In Rodgers v. United States, (9th Cir. 7/6/21), CA9 here (unpublished and nonprecedential), the Court held (based on a prior appeal) that the return preparer penalty under § 6694(b)(2)(A) for a “willful attempt in any manner to understate the liability for tax on the return or claim” requires “specific intent to understate tax liability on tax returns or claims.” Basically, the panel held, the civil penalty requires the same level of intent as § 7206, which is the Cheek-type of intent – specific intent to violate a known legal duty. (The panel opinion does not cite Cheek, but that is the way I read the opinion.)
The opinion is nonprecedential because, as interpreted by the panel, the Ninth Circuit’s precedent compelled the conclusion. Accordingly, the panel reversed because the district court held that willful blindness satisfied the test of willfulness.
1. A civil penalty statutory willfully “element” often is not interpreted and applied the same as the tax crime willfully “element.” The obvious example for those who follow this blog is the FBAR civil willful penalty under 31 U.S.C. § 5321(a)(5)(C). The FBAR criminal penalty requires Cheek-type specific intent willfulness. Ratzlaf v. United States, 510 U.S. 135 (1994). But the FBAR civil penalty with the same word (willfully), as interpreted and applied by the courts, requires a less specific intent, including willful blindness and reckless conduct.
2. It is not clear to me why, other than the precedent cited by the panel, the return preparer penalty should necessarily include the stronger Check standard of specific intent.
3. I checked the Pacer docket entries and found that the panel was troubled. Immediately after oral argument, the Court entered this Order:
The parties are ordered to file supplemental briefs addressing the following questions: (1) In Richey v. IRS, 9 F.3d 1407 (9th Cir. 1993), this Court stated that willfulness under 26 U.S.C. § 6694(b) “merely requires a conscious act or omission made in the knowledge that a duty is therefore not being met.” Id. at 1411 (quoting Pickering v. United States, 691 F.2d 853, 855 (8th Cir. 1982)). Is that statement binding precedent? If so, must this panel conclude that § 6694(b)(2)(A) penalties require only a knowing violation—and not a purposeful violation—of the duty not to understate tax liability? (2) Richey also adopts the following as the “correct . . . standard for determining willfulness”: “If you find that the plaintiff believed in good faith that the tax returns he prepared were proper and lawful and not submitted in violation of any rule or regulation, then you must find that the plaintiff did not act willfully or negligently in preparing the tax returns, and your verdict will be for the plaintiff.” Richey, 9 F.3d at 1413. Is this statement also binding? If so, is this standard consistent with willfulness blindness? Appellant’s supplemental brief shall not exceed 15 pages and shall be filed within 14 days of this order. Appellee’s supplemental brief shall not exceed 15 pages and shall be filed within 14 days of appellant’s brief.
4. Pursuant to that order, the parties filed Supplemental Briefs. Rodgers’ Supplemental Brief is here and the U.S. Supplemental Brief is here. For more fun, I also readers may find the U.S. Answering Brief, here and the oral argument in audio download is here and in video is here. I have not spent a lot of time reading these briefs or listening to the oral argument, but as I perceive the U.S. Supplemental Brief, it was arguing that the Ninth Circuit precedent did not compel specific intent as the relevant preparer civil penalty standard and that something less than Cheek-type willfulness is required. The Government argued that the relevant Ninth Circuit authority that might be read to require such specific intent was dicta. See Richey v. IRS, 9 F.3d 1407 (9th Cir. 1993). The panel disagreed in its short Memorandum opinion linked at the top of this blog.
5. That still does not answer the question of why the statutory willfully element for a tax civil penalty based on some relationship to the criminal penalty would be different than the statutory willfully element for the FBAR penalty which also has a relationship to the criminal penalty. Stated otherwise, would all tax civil penalties with a willfully element require the higher Cheek specific intent, at least in the Ninth Circuit? I am not sure that the U.S. Supplemental Brief engages that issue, although the Order requiring Supplemental Briefing did not request engagement on that issue.
6. The argument on dicta was interesting to me. I just this week read Ford v. Peery, ___ F.4th ___, 2021 U.S. App. LEXIS 24628 (9th Cir. 8/18/21), CA9 here, Judge VanDyke dissented from denial of rehearing en banc attacked the Ninth Circuit’s “binding dicta” rule. Binding dicta for most of us would be an oxymoron. But for the Ninth Circuit, apparently (at least according to Judge VanDyke), the Ninth Circuit treats “well-reasoned” dicta as binding. It is not clear exactly what standard the “well-reasoned” dicta rule sets. (Maybe something like a Skidmore standard, whatever that is. See Really, Skidmore “Deference?” (Federal Tax Procedure Blog 5/31/20; 6/3/20), here.) Those interested in this type of hair-splitting might read Judge VanDyke’s dissenting opinion.