The Eleventh Circuit Court of Appeals has affirmed a U.S. Tax Court decision dismissing a petition filed by Stephen and Judy Jenner, ruling that the Tax Court lacks the authority to review penalties imposed for failing to report foreign bank accounts (FBAR penalties). The Jenners sought a Collection Due Process (CDP) hearing under the Internal Revenue Code (Title 26) to challenge the IRS’s plan to collect these penalties by offsetting their Social Security benefits, but the appellate court determined that FBAR penalties are fundamentally different from taxes and thus fall outside the Tax Court’s specific jurisdiction.
The Core Dispute: Tax vs. Penalty
The dispute centers on the nature of the penalties levied against the Jenners under the Bank Secrecy Act (Title 31, U.S.C. § 5321) for failing to file required Foreign Bank Account Reports (FBARs) between 2005 and 2009.
When the Treasury Department’s Bureau of the Fiscal Service notified the Jenners in late 2022 that it would begin collecting these debts via administrative offset against their Social Security payments, the Jenners attempted to use the tax dispute resolution system. They submitted IRS Form 12153, requesting a Collection Due Process (CDP) hearing under Internal Revenue Code (I.R.C.) Section 6330, which typically allows taxpayers to challenge proposed levies or seizures related to unpaid *taxes*.
The IRS rejected this request, stating clearly in May 2023 that FBAR penalties are “not tax assessments subject to 26 U.S.C. § 6330.” The IRS informed the Jenners that their proper avenues for challenging the underlying penalty were either a U.S. District Court or the U.S. Court of Federal Claims.
When the Jenners petitioned the Tax Court to force the IRS to grant them a CDP hearing, the Tax Court dismissed the case, agreeing that it lacked jurisdiction.
The Eleventh Circuit’s Reasoning: Jurisdiction is Strictly Limited
The Eleventh Circuit, reviewing the Tax Court’s dismissal *de novo* (meaning they looked at it fresh), affirmed the lower court’s ruling based on two primary legal pillars.
First, the court emphasized that the Tax Court’s jurisdiction is strictly defined by Title 26 of the U.S. Code (the Internal Revenue Code) under I.R.C. § 7442. The authority to initiate a CDP hearing and subsequent Tax Court review flows from I.R.C. § 6330(d)(1), which only applies to matters arising under the Internal Revenue Code.
The FBAR penalties, however, are assessed under the Bank Secrecy Act, codified in Title 31. Since Title 31 is separate from Title 26, the statutory framework granting the Tax Court its power simply does not extend to these specific penalties.
Second, and perhaps more critically, the court held that FBAR penalties are not “taxes.” Citing Supreme Court precedent, the opinion distinguished between a “tax,” which is an enforced contribution for government support, and a “penalty,” which is an exaction imposed as punishment for an unlawful act.
The Bank Secrecy Act itself labels the FBAR failure charge a “civil penalty” (31 U.S.C. § 5321(a)(3)). The Eleventh Circuit noted its prior rulings and the Supreme Court’s consistent distinction support treating these FBAR fines as penalties, not taxes, meaning they cannot trigger Title 26 review procedures.
Delegation Doesn’t Change the Nature of the Debt
The Jenners argued that since the IRS is the agency tasked with collecting these FBAR penalties (through delegation from FinCEN), the procedures for tax collection should apply.
The court acknowledged this administrative reality: the Secretary of the Treasury delegated authority to FinCEN, which then re-delegated it to the IRS to handle assessment and collection. However, the court stressed that this delegation “has not converted the FBAR penalties into taxes.”
Furthermore, the notice procedures the Jenners relied upon (I.R.C. § 6330) are incompatible with the notice requirements for collecting “nontax debts” under 31 U.S.C. § 3716, which the Treasury Department followed when notifying the Jenners about the administrative offset of their Social Security.
Distinguishing Precedent
The Jenners attempted to rely on several Tax Court cases (*Mason*, *Lee*, *Jennette*) where penalties were reviewed by the Tax Court, and a recent D.C. Circuit case (*Farhy*). The Eleventh Circuit swiftly dismissed these references.
The penalties in *Mason* and *Lee* involved the trust fund recovery penalty (§ 6672), and the penalty in *Jennette* involved frivolous filing penalties (§ 6702). Crucially, these penalties are established under the Internal Revenue Code (Title 26) and relate directly to income tax obligations. The *Farhy* case involved penalties under I.R.C. § 6038(b) for failing to report foreign *income streams*, also a Title 26 penalty.
In contrast, the FBAR penalty is created by Title 31, making the cited cases irrelevant to the Jenners’ Title 31 liability.
The Path Forward for the Jenners
While the court denied the Jenners’ request for a Tax Court hearing, it acknowledged a separate issue they raised on their CDP request forms: a potential statute of limitations defense against the FBAR penalties themselves.
The Eleventh Circuit made clear that these substantive defenses—if they exist—must be litigated in the correct venue. If the Jenners wish to challenge the imposition of the FBAR penalties on timeliness grounds or any other basis, they must pursue their case in a U.S. District Court or the U.S. Court of Federal Claims, as the IRS originally advised.
The appellate court concluded by affirming the Tax Court’s dismissal, holding that the Tax Court correctly determined it lacked the jurisdiction to hear the matter.