The United States Supreme Court has agreed to hear the case of Bittner v. United States regarding how civil, non-willful FBAR penalties should be assessed. This case will decide whether the $10,000 maximum penalty for non-willful violations applies per tax year or per account.
FBAR refers to FinCen Form 114, Report of Foreign Bank and Financial Accounts. U.S. persons with certain types of offshore accounts that have a combined value of $10,000 or more must file the FBAR in addition to their tax return.
A U.S. person with multiple foreign accounts is only expected to file one FBAR per year.
The Supreme Court’s review of this case will determine whether Bittner faces a maximum penalty of $50,000, as ruled by the Ninth Circuit Court, or $2.72 million, aligning with the Fifth Circuit Court’s ruling. It will also have a major impact on how FBAR violations are penalized in the future.
If the U.S. Supreme Court rules that FBAR penalties apply for each account, then non-willful violations could end up costing more than willful violations!
Opinions clash on how to assess FBAR penalties
Alexander Bittner, a Romanian businessman, became a U.S. citizen in 1988. He filed income tax returns, but failed to report his 272 foreign financial accounts between 2007 and 2011.
The IRS initially assessed an FBAR penalty of $2.72 million against Bittner, but those penalties were reduced to $50,000 by the U.S. District Court of the Eastern District of Texas. The court claimed the penalties only apply per year and not per account.
This ruling was in line with a previous decision by the Ninth Circuit Court, which addressed the per year vs. per account issue in March 2021. In U.S. v. Boyd, the Ninth Circuit Court ruled in favor of the taxpayer after concluding the law only allows the IRS to impose one civil penalty per year regardless of how many accounts are involved. The Ninth Circuit Court compared penalties for non-willful and willful penalties and determined that Congress purposely omitted per-account language for non-willful violations.
Then, in November 2021, Bittner’s case—the one currently entering the Supreme Court—was ruled on by the Fifth Circuit Court of Appeals. This court ruled that non-willful FBAR penalties apply per account. They argued that the current statute creates a requirement for each qualifying account or transaction.
What’s next and how should taxpayers proceed?
The high court’s decision will resolve the opposing positions of the two appellate courts, giving taxpayers a clear understanding of whether non-willful FBAR violations will be penalized on a per-year or per-account basis—or a hybrid of the two.
This issue is not so daunting for U.S. persons with a few foreign accounts. But for those with hundreds of accounts, such as Mr. Bittner, this ruling could mean the difference between thousands of dollars in penalties or millions
The U.S. Supreme Court is set to hear the argument of Bittner v. United States in November 2022.
Don’t delay filing the FBAR! We can help!
If you have failed to report any foreign accounts in which you have an interest or authority, don’t wait any longer. Once years have passed, it becomes more difficult to dig yourself out of debt.
Our experienced team of FBAR lawyers can guide you through the process of what you may owe and how to repay the IRS successfully.