Jarnagin v. United States


In the United States Court of Federal Claims No. 15-1534T (Filed: November 30, 2017) ) Keywords: Tax Refund; Illegal Exaction; LARRY D. JARNAGIN AND LINDA ) IRS; Bank Secrecy Act; Report of Foreign JARNAGIN, ) Bank and Financial Accounts; FBAR; ) Reasonable Cause; Ordinary Business Plaintiffs, ) Care and Prudence. ) v. ) ) THE UNITED STATES OF AMERICA, ) ) Defendant. ) ) Jason M. Silver, Scottsdale, AZ, for Plaintiffs. Jason S. Selmont, U.S. Department of Justice, Tax Division, Court of Federal Claims Section, Washington, DC, with whom were Blaine G. Saito, Trial Attorney, David I. Pincus, Chief, Court of Federal Claims Section, and David A. Hubbert, Acting Assistant Attorney General, for Defendant. OPINION AND ORDER KAPLAN, Judge. In this case, plaintiffs Larry and Linda Jarnagin, husband and wife, assert that the IRS wrongfully assessed and collected penalties from them for the 2006, 2007, 2008, and 2009 tax years based on their failure to file certain reports regarding their foreign bank account as required by the Bank Secrecy Act. Mr. Jarnagin, a dual U.S.-Canadian citizen, and Mrs. Jarnagin, a U.S. citizen with Canadian residency status, do not dispute that they owned an account at the Canadian Imperial Bank of Commerce during each of the tax years at issue. They also do not dispute that they were required by law to file a report regarding that account with the IRS for each of those years and that they failed to do so. They assert instead that their failure to file the reports was due to reasonable cause and that the IRS was therefore barred from assessing and collecting the penalty by 31 U.S.C. § 5321(a)(5)(B)(ii). For the reasons set forth below, the Court concludes that the Jarnagins did not exercise ordinary business care and prudence with respect to their obligation to file the reports at issue and thus cannot avail themselves of the reasonable cause defense. Accordingly, the government’s motion for summary judgment is GRANTED and the Jarnagins’ motion for summary judgment is DENIED. BACKGROUND I. The Statutory Framework In 1970, Congress enacted the Bank Secrecy Act, Pub. L. No. 91-508, 84 Stat. 1114, in order to address its concerns over “the use by American residents of foreign financial facilities located in jurisdictions with various types of secrecy laws.” H.R. Rep. No. 91-075 (1970), reprinted in 1970 U.S.C.C.A.N. 4394, 4395. “[C]onsiderable testimony” had been presented to Congress regarding “serious and widespread use of foreign financial facilities located in secrecy jurisdictions for the purpose of violating American law.” Id. at 4397. In the Bank Secrecy Act, Congress responded by imposing on residents, citizens, or persons doing business in the United States a requirement that they keep records and make reports concerning certain foreign accounts and transactions. 31 U.S.C. § 5314(a) (2006)1; see also id. § 5311 (stating that the “purpose” of the Act is “to require certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of ...

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