IRS; but FinCEN did not delegate
13 authority to promulgate or amend FBAR regulations.
14 In 2002, the Secretary reported to Congress that "the IRS estimate[d] that
15 there may be as many as 1 million U.S. taxpayers who have signature authority or
16 control over a foreign bank account and may be required to file FBARs," and that the
17 rate of compliance with that requirement may be "less than 20 percent." Secretary of
18 the Treasury, A Report to Congress in Accordance with § 361(b) of the USA PATRIOT Act
- 12 - 1 (April 26, 2002), at 6 ("Secretary's 2002 Report to Congress"). Congress then
2 considered amending the FBAR failure-to-file penalty provisions. Both the House of
3 Representatives and the Senate proposed to add a civil penalty for non-willful failures
4 to file; for those failures the House proposed a maximum penalty of $5,000, and the
5 Senate proposed a maximum of $10,000. As to willful failures, the House proposed
6 to retain the existing penalty provision, whereas the Senate proposed raising the
7 maximum penalty to levels that could substantially exceed the existing $100,000
8 maximum, pegged to the balances in the unreported accounts. See H.R. Conf. Rep.
9 108-775 at 615 (Oct. 7, 2004), reprinted in 2004 U.S.C.C.A.N. 1341, 1647. The Senate
10 proposal was adopted, see id., and in the 2004 Statute Congress amended the penalty
11 provisions to read--as of the date of enactment, and as they do today--as follows:
- 13 - 1 (A) Penalty authorized.--The Secretary of the Treasury may 2 impose a civil money penalty on any person who violates, or 3 causes any violation of, any provision of section 5314.
4 (B) Amount of penalty.--
5 (i) In general.--Except as provided in subparagraph (C), 6 the amount of any civil penalty imposed under 7 subparagraph (A) shall not exceed $10,000. 8 ....
9 (C) Willful violations.--In the case of any person willfully 10 violating, or willfully causing any violation of, any provision of 11 section 5314--
12 (i) the maximum penalty under subparagraph (B)(i) 13 shall be increased to the greater of--
14 (I) $100,000, or
15 (II) 50 percent of the amount determined 16 under subparagraph (D) . . .
17 ....
18 (D) Amount.--The amount determined under this 19 subparagraph is--
20 ....
21 (ii) in the case of a violation involving a failure to report 22 the existence of an account or any identifying information 23 required to be provided with respect to an account, the 24 balance in the account at the time of the violation.
25 31 U.S.C. § 5321(a)(5) (emphases added).
- 14 - 1 B. Estate Contentions
2 The Estate insists that the 1987 Regulation's penalty maximum, set lower
3 than the maximum provided by the 2004 Statute, presents no inconsistency with the
4 2004 Statute. In support, the Estate asserts that the Secretary has broad rulemaking
5 authority, citing a series of BSA provisions (as currently codified) that say the
6 Secretary "may . . . exempt" "a reasonable classification of persons . . . from" the FBAR
7 requirement, "may . . . decide[ to] apply[]" the regulation to accounts in fewer than all
8 foreign countries, "may prescribe . . . the magnitude of transactions" to be regulated,
9 "may . . . exempt" a "kind of transaction[] . . . from . . . reg[u]lation," and "may prescribe
10 . . . other matters the Secretary considers necessary" (Estate brief on appeal at 10
11 (internal quotation marks omitted) (emphases in brief)); and it quotes the 2004 Statute
12 provision at 31 U.S.C. § 5321(a)(5)(A), which states that the Secretary "'may impose a
13 civil money penalty on any person who violates, or causes any violation of, any
14 provision of'" the FBAR requirement (Estate brief on appeal at 11 (emphasis in brief)).
15 Conspicuously absent from this litany, however, is any statutory
16 provision saying that the Secretary may set a maximum penalty level for failure to file
17 an FBAR. Instead, in every version of § 5321 that has authorized the imposition of a
18 civil penalty for failure to file required financial reports, Congress itself has specified
- 15 - 1 the maximum penalty that the Secretary was authorized to impose--whether on an
2 enterprise or an individual, and whether non-willful or willful. And a statute's
3 general provision that an administrator may issue such other regulations as he
4 "considers necessary" does not constitute authorization to issue a regulation that
5 contradicts an express provision of the statute. See, e.g., Ragsdale v. Wolverine World
6 Wide, Inc., 535 U.S. 81, 86-88 (2002) (invalidating a regulation promulgated pursuant
7 to the Secretary of Labor's authority to issue "regulations necessary to carry out" the
8 Family and Medical Leave Act where that regulation was "contrary to the Act's
9 remedial design" (internal quotation marks omitted)).
10 The meaning of the phrase "may impose a civil penalty" in the 2004
11 Statute, 31 U.S.C. § 5321(a)(5)(A), must be read in light of the provisions that follow,
12 as we "'give effect, if possible, to every clause and word of a statute,'" Panjiva, Inc. v.
13 United States Customs & Border Protection, 975 F.3d 171, 178 (2d Cir. 2020) (quoting
14 Williams v. Taylor, 529 U.S. 362, 404 (2000)), avoiding interpretations that would
15 render one or more of the statute's provisions superfluous. The word "shall," in a
16 statute, indicates a command; what follows the word "shall" is "mandatory, not
17 precatory." Mach Mining, LLC v. Equal Employment Opportunity Commission, 575 U.S.
18 480, 486 (2015).
- 16 - 1 Here, instead of permitting the Secretary to establish the maximum
2 permissible penalty for failures to file FBARs, the 2004 Statute provided that the
3 "maximum" penalty for a willful failure "shall be increased" to the greater of $100,000
4 or 50 percent of the total relevant account balances, 31 U.S.C. § 5321(a)(5)(C)(i). The
5 Estate contends that the district court erred in viewing "shall be increased" as a
6 reference to the maximum penalty set in the 1986 Statute, rather than as a comparison
7 to the maximum set for non-willful failures; and indeed, subparagraph (C)(i) states
8 that the maximum penalty "under subparagraph (B)(i)"--the subparagraph capping
9 the penalty at $10,000 for non-willful failures--"shall be increased." But regardless of
10 the starting point for the increase, the maximum penalty was in fact increased, and
11 there is no ambiguity whatever as to the level to which it was increased. The 2004
12 Statute's "shall be increased" provision made it mandatory that a person who willfully
13 fails to file an FBAR be exposed to the possibility of a penalty that was increased to
14 $100,000 or 50 percent of the aggregate balance in the unreported accounts, whichever
15 is "greater."
16 Plainly the Secretary has discretion in a given case to impose a penalty
17 that is below the ceiling provided by the statute: such flexibility is reflected in the
18 very essence of a level denominated a "maximum." Indeed, the Estate acknowledges
- 17 - 1 that the "shall" in the 2004 Statute "did not dictate a requirement to impose the
2 maximum penalty in all cases," and that "Congress . . . did not make the maximum
3 penalty mandatory--it left to the Secretary discretion as to how much penalty could be
4 imposed under the permissible statutory maximum." (Estate brief on appeal at 24, 23
5 (emphases added).) But for the 1987 Regulation to forbid--as the Estate contends--any
6 assessment of a penalty as high as the ceiling set by the 2004 Statute is simply
7 inconsistent with that statute. Adherence to the 1987 Regulation would shrink the
8 discretion that was conferred on the Secretary by the 2004 Statute--providing less
9 discretion than Congress believed was needed in order to deter willful disregard of
10 FBAR requirements.
11 Accordingly, contrary to the Estate's contention, we conclude that the
12 1987 Regulation and the 2004 Statute are not "harmonious" (Estate brief on appeal
13 at 25). Accord Norman v. United States, 942 F.3d 1111, 1117-18 (Fed. Cir. 2019)
14 ("Norman"); United States v. Horowitz, 978 F.3d 80, 90-91 (4th Cir. 2020) ("Horowitz");
15 United States v. Rum, 995 F.3d 882, 892 (11th Cir. 2021) ("Rum").
16 Of course, the 1987 Regulation--when it was adopted--was not
17 inconsistent with the maximum penalty that Congress had then set; the 1987
18 Regulation tracked the precise levels set out in the 1986 Statute. But the 1986 Statute's
- 18 - 1 penalty provisions were plainly amended by the 2004 Statute, and a regulation that
2 "contravenes the plain language of the statute" is invalid, Lawrence + Memorial Hospital
3 v. Burwell, 812 F.3d 257, 259 (2d Cir. 2016). Even a regulation that is not "technically
4 inconsistent with the statutory language" is invalid "when that regulation is
5 fundamentally at odds with the manifest congressional design." United States v. Vogel
6 Fertilizer Co., 455 U.S. 16, 26 (1982) (internal quotation marks omitted). Thus, when
7 Congress enacted the 2004 Statute stating that the maximum penalty "shall be
8 increased," any continued adherence to the 1987 Regulation contravened both the
9 plain language of the statute and the "manifest congressional design," id., embodied
10 in the 2004 Statute. As the Court of Appeals for the Federal Circuit in Norman stated
11 in rejecting an attempt to have the 1987 Regulation's penalty limitation applied
12 instead of the maximum provided by the 2004 Statute,
13 [i]t is well-settled that subsequently enacted or amended statutes 14 supersede prior inconsistent regulations. . . . A regulation that 15 contravenes a statute is invalid. . . . A regulation cannot override 16 a clearly stated statutory requirement. . . . It is well-settled that 17 when a regulation conflicts with a subsequently enacted statute, the 18 statute controls and voids that regulation. . . . Ms. Norman's position 19 to the contrary would inappropriately prevent all newly created 20 or amended statutes from taking effect until all inconsistent 21 regulations are amended or repealed.
- 19 - 1 Norman, 942 F.3d at 1118 (internal quotation marks omitted (emphases ours)); see, e.g.,
2 Rum, 995 F.3d at 892 ("The plain text of § 5321(a)(5)(C) makes it clear that a willful
3 penalty may exceed $100,000 because it states that the maximum penalty 'shall be . . .
4 the greater of (I) $100,000, or (II) 50 percent of' . . . the balance of the account. The
5 regulation was promulgated in 1987 and mirrored the language of the statute at that
6 time but was never updated. '[T]he statute's language is hardly consistent with an intent
7 by Congress to allow the Secretary to impose a lower maximum penalty by regulation; rather,
8 Congress itself set a specific maximum penalty for a willful violation.'" (quoting
9 Horowitz, 978 F.3d at 91 (emphases ours)); Horowitz, 978 F.3d at 91 ("[T]he 1987
10 regulation on which the Horowitzes rely was abrogated by Congress's 2004
11 amendment to the statute and therefore is no longer valid.").
12 Like our Sister Circuits, we decline to read the maximum penalty
13 provision in the 2004 Statute as having been rendered superfluous ab initio by the
14 Secretary's purported preexisting discretion to set a penalty maximum. Given the
15 2002 report of the Secretary himself to Congress as to the meager level of compliance
16 with the FBAR requirement--i.e., estimating that four of every five taxpayers who
17 were required to file FBARs, perhaps totaling as many as 800,000, were failing to do
18 so (see Secretary's 2002 Report to Congress at 6)--it seems surprising that the Secretary
- 20 - 1 would insist on maintaining the modest maximum penalty level provided in the
2 superseded 1986 Statute and the 1987 Regulation, rather than the potentially much
3 higher penalties enacted in the 2004 Statute. Or perhaps it should not be surprising,
4 given that 20 years ago, the Supreme Court observed that "[t]he Treasury's relaxed
5 approach to amending its regulations to track Code changes [wa]s well documented."
6 United Dominion Industries, Inc. v. United States, 532 U.S. 822, 836 (2001). We note that
7 the Secretary's 2002 delegation to FinCEN of BSA enforcement responsibility
8 expressly (a) instructed that FinCEN was to "implement and administer the
9 provisions of . . . the [BSA], . . . codified at," inter alia, "31 U.S.C. 5311 et seq.," and (b)
10 stated that "regulations . . . in effect or in use on the date of enactment of the USA
11 Patriot Act of 2001, shall continue in effect . . . until superseded or revised." Treasury
12 Order 180-01, 67 Fed. Reg. 64697 (emphases added). In any event, regardless of
13 Treasury's failure to have the 1987 Regulation deleted from the post-2004 Code of
14 Federal Regulations, "[a] regulation which does not" implement "the will of Congress
15 as expressed by the statute" and instead "operates to create a rule out of harmony
16 with the statute, is a mere nullity." Iglesias v. United States, 848 F.2d 362, 366-67 (2d
17 Cir. 1988) (internal quotation marks omitted).
- 21 - 1 Our dissenting colleague argues that Treasury has "the obligation to
2 follow its own regulations," dissenting opinion post at 2. In our view, this argument
3 rests on two erroneous assumptions: first, that because the Secretary has discretion
4 to elect whether, and to what extent below the statutory maximum, to impose a
5 penalty for failure to file an FBAR, the Secretary also has the authority to issue a
6 regulation setting the maximum penalty below the statutory maximum; and second,
7 that the 1987 Regulation is a product of that discretion. Neither assumption is valid.
8 First, in relying on 31 U.S.C. § 5314(b)(5), which states that the Secretary
9 "may prescribe . . . other matters the Secretary considers necessary to carry out this
10 section," the dissent perceives a freestanding grant of authority to set a maximum
11 penalty that differs from that expressly set by the statute. See dissenting opinion post
12 at 5 & n.5. Nothing in such language authorizes the Secretary to promulgate a rule
13 that would nullify a statutory provision that was deemed necessary by Congress, see
14 generally Ragsdale, 535 U.S. at 86-88; generally, such a countermand could not be
15 thought to "carry out" the section. And here, "this section"--31 U.S.C. § 5314--
16 emphasizes the need to have United States persons keep records and "file reports" as
17 to their foreign financial transactions, id. § 5314(a). Given that, as discussed above,
18 Congress in 2004 raised the maximum penalty for such violations after being
- 22 - 1 informed by the Secretary that perhaps as many as 800,000 persons required to file
2 FBARs were noncompliant, a regulation purporting to nullify the statutory increase
3 plainly does not "carry out" Congress's goal of encouraging compliance with the
4 FBAR requirement. For those persons who deem it worth an expense capped at
5 $100,000 per account to achieve their concealment and/or tax-avoidance goals, the
6 regulation instead encourages them to flout the FBAR requirement.
7 Second, even assuming arguendo that the Secretary had been given
8 authority to set a maximum penalty lower than the level specified in the statute, there
9 is no basis for inferring that the 1987 Regulation was the product of either a desire to
10 promulgate a regulation that would have the force of law independently of the BSA
11 or a desire to reduce the Secretary's own discretion. Although Treasury engaged in
12 proposed rulemaking in August 1986, that notice-and-comment process involved a
13 rule designed to "correct[] a technical error in the [1985] regulations that implemented
14 [an] increase in [the] civil penalty amount made by" an amendment to the statute in
15 1984. Amendments to Implementing Regulations; the Bank Secrecy Act, 51 Fed. Reg.
16 30233, 30236 (Aug. 25, 1986). The provision that became the 1987 Regulation--which
17 parrots the 1986 Statute--was not part of the proposed rulemaking, because the 1986
18 Statute had not yet been enacted. Thereafter, the 1987 Regulation simply included the
- 23 - 1 penalty maximum provision enacted by the 1986 Statute, "to keep the regulations as
2 current as possible." Amendments to Implementing Regulations Under the Bank
3 Secrecy Act, 52 Fed. Reg. 11436, 11440 (April 8, 1987). And in stating a maximum
4 penalty that parroted the 1986 Statute, the 1987 Regulation did not reduce the
5 discretion accorded to the Secretary.
6 "[T]he existence of a parroting regulation," i.e., one that "merely . . .
7 paraphrase[s] the statutory language" rather than introducing a provision formulated
8 in reliance on agency "expertise and experience," "does not change the fact that the
9 question here is not the meaning of the regulation but the meaning of the statute."
10 Gonzales v. Oregon, 546 U.S. 243, 257 (2006) (emphasis added). The dissent, in seeking
11 to elevate the status of the 1987 Regulation, relies only on cases involving regulations
12 promulgated pursuant to a general grant of authority in a statutory scheme that
13 required agency interpretation; it cites no cases involving a regulation that either
14 tracked the statutory text or conflicted with the statutory text.
15 Finally, we note the Estate's argument that the penalty for Kahn's willful
16 failure to file an FBAR should be limited to a total of $200,000 under "'the rule of
17 lenity,'" which "'applies if, after considering text, structure, history, and purpose, there
18 remains a grievous ambiguity or uncertainty in the statute, such that the Court must
- 24 - 1 simply guess as to what Congress intended.'" (Estate brief on appeal at 42 (quoting
2 Barber v. Thomas, 560 U.S. 474, 488 (2010) (emphasis ours).) Assuming that the rule of
3 lenity is applicable to a civil rather than a criminal statute, we see no basis for its
4 invocation here. There is no ambiguity or uncertainty as to what Congress intended
5 in the 2004 Statute when it provided that the penalty for a willful failure to file an
6 FBAR would be "the greater of" $100,000, or 50 percent of the aggregate balance of the
7 accounts.
8 In sum, we conclude that the district court correctly ruled that when the
9 2004 Statute raised the maximum penalty that had been set in the 1986 Statute, the
10 2004 Statute superseded the 1987 Regulation's provision that had tracked the 1986
11 Statute.
12 CONCLUSION
13 We have considered all of the Estate's arguments on this appeal and have
14 found them to be without merit. The judgment of the district court is affirmed.
- 25 - 19-3920 United States v. Kahn
MENASHI, Circuit Judge, dissenting:
“It is a familiar rule of administrative law that an agency must abide by its own regulations.” Fort Stewart Schs. v. Fed. Lab. Rels. Auth., 495 U.S. 641, 654 (1990). 1 We call this rule “the Accardi principle” after the case most associated with it, United States ex rel. Accardi v. Shaughnessy 347 U.S. 260 (1954). 2 In this case, the Accardi principle requires that we reverse the judgment of the district court.
The Treasury Department’s current regulations provide that the penalty for Harold Kahn’s willful failure to file a Report of Foreign Bank and Financial Accounts (“FBAR”) may not exceed $100,000. See 31 C.F.R. § 1010.820(g)(2). This penalty falls within the statutorily authorized range. See 31 U.S.C. § 5321(a)(5). While the governing statute also authorizes penalties greater than $100,000, it nowhere mandates that the Secretary impose a higher fine. See id. In fact, the statute gives the Secretary discretion to impose no fine at all. See id. § 5321(a)(5)(A). The current regulation therefore does not conflict with the governing statute and the Secretary must adhere to that regulation as long as it remains in effect. The court, however, excuses
1 See also Fed. Defs. of N.Y., Inc. v. Fed. Bureau of Prisons, 954 F.3d 118, 130 (2d Cir. 2020) (“Under deeply rooted principles of administrative law, not to mention common sense, government agencies are generally required to follow their own regulations.”); Mantena v. Johnson, 809 F.3d 721, 729 (2d Cir. 2015) (“It is an abecedarian principle of administrative law that agencies must comply with their own regulations.”) (quoting Manguriu v. Lynch, 794 F.3d 119, 122 (1st Cir. 2015)). 2 See Thomas W. Merrill, The Accardi Principle, 74 Geo. Wash. L. Rev. 569, 569 (2006). the Treasury Department from the obligation to follow its own regulations. I dissent.
I
The parties in this case do not question the Accardi principle. “[P]roperly promulgated, substantive agency regulations have the force and effect of law.” Chrysler Corp. v. Brown, 441 U.S. 281, 295 (1979) (internal quotation marks omitted); see also Perez v. Mortg. Bankers Ass’n, 575 U.S. 92, 96 (2015) (“Rules issued through the notice- and-comment process are often referred to as ‘legislative rules’ because they have the ‘force and effect of law.’”). Therefore, such a “regulation binds the government as much as the individuals subject to the regulation.” Hammond v. Lenfest, 398 F.2d 705, 715 (2d Cir. 1968); see also Service v. Dulles, 354 U.S. 363, 372 (1957) (“[R]egulations validly prescribed by a government administrator are binding upon him as well as the citizen.”). “[T]his principle holds even when the administrative action under review is discretionary in nature.” Service, 354 U.S. at 372; see also Hammond, 398 F.2d at 715 (“[T]his is no less so because the governmental action is essentially discretionary in nature.”).
Accordingly, even when a governing statute does not “obligate[]” an agency “to impose upon” itself “substantive and procedural standards,” if the agency chooses to “do[] so,” it may “not, so long as the [r]egulations remain[] unchanged, proceed without regard to them.” Service, 354 U.S. at 388; see also Vitarelli v. Seaton, 359 U.S. 535, 540 (1959) (“[T]he Secretary ... was bound by the regulations which he himself had promulgated for dealing with such cases, even though without such regulations he could have discharged petitioner summarily.”).
2 The Treasury Department has sometimes evaded standard administrative law principles when enforcing the tax laws, 3 but the Supreme Court has made clear that the Accardi principle applies in the tax and non-tax context alike. See Ballard v. Comm'r, 544 U.S. 40, 59 (2005) (“However efficient the Tax Court’s current practice may be ... [t]he Tax Court, like all other decisionmaking tribunals, is obliged to follow its own Rules.”) (citing Service, 354 U.S. at 388, and Vitarelli, 359 U.S. at 540); see also Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. 44, 55 (2011) (“[W]e are not inclined to carve out an approach to administrative review good for tax law only. To the contrary, we have expressly recognized the importance of maintaining a uniform approach to judicial review of administrative action.”) (internal quotation marks and alterations omitted).
II
The current Treasury Department regulation governing penalties for willful failures to file an FBAR provides that any penalty is “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.” 31 C.F.R. § 1010.820(g)(2). The regulation thereby limits FBAR penalties to a $100,000 maximum. The Treasury Department, however, imposed a penalty over forty-two times that maximum— $4,264,728 to be exact—for Kahn’s willful failure to file an FBAR. Because this penalty is inconsistent with the governing regulation, the Accardi principle requires us to reject the Department’s attempt to collect it.
3 See Kristin E. Hickman, Administering the Tax System We Have, 63 Duke L.J. 1717, 1718 (2014) (describing “tax departures from general administrative-law norms”).
3 Recognizing this straightforward argument, the government— and the court—insist that the relevant regulation is “invalid” because it “was superseded by the 2004 amendment to the statute” that “increase[ed] the penalty maximum” the agency may collect to above $100,000. Ante at 4, 19. Of course, if the 2004 amendment did in fact supersede the regulation, then the regulation would lack “the force and effect of law” and no longer bind the Treasury Department. Perez, 575 U.S. at 96. A statute overrides a preexisting regulation when the “regulation conflicts with [the] subsequently enacted statute.” Farrell v. United States, 313 F.3d 1214, 1219 (9th Cir. 2002); see also Decker v. Nw. Env’t Def. Ctr., 568 U.S. 597, 609 (2013) (“It is a basic tenet that ‘regulations, in order to be valid, must be consistent with the statute under which they are promulgated.’”); Scofield v. Lewis, 251 F.2d 128, 132 (5th Cir. 1958) (“A Regulation, valid when promulgated, becomes invalid upon the enactment of a statute in conflict with the Regulation.”). The 2004 amendment, however, created no conflict with the governing regulation.
The amended statute provides that “[t]he Secretary of the Treasury may impose a civil money penalty on any person who” fails to file an FBAR. 31 U.S.C. § 5321(a)(5)(A) (emphasis added). For nonwillful violations the statute directs that “the amount of any civil penalty imposed ... shall not exceed $10,000.” Id. § 5321(a)(5)(B)(i). For willful violations, on the other hand, the statute specifies that “the maximum penalty under subparagraph (B)(i) shall be increased to the greater of—$100,000, or 50 percent of ... the balance in the account at the time of the violation.” Id. § 5321(a)(5)(C)-(D).
While the court is correct that the statute allows the Secretary to impose a penalty in excess of the $100,000 regulatory cap, it errs in interpreting the statute to require that the Secretary subject violators 4 to an increased penalty—or even a “potentially” increased penalty. Ante at 21. The statute does not require the Secretary to do anything. It merely states that the Secretary “may impose a civil money penalty” subject to the limitations set out in that provision. Id. § 5321(a)(5)(A). By the statute’s own terms, the Secretary may respond to violations by imposing any penalty up to the statutory maximum or even no penalty at all. 4
Because the statute grants the Secretary the discretion to impose any penalty ranging from zero dollars to the statutory maximum, and because Congress has also granted the Secretary rulemaking authority to guide her exercise of that discretion, 5 the Secretary may promulgate and enforce a rule setting the applicable fines at any point from zero to the statutory maximum. The Accardi principle rests on the premise that agencies may constrain their statutorily granted discretion through regulation. 6 In both Accardi
4 The government agrees that the statute confers such discretion and requires no particular penalty. See Oral Argument Audio Recording at 11:07-20 (“The Secretary has, under the language of the amended statute, the discretion whether to impose the civil penalty and where in the range to situate it up to the statutory maximum.”). The government also agrees that the Secretary would not violate the statute if, through an exercise of her discretion, she never imposed a penalty greater than $100,000 (the limit under the current regulation) in any case. See id. at 15:18-50. 5 See 31 U.S.C. § 5314(b)(5); see also id. § 5318(a). 6 The government—unlike the court, apparently, see ante at 22-23— recognizes that this general rule applies in the context of the FBAR penalty statute. At oral argument, the government conceded that the Secretary could promulgate a regulation identifying categories of willful FBAR violations and setting forth a schedule of fines—including regulatory maximums—that would apply to those categories. Oral Argument Audio Recording at 11:39-12:22; 13:04-27.
5 and Service, the Supreme Court acknowledged that the governing statutes granted the agency administrator far broader discretion than the agency’s regulations allowed, but the Court nevertheless held the agency to regulations that limited its discretion beyond the statutory constraints. 7 In the same way, the regulation currently codified at 31 C.F.R. § 1010.820(g)(2), which limits the FBAR penalty to a maximum of $100,000, represents a due exercise of the Secretary’s authority that limits her discretion beyond the statutory constraints. “[H]aving” so exercised that authority, the Secretary may “not, so long as the [r]egulations remained unchanged, proceed without regard to them,” Service 354 U.S. at 388, “even though without such regulations [s]he could” impose a fine that exceeds $100,000, Vitarelli, 359 U.S. at 540.
The court responds to this argument by watering down the Accardi principle. While the court admits that the statute “plainly” gives “the Secretary ... discretion in a given case to impose a penalty
7 “In ... Accardi ... regulations of the Attorney General delegated certain of his discretionary powers to the Board of Immigration Appeals and required that Board to exercise its own discretion on appeals in deportation cases. The Court held that so long as the Attorney General’s regulations remained operative, he denied himself the authority to exercise the discretion delegated to the Board even though the original authority was his and he could reassert it by amending the regulations.” United States v. Nixon, 418 U.S. 683, 695-96 (1974); see also Accardi, 347 U.S. at 262-63, 265-67. Similarly, in Service, the governing statute provided that “the Secretary of State may, in his absolute discretion, ... terminate the employment of any officer or employee of the Department of State or of the Foreign Service of the United States whenever he shall deem such termination necessary or advisable in the interests of the United States.” 354 U.S. at 370. Yet the Supreme Court reversed the Secretary’s decision to discharge an employee pursuant to that authority because the Secretary did not abide by applicable regulations that constrained the exercise of his discretion. See id. at 365-67, 385-89.
6 that is below the ceiling provided by the statute,” ante at 18, the court concludes that the statute does not “permit[] the Secretary to establish [a lower] maximum permissible penalty for failures to file FBARs,” ante at 17 (emphasis added). In other words—even though the statute confers on the Secretary both discretion to choose penalties within the statutory range and to promulgate binding regulations—the statute for some reason does not allow the Secretary to cabin her own discretion through those rules. 8
The court offers two arguments to support its conclusion. Neither is persuasive. First, the court seizes on the statutory language providing that, for willful violations, “the maximum penalty ... shall be increased to the greater of—$100,000, or 50 percent of ... the balance in the account at the time of the violation.” 31 U.S.C. § 5321(a)(5)(C)- (D) (emphasis added); see ante at 16-18. The court understands this language to “mandat[e] that a person who willfully fails to file an FBAR be exposed to the possibility of a penalty that was increased to $100,000 or 50 percent of the aggregate balance in the unreported accounts, whichever is ‘greater.’” Ante at 17; see also Norman v. United
8 The court does not describe the contours of its new limitation on an agency’s authority to cabin its own discretion. Here, the agency apparently is not allowed to set a maximum penalty below the statutory maximum. Could it set maximum penalties that apply in specified circumstances, as the government believes, or is the prohibition on altering the statutory maximum absolute, as the court seems to suggest? See supra note 6. Could the Secretary set forth factors that the IRS must consider before imposing a penalty or—because those factors are not specified by statute—would that impermissibly restrict the “maximum permissible penalty” that applies to regulated parties? Ante at 17. From now on, when an agency wants to be excused from the burden of complying with or amending its regulations, it may argue that its regulations impermissibly restrict its discretion beyond the statutory maximum. The court does not set limits on this new doctrine.
7 States, 942 F.3d 1111, 1117 (Fed. Cir. 2019) (adopting a similar interpretation). But when read in context, the language that the maximum penalty “shall be increased” does not mandate that the Secretary take or refrain from taking any action with respect to a violator’s exposure to a penalty. Before setting out the penalty applicable to willful violations, the statute, in subparagraph (B)(i), provides that the penalties for FBAR violations generally “shall not exceed $10,000.” 31 U.S.C. § 5321(a)(5)(B)(i). Subparagraphs (C) and (D) in turn provide that, in cases of willful violations, “the maximum penalty under subparagraph (B)(i) shall be increased to the greater of— $100,000, or 50 percent of ... the balance in the account at the time of the violation.” (emphasis added). The statute uses the phrase “shall be increased” to indicate that the lower statutory maximum provided “under subparagraph (B)(i)” will be modified for willful violations. That language is not directed either at the Secretary or at her exercise of the discretion the statute confers. This provision simply does not “mandat[e]” that the Secretary ensure that willful violators remain “exposed to the possibility of a penalty” of up to 50 percent of the balance in the unreported accounts. Ante at 17. 9
9 The court cites Mach Mining, LLC v. EEOC for the proposition that “the word ‘shall’ is ‘mandatory, not ‘precatory.’” Ante at 16-17 (quoting 575 U.S. 480, 486 (2015)). That is a non-sequitur. Nobody disputes that § 5321(a)(5)(C)-(D) raises the statutorily authorized maximum penalty from what it would have been in the absence of those subparagraphs. The current regulation does not purport to change the statutory maximum or otherwise “nullify [that] statutory provision.” Ante at 22. The question is whether the “shall be increased” language acts as a limitation on the Secretary’s exercise of her discretion under the statute. In this sense, the statute in Mach Mining provides a useful contrast to the FBAR penalty statute because it illustrates the kind of language Congress uses when it wants to impose a requirement on an agency. In Mach Mining, the Court considered a provision directing
8 Second, the court invokes the notion that “[e]ven a regulation that is not ‘technically inconsistent with the statutory language’ is invalid ‘when that regulation is fundamentally at odds with the manifest congressional design.’” Ante at 19 (quoting United States v. Vogel Fertilizer Co., 455 U.S. 16, 26 (1982)). Yet the only applicable principle “manifest” from the “design” of the statute Congress enacted is that the Secretary has discretion to impose any penalty up to the statutory maximum. Nothing in the statute manifests a congressional purpose to suspend the regular rule that an agency may constrain its discretion through regulation.
To the extent that the court considers the legislative history it discusses to manifest a design inconsistent with the current regulation, the Supreme Court has told us that “[l]egislative history, for those who take it into account, is meant to clear up ambiguity.” Milner v. Dep’t of Navy, 562 U.S. 562, 574 (2011). When “[t]he text is clear … we need not consider ... extra-textual evidence.” NLRB v. SW Gen., Inc., 137 S. Ct. 929, 942 (2017). In fact, Vogel and the cases on which it relied—Rowan Cos. v. United States, 452 U.S. 247 (1981), and National Muffler Dealers Ass’n v. United States (1979), see Vogel, 455 U.S. at 24-26—form a body of pre-Chevron tax jurisprudence from which
that “the Commission shall endeavor to eliminate any ... alleged unlawful employment practice by informal methods of conference, conciliation, and persuasion.” 42 U.S.C. § 2000e-5(b); see Mach Mining, 575 U.S. at 486. That language, the Court said, “imposes” a “duty” on the EEOC to “tell the employer about [a] claim” and “provide the employer with an opportunity to discuss the matter in an effort to achieve voluntary compliance.” Mach Mining, 575 U.S. at 486, 488. The “shall be increased” language in the FBAR statute, by contrast, is not addressed to the Secretary but only to “the maximum penalty under subparagraph (B)(i),” 31 U.S.C. § 5321(a)(5)(C), and the court errs in reading it to impose a constraint on the Secretary.
9 the Supreme Court has since distanced itself. “Since Rowan and Vogel were decided ... the administrative landscape has changed significantly,” and the Court’s more recent precedents “rather than National Muffler and Rowan, provide the appropriate framework for evaluating” agency action. Mayo Found., 562 U.S. at 56-57. In this case, the FBAR penalty statute clearly gives the Secretary discretion to impose any penalty beneath the statutory maximum and contains no language indicating that this discretion is constrained. Under the Supreme Court’s more recent precedents, therefore, we may not read a constraint into the statute and disregard the general rule that an agency may constrain its discretion through regulation. Nor may we decline to apply the Accardi principle by excusing the Treasury Department from following its own regulations. 10
10 The court further supports its decision to allow the Treasury Department to disregard its regulation by asserting that the regulation was not “formulated in reliance on agency ‘expertise and experience.’” Ante at 23- 24 (quoting Gonzales v. Oregon, 546 U.S. 243, 257 (2006)). Agency regulations, however, “have the force and effect of law.” Chrysler Corp, 441 U.S. at 295. The notion that a regulation may be disregarded if a court determines the regulation did not sufficiently implicate the agency’s expertise is extraordinary, and the court’s reliance on Gonzales v. Oregon for that novel proposition is misplaced. That case addressed whether Chevron or Auer deference applied to an interpretive rule that “elaborat[ed]” on a regulation that did “little more than restate the terms of [a] statute.” Id. at 255-57. The Court held that the Auer framework was “inapplicable” because “the existence of a parroting regulation does not change the fact that the question here is not the meaning of the regulation but the meaning of the statute.” Id. at 256-57. The case before us does not concern whether we should defer to the Treasury Department’s interpretation of a regulation or a statute. The question is whether the FBAR penalty regulation is valid. Nothing in Gonzales v. Oregon suggests that “parroting regulation[s]” have some lesser degree of legal force than other regulations.
10 To be sure, the Secretary may amend or repeal the regulation that caps the penalty below the statutory maximum. But “[s]o long as this regulation is extant it has the force of law.” Nixon, 418 U.S. at 695. “Here, as in Accardi, it is theoretically possible for the [Secretary] to amend or revoke the regulation [capping the FBAR penalty at $100,000]. But [s]he has not done so. So long as this regulation remains in force the Executive Branch is bound by it.” Id. at 696.
* * *
“[I]f troubled by the consequences” produced by standard administrative law principles, the Treasury Department may “amend its regulations” if it desires a different outcome. Mayo Found., 562 U.S. at 55. Yet by affirming the district court’s judgment and allowing the Treasury Department to collect the $4,264,728 penalty it imposed on Harold Kahn—a penalty that exceeds the Department’s stated regulatory maximum by over four-thousand percent—the court departs from basic administrative law and unjustifiably accommodates “the Treasury’s relaxed approach to amending its regulations,” ante at 21 (quoting United Dominion Indus., Inc. v. United States, 532 U.S. 822, 836 (2001)). I therefore dissent.
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