Importer Gets Refund of 'Offsets' Used by CBP to Collect Recordkeeping Penalties

CBP recently issued refunds to an importer of recordkeeping penalties collected by way of a federal law that allows federal and state agencies to withhold tax refunds and other payments to settle debts owed to the government. The checks are part of a settlement to resolve a lawsuit filed by A&K Railroad Materials challenging CBP’s use of offset provisions of the Deficit Reduction Act of 1984 to collect the penalties. A&K argued the law can’t be used to collect customs debts.

CBP had issued the penalties for A&K’s purported failure to produce steel mill certificates upon the agency’s request for its imports of used steel relay rail in 2009-11. A&K said it could not provide them because the rail was decades old, and many of the steel mills that produced it were no longer in business. The agency had sent penalty notices seeking $323,192 for negligent and willful failure to produce required entry records under 19 USC 1509.

According to A&K’s court complaint, the importer had contested the penalties, arguing that the documents were not critical to the determining classification or assessment of duties. CBP took no further action, and did not bring suit to collect the penalties within the five-year statute of limitations, the complaint said.

Under the Deficit Reduction Act of 1984, Treasury can collect on certain federal and state debts by withholding tax refunds or funds paid out by other federal agencies, including federal funds paid by state governments. Agencies may seek to collect debts by way of “offsets” by certifying the debt with Treasury. But the law says it does not apply to a claim or debt under “the tariff laws of the United States.”

In 2018, A&K again heard from CBP, in the form of a letter notifying it that the agency would refer the debt to the Treasury Department for deduction from any income tax refund. The Maryland Transit Authority then issued a notice to A&K in May 2019 that said its payments to the company would be offset by the CBP penalty claims.

A&K filed suit at the D.C. federal district court to challenge the offsets. The importer said that the penalties arose under the customs laws of the U.S., and were ineligible for offsetting, and that the statute of limitations of the penalty claims had in any case expired. CBP has also not adopted claims collection standards and was ineligible to certify the offsets. A&K also said that the CBP’s failure to file a lawsuit to collect the penalties violated its constitutional right to due process, and that the penalties were excessive fines under the Eighth Amendment.

Lawyers with the D.C. attorney’s office made no attempt to rebut those arguments by way of briefs filed with the court. In May, CBP sent five refund checks to A&K for the amounts that had been withheld by the Maryland Transit Authority. After receiving the checks, A&K agreed to dismissal of its lawsuit, but with each side paying for its own lawyers in the case.

In emailed comments following the dismissal, A&K’s lawyer, John Peterson of Neville Peterson, said he “found it unusual that, despite the express prohibition against using this act to offset claims or debts arising under the ‘tariff laws of the United States,’ Customs’ National Finance Center would disregard that provision and go through the certification process. I wonder how many more Customs debts had been certified for offset,” Peterson said. CBP and the D.C. attorney’s office did not immediately comment.

Email ITTNews@warren-news.com for a copy of the complaint and dismissal.