Court Opinion

ID: 4454443
Source: CourtListenerOpinion
Date Created: 2019-11-08 17:00:32.866787+00
Date Added: 2024-06-11T14:25:29.248246
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                ______________________

                MINDY P. NORMAN,
                 Plaintiff-Appellant

                           v.

                  UNITED STATES,
                  Defendant-Appellee
                ______________________

                      2018-2408
                ______________________

   Appeal from the United States Court of Federal Claims
in No. 1:15-cv-00872-EJD, Senior Judge Edward J.
Damich.
                ______________________

              Decided: November 8, 2019
               ______________________

    PAULA SCHWARTZ FROME, Garden City, NY, argued for
plaintiff-appellant.

    DEBORAH K. SNYDER, Tax Division, United States De-
partment of Justice, Washington, DC, argued for defend-
ant-appellee. Also represented by GEOFFREY KLIMAS,
RICHARD E. ZUCKERMAN, TRAVIS A. GREAVES, GILBERT
STEVEN ROTHENBERG.
                ______________________
2                                 NORMAN v. UNITED STATES

    Before PROST, Chief Judge, MOORE and WALLACH,
                    Circuit Judges.
PROST, Chief Judge.
     Mindy P. Norman appeals a July 31, 2018 decision by
the U.S. Court of Federal Claims finding that: (a) Ms. Nor-
man willfully failed to file a Report of Foreign Bank and
Financial Accounts (“FBAR”) in 2007; and (b) the Internal
Revenue Service (“IRS”) properly assessed a penalty of
$803,530 for this failure. For the reasons stated below, we
affirm.
                      BACKGROUND
                             I
    Ms. Norman, a school teacher, opened a foreign bank
account with the Swiss bank UBS in 1999. More specifi-
cally, she opened a “numbered account,” which, unlike a
“named account,” means income and asset statements for
the account list only the account number and not Ms. Nor-
man’s name or address. From 2001 to 2008, her account
balance ranged between approximately $1.5 million and
$2.5 million.
    Ms. Norman was actively involved in managing and
controlling her account. For instance, she frequently spoke
with Mr. Thomann, her UBS representative, about the ac-
count, both in person and over the phone. She gave UBS
instructions detailing how to invest her funds. For exam-
ple, she signed a document inhibiting UBS from investing
in U.S. securities on her behalf, which helped prevent dis-
closure of her account to the IRS. She also withdrew funds
from the account in 2002. She received the withdrawal—
which appears to have been either for $10,000 or
NORMAN v. UNITED STATES                                   3

$100,000 1—in cash from Mr. Thomann. That the with-
drawal was received in cash again helped to prevent disclo-
sure of the foreign account to the IRS.
    UBS client contact records indicate that in April 2008,
Ms. Norman expressed surprise and displeasure when she
was informed of UBS’s “new business model,” 2 which the
Court of Federal Claims found referred to UBS’s business
decision to “no longer provide offshore banking” and to
work “with the US Government to identify the names of US
clients who may have engaged in tax fraud.” See Norman,
138 Fed. Cl. at 194 (quoting statement by UBS representa-
tive Mark Branson while testifying at a Senate Subcom-
mittee hearing). Just before UBS publicly announced this
new business plan in July 2008, Ms. Norman closed her ac-
count with UBS and transferred her funds to another for-
eign bank.
                             II
    Under 31 U.S.C. § 5314(a), U.S. persons who have re-
lationships with foreign financial agencies are required to
disclose such relationships to the Treasury Department.
This disclosure is effectuated by filing a Report of Foreign
Bank and Financial Accounts (“FBAR”).

   1    Banker’s notes indicate that the withdrawal was
for $100,000, but Ms. Norman claims that the withdrawal
was for $10,000. The precise amount of Ms. Norman’s
withdrawal is unimportant for purposes of this appeal.
What is important is that Ms. Norman knew she had con-
trol over her foreign account and could withdraw from it.
     2  J.A. 327, 330; see also Norman v. United States, 138
Fed. Cl. 189, 194 & n.8 (2018); Defendant’s Motion for Sum-
mary Judgment, Defendant’s Exhibits Vol. 3 at 28-2, 28-5,
Norman v. United States, 138 Fed. Cl. 189 (2018) (No. 15-
872T).
4                                  NORMAN v. UNITED STATES

     Ms. Norman did not file a timely FBAR disclosing the
existence of her UBS account in any year, including in
2007, which is the tax year at issue in this case. In addi-
tion, Ms. Norman signed, under penalty of perjury, her
2007 tax return, which falsely indicated that she had no
interest in any foreign bank account. She signed her tax
return after her accountant sent her a questionnaire spe-
cifically inquiring whether she had an interest in any for-
eign bank accounts.
    In 2008, Ms. Norman was referred to an accountant
who filed amended tax returns and late FBARs. The IRS
subsequently opened an audit of Ms. Norman. During this
audit, Ms. Norman made numerous false statements to the
IRS. For instance, Ms. Norman told the IRS, both during
an interview and in a letter, that she first learned of her
foreign account in 2009. In the letter, she further stated
that she “was shocked to first hear about the existence of
foreign accounts” in her name. J.A. 133. After retaining
counsel, Ms. Norman sent the IRS a second letter “to cor-
rect several misstatements.” J.A. 145–47. In this letter,
she admitted that she had known for over a decade that she
had an “interest” in a foreign bank account, but still stated
that “none of the money in the account(s) was mine[,] and
I did not consider myself to have any kind of control over
the account.” J.A. 146.
    Pursuant to 31 U.S.C. § 5321(a)(5)(A), the Secretary of
the Treasury has the authority to impose civil money pen-
alties on any person who fails to file a required FBAR.
From 1986 to 2004, § 5321 only authorized penalties for
willful violations of § 5314 and capped such penalties at
$100,000. In 2004, Congress amended § 5321 to authorize
penalties up to $10,000 for non-willful violations of § 5321
and to increase the maximum penalty for willful violations
to the greater of $100,000 or fifty percent of the balance in
the account at the time of the violation. 31 U.S.C.
§ 5321(a)(5)(A)–(D).
NORMAN v. UNITED STATES                                     5

    The IRS assessed an $803,530 penalty against Ms.
Norman for willfully violating the FBAR reporting require-
ment. Ms. Norman paid the penalty in full and filed a com-
plaint in the Court of Federal Claims requesting a refund.
After a trial, the Court of Federal Claims upheld the pen-
alty as appropriate. Ms. Norman appealed. We have juris-
diction under 28 U.S.C. § 1295(a)(3).
                        DISCUSSION
    Ms. Norman raises three issues on appeal. First, she
argues that the Court of Federal Claims factually and le-
gally erred in finding that her FBAR violation was willful.
Second, Ms. Norman argues that a 1987 regulation issued
by the Treasury Department limits penalties for willful
FBAR violations to $100,000. Third, Ms. Norman contends
that the penalty imposed on her violates the Eighth
Amendment. We discuss each in turn.
                              I
    Section 5321 sets a larger maximum penalty for willful
violations of § 5314 than for non-willful violations. Ms.
Norman argues that the Court of Federal Claims erred
both legally and factually in concluding that her failure to
comply with § 5314 was willful. She further argues that,
therefore, the IRS can penalize her at most for a non-willful
violation of § 5314. We disagree.
                              A
    As an initial matter, the parties dispute the meaning
of willfulness in the context of § 5321. The Supreme Court
has made clear that “where willfulness is a statutory con-
dition of civil liability, we have generally taken it to cover
not only knowing violations of a standard, but reckless ones
as well.” Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 57
(2007). Neither party has pointed to any authority indicat-
ing that a different standard applies here. Therefore, we
hold, as did the Court of Federal Claims, that willfulness
in the context of § 5321(a)(5)(C) includes recklessness. We
6                                  NORMAN v. UNITED STATES

note that our interpretation of willfulness is consistent
with both the Third and Fourth Circuits. See Bedrosian v.
United States, 912 F.3d 144, 152–53 (3d Cir. 2018); United
States v. Williams, 489 F. App’x 655, 658–59 (4th Cir.
2012).
     Ms. Norman argues that willfulness in this context re-
quires a showing of actual knowledge of the obligation to
file an FBAR. See Appellant’s Br. 30–31. Ms. Norman rea-
sons that, if willfulness includes recklessness, then every
failure to file an FBAR is willful, which would inappropri-
ately render superfluous the portions of § 5321 relating to
penalties for non-willful violations. Id. at 31. We disagree.
For example, an FBAR violation would generally not be
willful where a taxpayer did not know about, and had no
reason to know about, her overseas account. Accordingly,
our interpretation of willfulness does not render superflu-
ous the portions of § 5321 relating to non-willful conduct.
    Ms. Norman also argues that we should follow Internal
Revenue Manual (“IRM”) § 4.26.16.6.5.1(4), which states
that “[w]illfulness is shown by the person’s knowledge of
the reporting requirements and the person’s conscious
choice not to comply with the requirements.” It is well set-
tled, however, that the IRM is not legally binding on courts.
See, e.g., Estate of Duncan v. Comm’r of Internal Revenue,
890 F.3d 192, 200 (5th Cir. 2018). In any event, the IRM
acknowledges that actual knowledge may not be required.
According to the IRM, “the failure to learn of the filing re-
quirements coupled with other factors, such as efforts
taken to conceal the existence of the accounts and the
amounts involved, may lead to a conclusion” that the tax-
payer acted willfully. I.R.M. § 4.26.16.6.5.1(5). As dis-
cussed in more detail below, this scenario fits Ms.
Norman’s conduct.
NORMAN v. UNITED STATES                                      7

                              B
     Ms. Norman also argues that, irrespective of how will-
fulness is defined in this context, the Court of Federal
Claims erred in determining that her failure to file an
FBAR in 2007 was willful. We review this determination
for clear error. See Home Sav. of Am. v. United States, 399
F.3d 1341, 1346 (Fed. Cir. 2005); Landmark Land Co. v.
FDIC, 256 F.3d 1365, 1373 (Fed. Cir. 2001); see also Bed-
rosian v. United States, 912 F.3d 144, 152 (3d Cir. 2018)
(finding that a “determination in a bench trial as to willful-
ness under the FBAR statute is reviewed for clear error”).
    The Court of Federal Claims did not clearly err in find-
ing that Ms. Norman’s failure to file an FBAR was willful.
Ms. Norman signed her 2007 tax return under penalty of
perjury, and this return falsely indicated that she had no
interest in any foreign bank account. She did so after her
accountant sent her a questionnaire that specifically asked
whether she had a foreign bank account. In addition, the
evidence shows that Ms. Norman took the following steps,
each of which had the effect of inhibiting disclosure of the
account to the IRS: (1) Ms. Norman opened her foreign ac-
count as a “numbered account”; (2) she signed a document
preventing UBS from investing in U.S. securities on her
behalf; and (3) the one time she withdrew money from the
account, her Swiss bank account manager delivered the
money to her in cash.
    Moreover, once the IRS opened an audit of Ms. Nor-
man, she made many false statements to the IRS about her
knowledge of, and the circumstances surrounding, the ac-
count. Ms. Norman told the IRS, both during an interview
and in a letter, that she first learned of the account in 2009.
In her letter, she stated that she “was shocked to first hear
about the existence of foreign accounts” in her name. In
2014, after retaining counsel, Ms. Norman sent the IRS an-
other letter “to correct several misstatements.” Although
Ms. Norman admitted in this 2014 letter that she knew
8                                  NORMAN v. UNITED STATES

“more than a decade ago” that she had an “interest” in a
foreign bank account, she maintained in the 2014 letter
that “none of the money in the Swiss account(s) was mine[,]
and I did not consider myself to have any kind of control
over the account.” J.A. 146. In fact, Ms. Norman knew long
before 2009 that she owned a foreign bank account and con-
trolled its assets. She opened the account in 1999, actively
managed the account for many years, and even withdrew
money from the account in 2002.
    In short, at the very least, Ms. Norman signed her 2007
tax return—which falsely indicated that she owned no in-
terest in any foreign bank account—knowing that she
owned a foreign bank account and controlled the assets
within. Prior to 2007, Ms. Norman took steps to keep the
account confidential from the government. And after the
IRS opened an audit of Ms. Norman, she made numerous
misstatements to the IRS about her knowledge and control
of the foreign bank account. On these facts, we cannot say
that the Court of Federal Claims clearly erred in finding
that Ms. Norman willfully violated the FBAR requirement.
    Ms. Norman argues that she could not have willfully
violated § 5314 because she was merely following her
mother’s advice in opening and managing the account. But
this argument is unavailing because our willfulness find-
ing rests on affirmative acts taken by Ms. Norman herself,
and Ms. Norman does not contend that her actions were
the product of undue influence by her mother. See, e.g.,
Oral Arg. at 8:45–9:10, No. 2018-2408, http://www.cafc.
uscourts.gov/oral-argument-recordings. Actions can be
willful even if taken on the advice of another.
    Ms. Norman also argues that she could not have will-
fully violated the FBAR requirement because she did not
read her 2007 tax return. But whether Ms. Norman ever
read her 2007 tax return is of no import because “[a] tax-
payer who signs a tax return will not be heard to claim in-
nocence for not having actually read the return, as he or
NORMAN v. UNITED STATES                                   9

she is charged with constructive knowledge of its contents.”
Greer v. Comm’r of Internal Revenue, 595 F.3d 338, 347 n.4
(6th Cir. 2010); see also United States v. Doherty, 233 F.3d
1275, 1282 n.10 (11th Cir. 2000) (finding that taxpayer
“signed the fraudulent tax form and may be charged with
knowledge of its contents”). The fact that Ms. Norman did
not read her 2007 tax return supports that she acted reck-
lessly toward the existence of reporting requirements.
Moreover, the facts supporting a finding of willfulness in
this case extend much further than Ms. Norman’s failure
to read her 2007 tax return.
    In sum, we find that the Court of Federal Claims did
not clearly err in determining that Ms. Norman willfully
violated the FBAR requirement of § 5314.
                             II
    Next, Ms. Norman contends that the Court of Federal
Claims legally erred in concluding that a 2004 amendment
to 31 U.S.C. § 5321 rendered void 31 C.F.R. § 1010.820(g)
(2010), a 1987 regulation capping penalties for willful vio-
lations of § 5314 at $100,000. We disagree.
    From 1986 to 2004, § 5321 capped penalties for willful
FBAR violations at $100,000. In 1987, the Treasury De-
partment issued a regulation echoing this statutory lan-
guage. 31 C.F.R. § 103.47(g)(2) (1987), renumbered as 31
C.F.R. § 103.57(g)(2) (1999), renumbered as 31 C.F.R.
§ 1010.820(g) (2010). In 2004, Congress amended § 5321 to
increase the maximum penalty for willful violations to the
greater of $100,000 or fifty percent of the balance in the
account at the time of the violation.            31 U.S.C.
§ 5321(a)(5)(A)–(D). As of the date of this decision, the
Treasury Department has not amended or repealed its
1987 regulation.
     Ms. Norman argues that the Court of Federal Claims
should have reduced her penalty to $100,000 because that
is the maximum penalty authorized by the 1987 regulation.
10                                 NORMAN v. UNITED STATES

The Government responds that the 2004 amendment to
31 U.S.C. § 5321(a)(5)(C) superseded the 1987 regulation.
This is a legal question requiring statutory interpretation,
which we review de novo. BASR P’ship v. United States,
915 F.3d 771, 776 (Fed. Cir. 2019).
     The plain language of the statute, as amended in 2004,
indicates that, for willful FBAR violations, “the maximum
penalty . . . shall be increased to the greater of” $100,000
or fifty percent of the balance in the account at the time of
the violation. 31 U.S.C. § 5321(a)(5)(A)–(D) (emphasis
added). The use of the word “shall” means what follows is
mandatory, not discretionary. See, e.g., Hyatt v. U.S. Pa-
tent & Trademark Office, 797 F.3d 1374, 1380 (Fed. Cir.
2015). Accordingly, Congress set a maximum penalty that
must govern whenever the IRS imposes a willful FBAR
penalty.
    Because the 1987 regulation sets forth a maximum
willful FBAR penalty that is inconsistent with the maxi-
mum penalty mandated by statute, the 1987 regulation is
no longer valid. See, e.g., R&W Flammann GmbH v.
United States, 339 F.3d 1320, 1324 (Fed. Cir. 2003); Barse-
back Kraft AB v. United States, 121 F.3d 1475, 1480 (Fed.
Cir. 1997); Aerolineas Argentinas v. United States, 77 F.3d
1564, 1575 (Fed. Cir. 1996); see also Farrell v. United
States, 313 F.3d 1214, 1219 (9th Cir. 2002).
    Ms. Norman’s arguments to the contrary are unpersua-
sive. First, Ms. Norman argues that § 5321 gives the Sec-
retary discretion to set a lower maximum penalty. Ms.
Norman relies on the statute’s language that “[t]he Secre-
tary of the Treasury may impose a civil money penalty on
any person who violates” the FBAR requirement. 31 U.S.C.
§ 5321(a)(5)(A) (emphasis added). But the language relied
upon by Ms. Norman—that the Secretary “may” impose a
penalty—merely gives the Secretary discretion as to
whether to impose a penalty in any particular case. This
language does not mean that the Secretary has the
NORMAN v. UNITED STATES                                     11

authority to set a penalty cap on all cases that is different
than the penalty cap Congress mandated.
     To the extent Ms. Norman argues that even if the 1987
regulation is inconsistent with § 5321 as amended in 2004,
the 1987 regulation is binding on the IRS until it is re-
pealed, that argument is meritless. It is well-settled that
subsequently enacted or amended statutes supersede prior
inconsistent regulations. See, e.g., R&W Flammann, 339
F.3d at 1324 (“A regulation that contravenes a statute is
invalid. The FOIA statute obligates the government to dis-
close non-exempt information and super[s]edes purport-
edly contradictory regulatory requirements.”); Barseback
Kraft, 121 F.3d at 1480 (“The fact that the DOE’s Enrich-
ment Criteria had not been formally withdrawn from the
Code of Federal Regulations does not save them from inva-
lidity. A ‘regulation cannot override a clearly stated statu-
tory requirement.’” (quoting Aerolineas Argentinas, 77 F.3d
at 1575)); see also Farrell, 313 F.3d at 1219 (“It is well-set-
tled that when a regulation conflicts with a subsequently
enacted statute, the statute controls and voids that regula-
tion.”). Ms. Norman’s position to the contrary would inap-
propriately prevent all newly created or amended statutes
from taking effect until all inconsistent regulations are
amended or repealed.
    Ms. Norman further contends that the 1987 regulation
constitutes an interpretation of 31 U.S.C. § 5321 that war-
rants Chevron deference. But even if the 1987 regulation
constitutes an interpretation of 31 U.S.C. § 5321, the 1987
regulation is not entitled to Chevron deference. Because
the statute is unambiguous, we “must give effect to the un-
ambiguously expressed intent of Congress.” Chevron,
U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837,
842–43 (1984).
    In conclusion, we find that the 2004 amendment to
31 U.S.C. § 5321 rendered void the 1987 regulation cap-
ping penalties for willful violations of § 5314 at $100,000.
12                                 NORMAN v. UNITED STATES

                             III
     Finally, Ms. Norman contends that the penalty im-
posed upon her constitutes an excessive fine under the
Eighth Amendment. We decline to reach this issue because
Ms. Norman failed to properly preserve it. Ms. Norman
first advanced this argument in her second post-trial letter
to the Court of Federal Claims, which requested permis-
sion to supplement her summary judgment opposition with
this Eighth Amendment argument. This letter was sent
after her opposition to the Government’s summary judg-
ment motion, after trial, and after her first post-trial sub-
mission. The Court of Federal Claims properly exercised
its discretion in denying Ms. Norman’s untimely request.
As a result, we find that this argument is waived and de-
cline to address it.
                       CONCLUSION
    We have considered Ms. Norman’s remaining argu-
ments and find them unpersuasive. For the foregoing rea-
sons, we affirm the decision of the Court of Federal Claims.
                       AFFIRMED