First Circuit Sustains Willful Penalty Where Willfulness Found as Discovery Sanction (5/2/22)

  

In United States v. Toth, ___ F.4th ___, 2022 U.S. App. LEXIS 11693 (1st Cir. 4/29./22), here, the Court affirmed the district court’s grant of summary judgment which had imposed a willful determination as a discovery sanction.   See In Willful FBAR Collection Suit, District Court Rejects Reconsideration of Finding of FBAR Willfulness As Discovery Sanction (Federal Tax Crimes Blog 12/28/19), here; and District Court Grants Government Summary Judgment on FBAR Civil Willful Penalty (9/19/20), here.  The opinion, written by Judge Barron (Wikipedia here) is a bit of a slog (42 pages in pdf of Slip Op.), so I just focus on the parts of the opinion that I found interesting.

1. The opinion says (Slip Op. 3) that Toth had filed her first FBAR in 2010.  I infer that the Court means 2010 FBAR which would have been filed in 2011.  The Court then says (Slip Op. 3) “the IRS filed the delinquent FBAR forms on her behalf for the relevant period (2005-2009).”  I may have missed something over the years, but I don’t recall hearing that the IRS files delinquent FBARs for taxpayers.  (Compare by analogy, substitutes for returns filed under § 6020.)   I  am aware of no such authority for the IRS or FinCEN to file substitutes for FBARs. (But then I am often unaware.)

2. The Court has considerable discussion (Slip Op. 21-31) of the issue of whether the FBAR penalty was limited under the regulation originally promulgated in1987 under the statute then capping the FBAR penalty at $100,000 which was not changed after the 2004 amendment increasing the willful penalty to the greater $100,000 or 50% of the unreported accounts precluded.  The consensus in the Courts of Appeals is that the old regulation (now updated effective 12/23/21) did not apply to limit the maximum penalty under the 2004 revision.

Although not a tax crimes issue, the Court does note (Slip Op. 26-27) the history of the 1987 regulation. The regulation was a notice and comment regulation (in the APA sense), but the particular provision in the regulation was not in the original notice of proposed rulemaking (NPRN) because it was not in the statute when the NPRM was issued.  The statute was amended after the NPRM and thus Treasury added the provision in the final regulation to state that which the new statute stated (a so-called “parroting” regulation citing Gonzalez v. Oregon, 546 U.S. 243, 257 (2006), as to which opportunity to comment would be meaningless).  So, I guess technically the “parroting” provision had not gone through notice and comment even though it appeared in a notice and comment regulation.

3. The Court had earlier (Slip Op. 6) said: “Congress passed the Act in 1970 to curb the use of foreign bank accounts to evade taxes. See Cal. Bankers Ass’n v. Shultz, 416 U.S. 21, 28-30 (1974).”  FBAR enthusiasts know that tax evasion was only one of the concerns motivating Congress to enact the FBAR filing and penalty regime.  Then, the Court later addresses (Slip Op. 34-36, footnotes omitted) the Excessive Fines issue as to whether the FBAR willful penalty is punitive or remedial:

            Moreover, we conclude that, even if those points of distinction are not themselves dipositive, the civil penalty here is like the civil forfeitures in One Lot Emerald Cut Stones and One Ring v. United States, 409 U.S. 232 (1972), Stockwell v. United States, 80 U.S. 531 (1871), and the other early customs laws that Bajakajian itself recognized did not constitute punishment for purposes of the Excessive Fines Clause, 524 U.S. at 342-43 (explaining that the “early monetary forfeitures,” such as the ones discussed Stockwelland One Lot Emerald Cut Stones, “were – 35 – considered not as punishment for an offense, but rather as serving the remedial purpose of reimbursing the [g]overnment for the losses accruing from the evasion of customs duties”). And, too, it is like the civil tax penalties found not to be punishment for Double Jeopardy purposes in Helvering v. Mitchell, 303 U.S. 391, 398 (1938), and Excessive Fines purposes in McNichols v. C.I.R., 13 F.3d 432, 434-435 (1st Cir. 1993) (quoting Helvering, 303 U.S. at 401); see also Thomas v. C.I.R., 62 F.3d 97, 98 (4th Cir. 1995) (“[T]he Excessive Fines Clause is not implicated, since the addition to [the] tax[es] [owed] is not a punitive measure.”); United States v. Alt, 83 F.3d 779, 784 (6th Cir. 1996) (same); Tyler v. Hennepin Cty., 26 F.4th 789, 794 (8th Cir. 2022); Little v. C.I.R., 106 F.3d 1445, 1455 (9th Cir. 1997) (same); Kitt v. United States, 277 F.3d 1330, 1337 (Fed. Cir. 2002) (same); cf. United States v. Dunkel, 182 F.3d 923 (7th Cir. 1999) (unpublished table decision).

            We make that assessment because — unlike the forfeiture at issue in Bajakajian, which was ordered notwithstanding that there “was no fraud on the United States, and [the subject of the forfeiture] caused no loss to the public fisc,” id. at 329, 339 — here there was such a fraud and loss. Indeed, Congress authorized the imposition of a penalty of this size for willfully failing to comply with the Act’s reporting requirements to address the fact that “[i]t has been estimated that hundreds of millions in tax revenues [were] lost” due to the secret use of foreign financial accounts — which Congress characterized as the “largest single tax loophole permitted by American law,” H.R. Rep. No. 91- 975, at 4397-98 (1970), and that it was very difficult for law enforcement to police the use of these accounts, causing costly investigations to stretch on for years, id. at 4397. Cf. Bajakajian, 524 U.S. at 343 (explaining that the monetary penalty at issue in One Lot Emerald Cut Stones was remedial in part because – 37 – the penalty was proportioned on the value of the non-reported goods); One Lot Emerald Cut Stones, 409 U.S. at 237 (holding that the forfeiture of goods for a failure to pay import duties on them is a “reasonable form of liquidated damages,” as the more expensive the illegally imported good, the more the government has likely missed out on revenue); Stockwell, 80 U.S. at 533, 546-47 (finding that a statutory scheme that permitted the government to impose on an individual who deals in illegally imported goods a penalty equal to double the value of those goods was “remedial” because “[t]he act of abstracting goods illegally imported, receiving, concealing, or buying them, interposes difficulties in the way of a government seizure, and impairs, therefore, the value of the government right” such that “[i]t is . . . hardly accurate to say that the only loss the government can sustain from concealing the goods liable to seizure is their single value”).

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Cloud Cuckoo Land: A Novel – Anthony Doerr

This novel beggars description. Throughout, it is multiple stories ranging from medieval Eastern Europe and Constantinople to the Korean War, the 1970s, the near future, and the farther future. At the end, the author ties them together into a coherent story, but the process of getting there is exhausting because of the suffering contained in each of the component stories. So while it is a terrific piece of writing, it isn’t an easy or a pleasant read.

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Thomas Jefferson: The Art of Power – Jon Meacham

I am pretty sure this book has been on my Kindle for over ten years. It is an exhaustive biography of Jefferson, but focused on his career as a political leader. That is not to me the most interesting aspect of the man, and doesn’t fully explore all the things that made him both a genius and a highly controversial figure. But it did provide a mountain of interesting detail about his activities and conduct – even if it didn’t fully reflect his multiple interests in real time. You have to know more about him to know that he perennially had numerous ongoing projects which reflected his wide range of interests, and that is an aspect of his life I am always interested in.
But one thing Meacham does convey is a better understanding of Jefferson’s relationship with Sally Hemings and his children by her. He nails Jefferson’s notations in his daily accounts as to his location and the birth of all of the children of slaves on his estate to confirm that only he – and not some other male member of his family – fathered all of her chilfren. The book also gets across how Jefferson lived on a daily basis with slaves who were not just 7/8th white and his children, but who had three of the same four grandparents as his two daughters – since Sally and Jefferson’s deceased wife were half-sisters. It’s hard to understand what that life was like – Meacham makes that a little easier to understand.

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The Cartographers: A Novel – Peng Shepherd

The idea of a novel built around the hidden secrets contained in maps was catnip to me when I first read about this book. It’s a variation on the Dan Brown – style archaeological porn that I used to love to read, but weaves in enough urban fantasy to give it interest from that angle as well.
The story is an interesting one, but I quickly got the many similar characters mixed up, which kept me from getting as engaged in the story as I should have. The writing was also distracting, since most of the book is told in the form of narratives of events long past, but which contained such detail that they simply weren’t plausible as the “here’s what we did with your parents in college 25 years ago”. The work presented as flashbacks, but as real-time exposition, and the distinction kept being a distraction to me.
One other thing that I felt was a distraction was that a plot device was used twice. The story is that of a group of college friends, and it was I thought a very effective plot device when one of the current characters turned out to have been within that group, which the protagonist didn’t know. Then a few chapters later, another major character is revealed as having been one as well, which no one knew. It was clever the first time. It was just too convenient the second time.
Anyway, it’s a good story, and I enjoyed the book, but I think it enjoyed narrative a bit too much, at the expense of plausibility. I think the underlying story could have been told a bit more realistically.

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Alexander Hamilton – Ron Chernow

What is there left to say about this book? Not only did it fill an important gap in the popular biography of an important Founding Father – it inspired a groundbreaking Broadway musical that will inspire generations to come with the story of an extraordinary individual and the founding of our nation.
There was the odd sensation seeing the origin of song lyrics from the musical throughout. “Not Throwing Away My Shot” seems to actually have been inspired by the clear historical record that Hamilton told people he “was” in fact “throwing away his shot” in the duel with Burr. Burr actually did say that “the world was wide enough for Hamilton and me.” There was the heartbreak in the final portrait of a middle-aged Hamilton after his son Philip was killed in a duel.  I never knew he had made it to middle age, candidly, or that the light in his eyes had seemed to have gone out.
But there was substance I had not seen as well. No one comes out terribly well here, and the worst decisions were Hamilton’s, from the ill-advised publication of the Reynolds and Adams pamphlets to the panicked calls for the New York Legislature to find a way to set aside statewide electoral results in 1800, since they would in effect guarantee the Federalists’ loss to Jefferson’s emerging Democratic-Republicans later in the year. And ending, of course, in his failure to find a way to avoid the duel that would leave his family in poverty.
A terrific book, all in all. And it’s remarkable how well the musical tells the same story.

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Misquoting Jesus: The Story Behind Who Changed the Bible And Why / Jesus, Interrupted: Revealing the Hidden Contradictions in the Bible (and Why We Don’t Know About Them) – Bart Ehrman

One of my favorite Teaching Company videos is Dr. Bart Ehrman’s on the New Testament, where he goes into what I now understand is the historical–critical analysis of the books of the New Testament. The lectures provide a fascinating insight into the books, along with background into when they were created, what they mean, and how they were changed throughout history.

These two books cover the same ground. The first focuses on what we know of the history of changes and alterations to the texts going back to our earliest copies, which are still removed by hundreds of years from the very first versions. The second focuses more on the differences between the texts, with Ehrman insisting that we consider what each author has to say standing alone, and recognizing that they might well be contradicting each other, and why that might be the case.

The claim that every word of the Bible is correct as it sits today is not one that I was brought up with, but Ehrman presents the case – which is well recognized in most Christian seminary and theological institutions today – that that claim simply is not sustainable, and that whether approaching the texts from an analytical or a devotional perspective, a reader benefits from understanding how the texts started and how they were changed – sometimes unintentionally and sometimes quite deliberately throughout history.

I thoroughly enjoy and think I benefit from understanding the different viewpoints of the different authors, and why they might disagree on certain points. It is also helpful to know that many of the beliefs that I hold were not in fact part of Jesus’ teachings during his lifetime, and instead reflect decisions in the early years of the church regarding doctrines that Jesus did not express opinions on. Or – and this is one of Ehrman’s points – we don’t know whether he did or not since we have no way of knowing everything that he taught, and in many cases whether what we are told he said is correct.

Now there are ways of sussing out what’s more likely true than not true that are very helpful – for example no new religion in its right mind would make up a boast that its leader who was executed as a common criminal. Or have a leader be baptized by an inferior, or grow up in a one-horse town like Nazareth. But this is what makes these things likely to have actually occurred. On the other hand, additions or changes to writings are less likely to be correct in general. So much of the books deal with these sorts of questions – what can we say about what Jesus actually said and did given the contradictions and changes.

But these are my favorite kinds of books. I learned a lot, and gained a better understanding of an area I want to know more about.

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What's different in a law enforcement officer's divorce?

Going through a divorce as a law enforcement officer means focusing your energy as much as possible on resolving your case without the need for lengthy and drawn-out litigation. In this way, divorce for a law enforcement officer is no different than a divorce for any other person. When you get divorced as a law enforcement officer there are no special steps or hoops that you must jump through. Rather, the case will proceed just as it would for any other person. While the case looks and feels like most any other divorce there are areas that you may choose to focus your attention on.

Law enforcement officers are in many cases the provider for their families from a financial standpoint. Your salary working in law enforcement may pay the bills and keep your home operating on schedule. The pension that you have contributed to may be the nest egg that you and your spouse plan on cracking once you all reach retirement age. This is the tried-and-true plan that many families choose to implement.  A divorce changes all that. When change occurs, you need to shift course and re-direct your energies, and develop a plan to adapt. 

Consider some of the myths that are widely held about divorce, and I can show you what things people are most concerned about. Family law attorneys hear from time to time many of the same myths and tall tales about divorce. Once you hear about the same concerns multiple times you start to notice patterns. One of the many myths and exaggerations that I hear from people about law enforcement divorces relates to alimony and spousal maintenance. Officers have been led to believe, for some reason, that they will be responsible for paying the bills for their spouse for an extended period after the divorce. 

What is alimony?

Alimony is a subject that we’ve heard discussed in our media many times over the past few years. For the most part, I hear about alimony in connection with things like celebrity divorces. We hear about alimony being paid by a rich celebrity to their not-so-rich and famous spouse after a divorce. The general idea behind alimony is that alimony is intended to help one spouse be able to meet their minimal, reasonable needs for a certain period after the divorce has come to an end. In Texas, there are two types of posts divorced spousal support: spousal maintenance and contractual alimony. 

However, spousal support can also be paid temporarily from one spouse to another during the divorce itself this is known as temporary spousal support. Temporary spousal support lasts for a certain period during the divorce case. As it happens in a divorce many times the parties will separate their bank accounts and begin to adjust to life on one income. This can be a problem for your spouse, for example, if he or she has not worked outside the home in some time or works a job on a part-time basis. As a result, their income may be insufficient to pay basic bills and things of that nature. This is where temporary spousal support can come into assistance for your Spouse.

Temporary spousal support

At the beginning of a divorce case, you and your spouse will likely both turn in basic budgets to the word judge. These budgets will be important because They will help the judge determine whether Both of you are financially at this stage of your case. If you are a law enforcement officer with a steady career and income, then you may have been the spouse who was able to provide for your family throughout this time. Your spouse may have been a stay-at-home mother or father and therefore not have contributed economically to the household. However, this does not mean that he or she provides nothing in economic value to your family.

Consider, for example, what the result would be if all the services your spouse provided for you in the home suddenly went away. Think about things like childcare, cleaning, cooking, transportation, and things of this nature. All these items are our services that your spouse provides you and your family with for free. Now consider what you would need to pay for those things if your spouse were disabled or otherwise not available to you. While you were working your spouse is providing tangible economic value whether it comes in the form of dollars or not. This is just one of the justifications for paying temporary spousal support or alimony after a divorce.

You and your spouse will need to determine how two if you want to structure your lives during the divorce. Most of the time parties to a divorce will not live with each other during the case. This isn’t to say that You and your spouse can’t live together during the divorce, it’s just that most people do not find this to be a comfortable living arrangement. As a result, almost certainly the two of you will live in different households. One of you will live in the family home in the other will move out to live with a family member or find their place. This is where important decisions must be made in terms of how to divide up the bills and how to structure your lifestyles. 

Many people going through a divorce want the primary conservator of the children to live in the family home with the kids at least during the divorce case. This means, for example, if you are a law enforcement officer and have visitation rights with your kids then your spouse would be the primary conservator. In that case, he or she may stay in the family home during the divorce case to provide the kids with some semblance of normalcy instability in their lives. That’s not to say that eventually they will have to move or find another place to live. However, for the duration of your divorce, the parties may choose this sort of arrangement.

Living in two separate households means taking on different responsibilities regarding the raising of children in the paying bills. It’s not as if the mortgage company will look at your situation, take mercy on you, and say that you don’t have to pay your mortgage during your divorce case. Rather, all your bills will still be owed throughout the case. Adding additional bills to this already high list of responsibilities for you and your spouse is not an easy thing to consider.

If you are a law enforcement officer, you may choose to move out and find an apartment or rental home to live in during your divorce case. Finding a place that is close to your children and your work is the important period with that said if you work and your spouse stays home that means your income may need to be stretched to pay a mortgage payment as well as a rent payment. A family court judge would work to determine whether there are sufficient funds for you to be able to pay these two items as well as any degree of temporary spousal support. A typical law enforcement officer would likely struggle on their income to be able to pay housing costs in addition to temporary spousal support. Likely, your spouse is going to need to find a job both during the divorce and after the divorce.

One of the concerns that I know that law enforcement officers run into during a divorce is sometimes assuming that temporary spousal support is inevitable. I have had law enforcement officers tell me that their spouse is pretty much got up to them and shaking them down for money in terms of telling them that they know temporary spousal support is coming in and that they need to be fair throughout the process. However, as we just went over, this could not be further from the truth. It is a big assumption to presume that spousal support during the divorce will be paid. Simply put: if you don’t have the money to pay the spousal support and you can show that to a judge then no support will be ordered. Most families struggle to pay their normal bills during their divorce cases. In that case, temporary spousal support is almost certainly out of the question by necessity.

The best thing for you and your spouse to do during this station of your divorce is to think hard about how you can reduce costs and tighten your budget. The idea that the two of you can live the lifestyle that you had become accustomed to before your divorce is unrealistic likely. Not only will you have the costs of the divorce to contend with, but you will also be stretching your budget as tight as possible look forward to two places to live. All the while, your spouse will need to be looking for employment, going to finish their education, or some combination thereof. Texas family court judges are not big fans, typically, of awarding post-divorce spousal maintenance. As a result, a judge is much more likely to require your spouse to get a job than to receive a substantial amount of spousal maintenance.

With all that said, you need to be able to work with an experienced family law attorney when it comes to this subject and a divorce. Even if a family court judge isn’t likely to order spousal maintenance or even temporary spousal support in your case the risk and overall importance of this subject to your life are substantial. Not being able to prepare thoughtfully a budget for the court can give a judge the wrong idea about your income and overall family budget. The last thing you want is to have a judge believe that you can pay temporary spousal support when you are not. 

The best way to assure a family court judge that you are not able to pay spousal support is to work with an experienced attorney with the Law Office of Bryan Fagan. When you choose to work with one of our attorneys you tap into our decades of combined experience practicing family law in Southeast Texas. Additionally, not only do we boast a team of experienced family law attorneys, but we also have terrific support staff, including paralegals, legal assistance, and other staff members, who are ready and willing to assist you however they can. It takes a team to succeed in divorce. By joining our team, you give yourself the best possible chance excess for you and your children.

Spousal maintenance and contractual alimony

When it comes to spousal support after divorce the two kinds of support that you need to be aware of in Texas are contractual alimony and spousal maintenance. While you may have heard about Alan previously you may have never heard of it termed as contractual alimony. Additionally, spousal maintenance is not a subject that is as widely discussed as alimony. As a result, this may be a completely new term for you. Let’s walk through these two concepts as we close out today’s blog post.

Spousal maintenance is a relatively new phenomenon in Texas. In 1995, the state legislature passed a law that allowed family court judges to order post-divorce spousal support. This was known as spousal maintenance. Spousal maintenance in Texas is not seen as a way for one spouse to get rich off of us former spouse. Rather, spousal maintenance is seen as a way for parties to get back on their feet or get on their feet generally after a divorce. Many times, as a condition of receiving spousal maintenance a party will be required to look for work consistently and begin working as soon as possible.

Spousal maintenance can only be ordered if you and your spouse have been married at least 10 years before your divorce. One of the myths we hear frequently about divorce is that people will marry their spouse and quickly file for divorce if only to be able to receive spousal maintenance. This simply does not match up with reality. Rather, spousal maintenance can only be ordered if you’ve been married for at least that 10-year period. The exception to this rule would be if your spouse engaged in the family or domestic violence within two years of your divorce. In that case, if you or your spouse is guilty of having done so then spouse maintenance will be ordered regardless of the length of your marriage. 

Spousal maintenance is limited to 25% of your monthly income. One of the other myths that we hear about spousal support is that regular people are ordered to pay humongous chunks of their monthly salary towards support. This also is not accurate. Keep in mind that many people who pay spousal maintenance also pay child support. Quartz understands that a person’s income can only go so far. As a result, it is more likely that spousal maintenance awards will be calculated as closely as possible to only help a person meet their minimum, basic needs rather than help them live a certain lifestyle.

The length of time that you can be eligible to pay spousal maintenance depends upon the length of your marriage. For marriages lasting from between 10 to 20 years then spousal maintenance can be ordered to be to last for two years. Next, marriages lasting between 20 and 30 years could see spousal maintenance being ordered for five years period finally, marriages lasting 30 or more years can see at most seven years of spousal maintenance being ordered. The circumstances of your case will inform the judge’s ultimate decision, however.

Contractual alimony is the other type of post-divorce spousal support. Contractual alimony is not ordered by a family court judge but rather negotiated upon between you and your spouse in mediation. Some special caveats apply to contractual alimony that I wanted to mention before we run out of time today. First, the laws regarding contracts in Texas applied to contractual alimony. Therefore, be aware that a family court judge would not be applying the Texas family code to any issues regarding contractual alimony in the future. A family court judge can only enforce contractual alimony orders to the extent that they could enforce spousal maintenance.

You also need to be very careful about how you draft the orders regarding contractual alimony. You need to be clear about the duration, extent, and other details of contractual alimony. Be sure that the language is unambiguous. The last thing you want to do is run into a misunderstanding or otherwise must pay alimony longer than you otherwise would have had to base on a poorly written court order.

Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan

If you have any questions about the material contained in today’s blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultations six days a week in person, over the phone, and via video. These consultations are a great way to learn more about law enforcement officer divorce as well as how your family may be impacted by other types of family law scenarios.

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