March 26, 2021 - This Week at the Ninth

This Week at the Ninth: Remand Review and Tax Evasion

This week, we look at one decision navigating the complicated jurisprudence governing review of remand orders (which one might think would be unreviewable), and another addressing the available penalties when taxpayers fail to disclose multiple foreign accounts.

ACADEMY OF COUNTRY MUSIC v. CONTINENTAL CASUALTY COMPANY
The Court holds that it may review orders remanding removed cases for lack of subject matter jurisdiction to determine if the district court’s rationale was “colorable,” and that a remand based on a removal notice’s failure to prove the amount in controversy is not “colorable.”

The panel: Judges Tallman, Callahan, and Lee, with Judge Callahan writing the opinion.

Key highlight: “We read Supreme Court precedent and our precedent as holding that § 1447(d) precludes review only of a remand order based on one of the grounds in § 1447(c)—subject matter jurisdiction or nonjurisdictional defects—and that we may look behind the district court’s characterization of its order to determine whether its assertion of a § 1447(c) ground is colorable.”

Background: The Academy of Country Music sued Continental Casualty in California state court for breach of an insurance policy. Continental removed to federal district, with its notice stating that the parties were diverse and that the amount in controversy was more than $75,000. Acting on its own motion, the district court remanded the case back to state court. The district court concluded that Continental had not “satisfied its burden to show that the amount in controversy meets the jurisdictional requirement.” Continental filed a motion asking the court to reconsider its order, submitting a stipulation stating that the underlying claim was for nearly $1.3 million. The district court denied the motion, claiming that 28 U.S.C. § 1447(d) precluded the court from revisiting its prior order.

Result: The Ninth Circuit reversed. First, the Ninth Circuit made clear that the district court’s transmittal of its remand order did not, by itself, deprive the Ninth Circuit of jurisdiction to review that order. The Ninth Circuit explained that any apparently contrary language in its prior opinions reflected the application of Section 1447(d), which prohibits the review of most, but not all, remand orders, and does not depend on whether that order has been transmitted to the state court.

Next, the Court addressed whether Section 1447(d) barred either the district court’s reconsideration of its remand order or the Ninth Circuit’s review of that order. Section 1447(d) provides, in relevant part, that “[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise.” But as the Court explained, courts had long understood this seemingly categorical language to be subject to some narrow exceptions. In particular, while remands for lack of subject-matter jurisdiction are generally unreviewable, courts may review a remand order that the district court characterizes as “resting upon lack of subject-matter jurisdiction” in order to “confirm[] that that characterization was colorable.”

Finally, the Ninth Circuit addressed the propriety of the district court’s remand order, holding that it was not, in fact, based on a “colorable” determination of lack of subject matter jurisdiction. As both the Supreme Court and the Ninth Circuit had previously held, a notice of removal need not contain any evidence regarding the amount-in-controversy requirement, but simply a “plausible allegation” that this threshold is met. And the Ninth Circuit had previously held that, if that plausible allegation is challenged, the defendant must be given a “fair opportunity” to submit evidence showing that the requirement is satisfied. The district court had contravened both of these principles by demanding that the notice of removal provide evidence, and then remanding sua sponte without giving Continental the opportunity to provide such evidence. For those reasons, the remand order was not “colorable” or “arguable,” and could be both reviewed and reversed. 

UNITED STATES v. BOYD
The Court holds that the IRS, under 31 U.S.C. § 5321(a)(5), may impose only one non-willful penalty when a taxpayer files an untimely, but accurate, Report of Foreign Bank and Financial Accounts (“FBAR”) pursuant to the IRS’s Offshore Voluntary Disclosure Program, no matter the number of accounts disclosed.

Panel: Judges Ikuta, Bennett, and Woodlock (D. Mass.), with Judge Bennett writing the opinion and Judge Ikuta dissenting.

Highlight: “The statute, read with the regulations, authorizes a single non-willful penalty for the failure to file a timely FBAR.”

Background: Defendant Jane Boyd is an American citizen who had a financial interest in 14 financial accounts in the United Kingdom. Boyd received interest and dividends from these accounts, but did not report the interest and dividends on her 2010 federal income tax return or disclose the accounts to the IRS. In 2012, Boyd was accepted into the IRS’s Offshore Voluntary Disclosure Program—a program that allows taxpayers to voluntarily report undisclosed offshore financial accounts in exchange for predictable and uniform penalties—and filed an FBAR listing her 14 accounts. The IRS concluded that Boyd committed 13 non-willful FBAR violations—one for each account she failed to timely report—and assessed a total penalty of $47,279. The district court rejected Boyd’s argument that she had only committed one violation, not 13, and that the maximum statutory penalty was $10,000.

Result: The Court of Appeals reversed. It explained that Section 5321(a)(5)(A) imposes “a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314.” The Secretary of the Treasury’s regulations prescribe how the provisions of Section 5314 may be violated. One regulation requires a citizen to report financial interests in foreign accounts “for each year in which such relationship exists and [to] provide such information as shall be specified in a reporting form prescribed under 31 U.S.C. § 5314 . . . . The form prescribed under section 5314 is the Report of Foreign Bank and Financial Accounts.” Another regulation requires the FBAR “to be filed . . . on or before June 30 of each calendar year with respect to foreign financial accounts exceeding $10,000 maintained during the previous calendar year.” Because Boyd’s FBAR was accurate, she did not violate the regulation delineating the content of the report, but only the timing regulation. Boyd, the Court held, thus committed a single non-willful violation. As a result, the IRS could impose only one penalty not to exceed $10,000. The Court observed that Congress had included per-account language in the willful penalty provision, but not the non-willful one, and it presumed this difference was intentional. The Court also noted that, even if the statute were ambiguous, the Court would have construed it strictly under the rule of lenity that the Ninth Circuit applies to tax penalty provisions.

Judge Ikuta dissented. She concluded that “the most natural reading of the statutory language” “requires Americans to report each foreign account and imposes a penalty for each failure to do so.” She reasoned that the majority’s analysis “conflates the ‘report’ that a person must make, with the ‘reporting form’ required by the regulations.” A person violates the Act not only by failing to file a reporting form, but also by failing to report an account. In her view, the “majority misinterprets the relevant statutes and regulations in a manner that unfairly favors the tax evader.”