Thanks to Carl Smith, I write to point out the cases accepted for the Supreme Court term starting October 3, 2022, that might have some impact on tax procedure. Three of the cases are related to the issues of jurisdiction and equitable tolling raised in Boechler during the last term and one relates to the calculation of the FBAR penalty.
read more…1) Arellano v. McDonough – This case will be argued October 4. The questions presented are: (1) Whether the rebuttable presumption of equitable tolling from Irwin v. Department of Veterans Affairs applies to the one-year statutory deadline in 38 U.S.C. § 5110(b)(1) for seeking retroactive disability benefits, and, if so, whether the government has rebutted that presumption; and (2) whether, if 38 U.S.C. § 5110(b)(1) is amenable to equitable tolling, this case should be remanded so the agency can consider the particular facts and circumstances in the first instance.
2) United States v. Bittner – This case will be argued on November 2. Andy Weiner blogged this case for PT back in January. This case presents the issue of the calculation of the penalty for failure to timely file the Foreign Bank & Financial Accounts information, commonly known as FBAR. The IRS seeks to calculate the penalty based on each account not reported and taxpayers want to limit the penalty to the failure to file the form (which could contain multiple accounts). The circuits are split. The financial difference in the calculation of the penalty can be enormous with the per form approach limiting the penalty to $10,000 per year while the amount with the IRS approach is a multiple of the number of accounts times $10,000. The Center for Taxpayer Rights has filed an amicus brief on behalf of the per form approach. This brief was authored by Gwen Moore. The American College of Tax Counsel has also filed an amicus brief arguing for the per form approach. This brief was authored by the law firm of Kostelanetz & Fink.
3) Wilkins v. United States – This is a private quiet title action, where the Circuits are split over whether the quiet title filing deadline in district court is jurisdictional. The issue of equitable tolling is not involved. I think this is an easy win for the petitioners. The provisions granting district court’s jurisdiction are not the same as the filing deadline, and the filing deadline merely reads:
(g) Any civil action under this section, except for an action brought by a State, shall be barred unless it is commenced within twelve years of the date upon which it accrued. Such action shall be deemed to have accrued on the date the plaintiff or his predecessor in interest knew or should have known of the claim of the United States.
The “shall be barred” language is similar to that in the FTCA deadlines, which were held not jurisdictional in Kwai Fun Wong (2015). Oral argument has not yet been set.
4) MOAC Mall Holdings LLC v. Transform Holdco LLC — The cert. petition reads:
In Arbaugh v. Y & H Corp., this Court clarified that limitations on judicial relief should not be treated as jurisdictional absent a clear statement by Congress. At least six circuits have held that 11 U.S.C. 363(m) does not limit the appellate courts’ jurisdiction to review unstayed bankruptcy court sale orders, but rather limits only the remedies available in such an appeal. By its plain terms, Section 363(m) presupposes a “reversal or modification on appeal” of a sale order, and specifies only that such reversal or modification “does not affect the validity of [the] sale” to a good faith purchaser, leaving the courts free to fashion other remedies without that effect.
In the present case, the Second Circuit held, to the contrary, that Section 363(m) deprived the appellate courts of jurisdiction over an appeal from a lease assignment order deemed “integral” to an already completed sale order, notwithstanding that: the sale order was not contingent on the assignment; the sale price was fixed without regard to whether the lease could be assigned; and respondent had expressly waived (in successfully opposing a stay) any argument that Section 363(m) would bar appellate review. A month later, the Fifth Circuit re-confirmed that it also treats Section 363(m) as jurisdiction-stripping.
The question presented is:
Whether Bankruptcy Code Section 363(m) limits the appellate courts’ jurisdiction over any sale order or order deemed “integral” to a sale order, such that it is not subject to waiver, and even when a remedy could be fashioned that does not affect the validity of the sale.
Oral argument has not yet been set.
Having reviewed the Amicus Briefs, I note that a central theme in support of the “per form approach” has to do with the potential huge disparity when, for example, one taxpayer has ten accounts with an aggregate balance of just over $50,000 versus another taxpayer with one account with $1,000,000 ($100,000 v. $10,000, respectively). However, this argument fails to consider the mitigation provisions in IRM 4.26.16.5.4.1 and Exhibit 4.26.16-2. Here, the Service instructs to apply the mitigated penalty amount, limiting the total mitigated penalties (note, the IRM uses plural) to the maximum single non-willful penalty ($10,000). With a balance of $50,001, this taxpayer would be facing penalties of $5,000 per violation; and while there are 10 per account violations, these would be limited to $10,000 (the maximum non-willful penalty). Therefore, the two taxpayers would be treated exactly the same, which undercuts the fairness argument made in the briefs. Let”s take this further and say the balance for the former taxpayer’s accounts was $49,999. Now the mitigated penalty amount for each per form violation is $500. With ten accounts, this taxpayer faces just a $5,000 penalty. (Note that the taxpayer would have needed twenty accounts to max out the penalty at the $10,000 non-willfulness cap).
Also note that throughout IRM 4.26.16.5.4.1, the language makes several references multiple violations in a given year. Logically, this can only mean that the Service contemplates a per account approach; there can never be more than one FBAR filing requirement per year, but obviously, if there are multiple foreign accounts, there can be multiple failures to report accounts.
While I applaud the efforts to limit the penalty to a per form approach versus a per account approach, I feel that the mitigation provisions in the IRM argue strongly for a per account approach. And unfortunately, by arguing the penalty totals without applying the mitigation provisions or discussing the language in the mitigation provisions, I feel that the amicus briefs misstate the potential outcomes.
“there can never be more than one FBAR filing requirement per year”
Decades ago, when the form was made of paper and ink, instructions said to use a separate form for each account — if the number of accounts was less than 25.
As far as I could tell, only one form was required if the number of accounts was more than 25. (I don’t recall which rule applied to exactly 25.)