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United States v. Wahdan

United States District Court, D. Colorado

July 18, 2018



          Marcia S. Krieger Chief United States District Judge

         THIS MATTER comes before the Court on the Defendants' Motion for Judgment on the Pleadings (# 33), the Plaintiff's response (# 34), the Defendants' reply (# 35), and the Plaintiff's surreply (# 44).


         The Internal Revenue Service (IRS) seeks a judgment for civil penalties assessed against Defendants Urayb Wadhan and Said Wadhan (the Wadhans), who had interests in multiple overseas bank accounts, each with a balance greater than $10, 000. The Wadhans contend that the IRS lacked the authority to impose any penalty in excess of $100, 000. To resolve this dispute, the Court exercises jurisdiction pursuant to 28 U.S.C. § 1331.

         II. BACKGROUND [1]

         According to the Complaint, the Wadhans failed to file or filed inaccurate Forms TD F 90.22-1, Report of Foreign Bank and Financial Accounts (FBAR) for 2008, 2009, and 2010. As a consequence, the IRS assessed numerous penalties for multiple FBAR violations, many of which were flat amounts of $100, 000. But for three violations, the IRS assessed penalties of $1, 108, 645.41 for 2008, $599, 234.54 for 2009, and $599, 234.54 for 2010.

         The Defendants move for judgment on the pleadings (# 33) contending that the penalties for years 2008, 2009 and 2010 must be capped at $100, 000.


         Typically, an “agency's action is entitled to a presumption of validity, and the burden is upon the petitioner to establish the action is arbitrary or capricious.” Sorenson Commc'ns Inc. v. FCC, 567 F.3d 1215, 1221 (10th Cir. 2009). Once agency action is challenged, a district court reviews the action as if it were an appellate court, applying the Administrative Procedure Act. See Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1580 (10th Cir. 1994). The Court can set aside agency action if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A).

         The factual record in conjunction with a motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) is the same as that under Rule 12(b). See Ramirez v. Dep't of Corr., 222 F.3d 1238, 1240 (10th Cir. 2000). The Court accepts all well-pleaded allegations in a complaint as true and views those allegations in the light most favorable to the nonmoving party. Stidham v. Peace Officer Standards & Training, 265 F.3d 1144, 1149 (10th Cir. 2001) (quoting Sutton v. Utah State Sch. for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999)). The Court also limits its consideration to the four corners of a complaint, any exhibits attached thereto, and any external documents referred to in the complaint if such document is central to the claim and the parties don't dispute the authenticity of the document. See Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009). Alvarado v. KOB-TV LLC, 493 F.3d 1210, 1215 (10th Cir. 2007).

         Ordinarily, a Rule 12(c) motion is directed to the claims asserted in the Complaint such that “judgment on the case can be achieved by focusing on the content of the pleadings.” SKS Investments Ltd. v. Gilman Metals Co., No. 12-CV-0806, 2013 WL 249099 at *1 (D. Colo. Jan. 23, 2013). In the Complaint, the IRS asserts only two claims - one against each Defendant for penalties pursuant to 31 U.S.C.§5321(a)(5) for willful failure to file accurate forms for numerous off-shore bank accounts (Report of Foreign Bank and Financial Accounts) for 2008, 2009 and 2010. In contrast, the issue presented in the subject motion only concerns penalties imposed on certain accounts, but as to both Defendants.

         Because the issue raised in the extant motion is much narrower, and not configured to match the claims asserted, the Court inquired of counsel how a ruling might be fashioned. Based on their representations at a hearing conducted on July 17, 2018, the Court understands that the parties have submitted all evidence that would bear on this issue in conjunction with this motion. The Court therefore converts the motion to one brought pursuant to Rule 56(a), and finds that there is no genuine issue of material fact. Accordingly, the issue raised can be determined as a matter of law. Fed.R.Civ.P. 56(a).


         The focus of the dispute is upon the interplay between statutory and regulatory law. The applicable statute with regard to offshore accounts is 31 U.S.C. § 5321(a)(5). It authorizes the Secretary of the Treasury to impose civil penalties for violations of FBAR requirements, and for willful violations sets the maximum ...

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