Stephen C. Jenner & Judy A. Jenner ( 2024 )

United States Tax Court
163 T.C. No. 7STEPHEN C. JENNER AND JUDY A. JENNER,
Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket No. 8903-23. Filed October 22, 2024.
—————
R assessed Foreign Bank Account Reporting (FBAR)
penalties against Ps. Treasury’s Bureau of the Fiscal
Service informed Ps that funds would be withheld from
their monthly Social Security benefits to satisfy their
debts. Ps requested a collection due process (CDP) hearing.
R denied Ps’ request for a CDP hearing because the FBAR
penalties assessed against them were not taxes and not
subject to the requirements of I.R.C. § 6330. Ps filed a
Petition contending that R deprived them of their CDP
rights. R moved to dismiss the case for lack of jurisdiction.
Held: FBAR penalties are not taxes imposed by the
Internal Revenue Code and thus are not subject to the
requirements of I.R.C. §§ 6320 and 6330.
Held, further, this Court lacks jurisdiction.
—————
Steven Ray Mather, for petitioners.
Tiffany A. Loewenstein, Gabriel H. Kim, and Michael K. Park, for
respondent.
Served 10/22/24
2
OPINION
FOLEY, Judge: The sole issue for decision is whether Foreign
Bank Account Reporting (FBAR) penalties are subject to the
requirements of sections 6320 and 6330. 1
Background
Petitioners, Stephen C. Jenner and Judy A. Jenner, were
assessed FBAR penalties pursuant to 31 U.S.C. § 5321 relating to 2005
through 2009 for an alleged failure to timely file foreign bank account
reports. In a letter dated November 9, 2022, the Department of the
Treasury’s (Treasury) Bureau of the Fiscal Service (BFS) informed
petitioner Judy Jenner that the Treasury Offset Program (TOP) would
withhold funds from her monthly Social Security benefits. In a nearly
identical letter dated November 16, 2022, BFS informed petitioner
Stephen Jenner that TOP would also withhold funds from his Social
Security benefits. These letters directed petitioners to contact BFS’s
Debt Management Servicing Center (DMSC) to prevent the collection
activity.
Petitioners each requested collection due process (CDP) hearings
relating to the FBAR penalties assessed against them by submitting, to
DMSC, identical Forms 12153, Request for a Collection Due Process or
Equivalent Hearing, dated December 7, 2022. Subsequently, in a letter
dated April 6, 2023, petitioners asked the Internal Revenue Service’s
(IRS) BSA/CTR Operations Center whether it had received petitioners’
CDP requests. The IRS, in a letter dated May 11, 2023, notified
petitioners that they did not qualify for a CDP hearing because the
FBAR penalties assessed against them were not taxes and not subject
to the requirements of section 6330.
On June 5, 2023, petitioners, while residing in Florida, filed their
Petition alleging that they were denied their CDP rights pursuant to
section 6330. On July 19, 2023, respondent filed a Motion to Dismiss for
Lack of Jurisdiction and contended that the collection of FBAR penalties
is not subject to the notice and other requirements of section 6330.
1 Unless otherwise indicated, statutory references are to the Internal Revenue
Code, Title 26 U.S.C., in effect at all relevant times, and regulation references are to
the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times.
3
Discussion
The FBAR penalties at issue are authorized and imposed by Title
31, Money and Finance, of the United States Code. See generally 31
U.S.C. § 5311. Title 31 U.S.C. § 5314(a) provides that each U.S. person
must “keep records, file reports, or keep records and file reports, when
the resident, citizen, or person makes a transaction or maintains a
relation for any person with a foreign financial agency.” Accordingly,
any person that meets the above definition must file Financial Crimes
Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and
Financial Accounts (FBAR), with FinCEN on or before June 30 of the
year following the calendar year for which the financial account is
maintained. See, e.g., 31 C.F.R. §§ 1010.350(a), 1010.306(c) (2023). The
Secretary of the Treasury (Secretary) may impose a civil penalty on any
person who fails to file the requisite form. 31 U.S.C. § 5321(a)(5)(A).
The Secretary has delegated to FinCEN the authority to enforce
the provisions and impose civil penalties for violations of 31
U.S.C. § 5314. See 31 C.F.R. § 1010.810(d) (2023). FinCEN subsequently
redelegated this authority to the IRS. See 31 C.F.R. § 1010.810(g);
see also Delegation Order 25-13, Internal Revenue Manual 1.2.2.15.13
(Mar. 8, 2022). Notwithstanding this redelegation, Title 31 and its
accompanying regulations govern how FBAR penalties are assessed and
collected. Title 31 U.S.C. § 5321(b)(1) grants the Secretary the authority
to assess FBAR penalties. Upon assessment, FBAR penalties become a
nontax debt to the United States, and, once that debt has been
delinquent for more than 180 days, the Secretary may refer the debt to
an executive agency to take appropriate collection action. See 31 U.S.C.
§ 3711(g)(1), (4); see also 31 U.S.C. § 3701(a)(8) (providing that a nontax
debt is any debt or claim other than a debt or claim pursuant to the
Internal Revenue Code). Title 31 U.S.C. § 3716 grants executive
agencies the authority to collect outstanding debts through
administrative offsets and provides the notice and other requirements
that must be followed prior to collection. See also 31 U.S.C. § 3701(d)(1)
(providing that 31 U.S.C. § 3716 does not apply to a claim or debt
pursuant to the Internal Revenue Code). Title 31 U.S.C. § 5321(b)(2)
provides that the Secretary may commence a civil action to recover
FBAR penalties. See 31 C.F.R. § 5.16(b) (2023) (providing that Treasury
may refer delinquent debts to the Department of Justice for litigation).
The Tax Court is a court of limited jurisdiction and may exercise
jurisdiction only to the extent authorized by Congress. See § 7442;
see also Naftel v. Commissioner, 85 T.C. 527, 529 (1985). Section
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6330(d)(1) provides that a taxpayer “may, within 30 days of a
determination under this section, petition the Tax Court for review of
such determination (and the Tax Court shall have jurisdiction with
respect to such matter).” This Court has consistently held that
jurisdiction pursuant to section 6330(d)(1) is contingent on the issuance
of a valid notice of determination. Goza v. Commissioner, 114 T.C. 176,
182 (2000). The Court has further explained that “a taxpayer may only
file a petition for review with this Court where the administrative
determination concerns a tax over which the Court generally has
jurisdiction.” Id.; see also Lunsford v. Commissioner, 117 T.C. 159, 164
(2001).
Petitioners contend that the letter they received from the IRS
notifying them that they did not qualify for a CDP hearing provided the
requisite determination pursuant to section 6330(d)(1) to invoke this
Court’s jurisdiction; “nothing in I.R.C. § 6330 limits the CDP procedures
to Title 26 liabilities;” the administrative offsets on their Social Security
benefits are “levies by the Secretary” that entitled them to a CDP
hearing; and there is no “rational distinction” between levies by the
Secretary to collect Title 26 liabilities and levies to collect FBAR
penalties. They conclude that “the CDP procedures in I.R.C. § 6330
apply to any type of liability . . . to the extent the Secretary files a lien
or intends to levy.”
These contentions are specious.
A necessary component of any determination made pursuant to
section 6330 is that it relate to an unpaid tax. See § 6320(a)(3)(A) (“The
notice required under paragraph (1) shall include in simple and
nontechnical terms . . . the amount of unpaid tax . . . .” (Emphasis
added.)); see also § 6330(a)(1) (“Such notice shall be required only once
for the taxable period to which the unpaid tax specified in paragraph
(3)(A) relates.” (Emphasis added.)). We have previously explained that
the tax making up the underlying liability is the amount “a taxpayer
owes pursuant to the tax laws that are the subject of the Commissioner’s
collection activities.” Mason v. Commissioner, 132 T.C. 301, 316 (2009)
(quoting Callahan v. Commissioner, 130 T.C. 44, 49 (2008)). “The
statutes creating the ‘collection due process’ procedures, and the
statutes creating the lien and levy collection mechanisms reviewed by
those procedures, all explicitly pertain to ‘tax’ . . . .” See Williams v.
Commissioner, 131 T.C. 54, 59 (2008) (holding that FBAR penalties are
not subject to the deficiency procedures because no notice of deficiency
5
is authorized or required prior to assessment pursuant to sections 6212
and 6213).
FBAR penalties are not imposed by the Internal Revenue Code,
and, as a result, they are not “taxes.” Section 6201(a) provides:
The Secretary is authorized and required to make the
inquiries, determinations, and assessments of all taxes
(including interest, additional amounts, additions to the
tax, and assessable penalties) imposed by this title [i.e.,
Title 26, the Internal Revenue Code] . . . .
(Emphasis added.) Because FBAR penalties are not imposed pursuant
to Title 26, they “are not subject to the various statutory cross-references
that equate ‘penalties’ with ‘taxes.’” Mendu v. United States, 153 Fed.
Cl. 357, 365 (2021) (holding that FBAR penalties are not subject to the
Flora v. United States, 362 U.S. 145 (1960), full-payment rule because
they are not taxes); see, e.g., §§ 6665(a)(2), 6671(a). In addition, nothing
in 31 U.S.C. § 5321(a) provides that an FBAR penalty is deemed a tax
or that it is required to be assessed or collected “in the same manner as
a tax.” See §§ 6665(a)(1), 6671(a).
Because an FBAR penalty is not a tax, neither section 6321 nor
section 6331 applies to petitioners, and therefore, no lien or levy to
collect these penalties is authorized. Section 6320(a)(1) provides that
“[t]he Secretary shall notify in writing the person described in section
6321.” The person described in section 6321 is any person “liable to pay
any tax” who “neglects or refuses to pay the same after demand.” Section
6330(a)(1) provides that “[n]o levy may be made on any property or right
to property of any person unless the Secretary has notified such person
in writing.” “The person described in section 6330(a)(1) is the same
person described in section 6331(a)—i.e., the person liable to pay the tax
due after notice and demand who refuses or neglects to pay (referred to
here as the taxpayer).” Treas. Reg. § 301.6330-1(a)(3), Q&A-A1. “The
collection mechanism authorized in the FBAR statute itself is not lien
or levy but ‘a civil action to recover a civil penalty.’” Williams, 131 T.C.
at 59 n.6 (quoting 31 U.S.C. § 5321(b)(2)).
In short, Title 31 expressly provides the assessment and collection
procedures for FBAR penalties, and there is no statutory, regulatory, or
judicial authority providing that these penalties are subject to sections
6320 and 6330. “[T]he rights afforded by the CDP statutes apply only to
those people subject to IRS actions to collect ‘tax.’” Ryckman v.
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Commissioner, No. 750-21L, 163 T.C., slip op. at 11 (Aug. 1, 2024). FBAR
penalties are not taxes. Accordingly, the IRS was under no obligation to
provide petitioners with a CDP hearing.
To reflect the foregoing,
An order of dismissal for lack of jurisdiction will be entered.