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Moore v. United States

United States District Court, W.D. Washington, Seattle

April 1, 2015

JAMES MOORE, Plaintiff,


RICHARD A. JONES, District Judge.


This matter comes before the court on the Government's motion for summary judgment. Although the Government requested oral argument, Plaintiff James Moore did not, and the court finds this case suitable for partial disposition based on the material already before it. For the reasons stated below, the court GRANTS the Government's motion in part and DENIES it in part. Dkt. # 32. Because the court is aware of no factual disputes that would necessitate a trial, the court VACATES the trial date and all other pending pretrial deadlines. Part IV of this order includes instructions to the parties to supplement the record so that the court may conduct judicial review in accordance with § 706(2) of the Administrative Procedure Act ("APA").


Among the responsibilities of the Internal Revenue Service is the enforcement of a portion of the Bank Secrecy Act of 1970 requiring reports from people within the United States who "make[] a transaction or maintain a relation for any person with a foreign financial agency." 31 U.S.C. § 5314(a). That statute has led to regulations that require a person subject to the statute in any calendar year (essentially any person residing in the United States with foreign accounts totaling more than $550, 000) to file a report with the IRS by June 30 of the following year. 31 C.F.R. § 103.24(a), § 103.27(c).[1] The IRS has prescribed form TD F 90-22.1 ("Report of Foreign Bank and Financial Account") for that task. The IRS refers to this yearly report as an "FBAR." The IRS can impose a civil penalty on a person who fails to file FBARs. 31 U.S.C. § 5321(5)(A). For non-willful violations, the penalty cannot exceed $10, 000. 31 U.S.C. § 5321(5)(B)(i).

Mr. Moore filed this lawsuit to contest the IRS's decision to assess the maximum penalty of $10, 000 against him four times, once for each year from 2005 through 2008.

A. Mr. Moore Has Had a Foreign Account Since 1989, But He Filed No FBARs Until 2010.

There is no dispute that for nearly two decades, Mr. Moore maintained a foreign account subject to FBAR requirements. Its predecessor was an account Mr. Moore opened at a Bahamian bank in about 1989 when he moved to The Bahamas. He opened that account in the name of a Bahamian corporation that he created (and solely controlled) for the purpose of investing in a resort in The Bahamas. He soon transferred the balance to an "investment account" with a Bahamian branch of a Swiss bank, again holding the account in the name of his Bahamian corporation. Mr. Moore moved back to the United States in 1990, but the account remained in The Bahamas. In about 2003, when the Swiss bank ceased its Bahamian operations, the account migrated to Switzerland, where it has remained ever since. At all relevant times, the balance in the account exceeded $300, 000, but was less than $550, 000.

There is also no dispute that Mr. Moore filed no FBARs until at least 2009. It was around that time that he became aware of an effort by the IRS to encourage people who had not been reporting foreign accounts to come forward. See United States v. Simon, 727 F.3d 682, 686 (7th Cir. 2013) (describing IRS's 2009 Offshore Voluntary Disclosure Program). Through his counsel, he approached the IRS. Ultimately, he amended six years of tax returns (from 2003 through 2008) to report income for each of those years from his foreign account. Mr. Moore and the Government appear to agree that those amendments increased the taxes he owed by about $18, 000. Even assuming there is any dispute over Mr. Moore's tax liabilities, that dispute is not before the court. In addition to amending his tax returns, Mr. Moore in 2010 filed late FBARs for 2003 through 2008, as well as his first timely-filed FBAR, for 2009.

B. The IRS Investigates, Proposes a $40, 000 Penalty, Then Assesses That Penalty.

At some point, the IRS requested an interview with Mr. Moore. He agreed, and IRS Agent Shu Lin Tjoa interviewed him, with his counsel present, by telephone in October 2011. Although Mr. Moore contends that he was not aware that the IRS was considering an FBAR penalty, he admits that he knew that the IRS intended to "enforce something in regards to me." Moore Depo. at 146-47. The interview took no more than five minutes. Id. at 147.

Agent Tjoa prepared an FBAR Penalty Summary Memo recommending that the IRS impose a penalty of $10, 000 for each of the four years from 2005 to 2008. Mr. Moore had no access to the Summary Memo until he received it in connection with this lawsuit. The Summary Memo is an eight-page, relatively detailed account of Agent Tjoa's reasons for recommending a $40, 000 penalty.

On December 13, 2011, the IRS sent Mr. Moore a letter stating that it was "proposing a penalty" totaling $40, 000. In contrast to the Summary Memo, the letter provided almost no information about the basis for that penalty. It identified the applicable portions of the Bank Secrecy Act and the years in question. It did not explain why the IRS had selected the maximum penalty. The letter demanded that Mr. Moore either accept the penalty or "request a conference with our Appeals Office" by no later than January 28, 2012. It also explained that if Mr. Moore did nothing by January 28, 2012, it would "assess the penalty and begin collection procedures."

The IRS ignored the terms of its own letter and assessed a $10, 000 penalty against Mr. Moore on January 23, 2012. That penalty covered only 2005. Agent Daisy Batman declares that the IRS imposed that penalty after Mr. Moore refused to agree to an extension of the applicable statute of limitations. No one explains why the IRS did not honor its agreement to delay assessment of the penalty pending the "appeal" deadline. The court assumes, because the parties do not assert otherwise, that the six-year limitations period for assessing an FBAR civil penalty for 2005 would have run on July 1, 2012, six years after the June 30, 2006 deadline for submitting an FBAR for 2005. 31 U.S.C. § 5321(b)(1) ("The Secretary of the Treasury may assess a civil penalty... at any time before the end of the 6-year period beginning on the date of the transaction with respect to which the penalty is assessed."). In any event, the IRS does not argue that a statute of limitations would have expired between its assessment of a $10, 000 penalty on January 23, 2012 and the January 28, 2012 response deadline it gave to Mr. Moore.

Mr. Moore requested an "appeal"[2] of the proposed assessment. Although the IRS had already assessed the 2005 penalty, it is apparent that it permitted Mr. Moore to contest that assessment along with his request that it not impose penalties for 2006 through 2008. In both his January 2012 request for an appeal and his December 2012 letter in support of the appeal, Mr. Moore's counsel provided detailed argument in support of his request that the IRS either assess no penalty or assess a reduced penalty. Among other things, counsel insisted that Mr. Moore satisfied the requirements of 31 U.S.C. § 5321(b)(5)(B)(ii)(I), which prohibits the imposition of a penalty for an FBAR violation "due to reasonable cause...." The IRS's response, in a December 18, 2012 letter, was terse:

Dear Taxpayer:

I have completed my review of your request to adjust the penalty(s) assessed against you. Based on the facts presented, including additional information you submitted, I find that no basis for abatement of the penalty(s) is warranted within the protective framework of reasonable cause. Your case is now closed in Appeals.

The remainder of the letter provided payment information and a statement that Mr. Moore could sue in federal court, along with an invitation to participate in a "Appeals customer satisfaction survey." The letter said nothing about when the IRS would assess the penalties. It assessed $10, 000 penalties for 2006, 2007, and 2008 on January 24, 2013.

Mr. Moore filed this suit in late 2013. His complaint contended that the IRS violated the Fifth Amendment's Due Process Clause, the Fourteenth Amendment's Equal Protection Clause, and the Eighth Amendment's Excessive Fines Clause. He also contended that the IRS violated the APA, and that the Bank Secrecy Act unlawfully delegated judicial power to the IRS. He asked for a refund of $10, 500 he paid toward the 2005 penalty, and for the court to set aside the remaining $30, 000 in penalties.

The Government has moved for summary judgment against all of Mr. Moore's claims, as well as on its counterclaims seeking to reduce the 2006, 2007 and 2008 penalties to judgment. In opposing that motion, he did not mention his equal protection claim or his claim of unlawfully delegated judicial authority. The court deems those claims abandoned.

The court reaches the following conclusions as to the Government's request for summary judgment on Mr. Moore's remaining claims:

1) As a matter of law, Mr. Moore committed non-willful violations of the Bank Secrecy Act and its subject to civil penalties in accordance with the Act.
2) The IRS has failed to provide a record from which the court can determine, via the judicial review provisions at § 706(2) of the APA, if it acted arbitrarily or capriciously in determining the amount of the penalties it assessed.
3) The IRS's assessment of penalties did not violate the Due Process Clause of the Fifth Amendment or the Eighth Amendment's Excessive Fines Clause.

This order concludes with instructions to the parties to address the impact of both the IRS's early assessment of the 2005 penalty and the lack of an administrative record that provides an adequate basis for the assessment of all four penalties.


On a motion for summary judgment, the court must draw all inferences from the admissible evidence in the light most favorable to the non-moving party. Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000). Summary judgment is appropriate where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party must initially show the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The opposing party must then show a genuine issue of fact for trial. Matsushita Elect. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The opposing party must present probative evidence to support its claim or defense. Intel Corp. v. Hartford ...

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