District Court Rules FBAR Penalty Doesn’t Apply to Number of Accounts Tax cases can make…
Bittner v. United States: US Supreme Court Revokes Penalty Ruling For Taxpayers With Foreign Financial Accounts
Under the regulations of the Bank Secrecy Act (BSA), tax filers who hold specific financial interests in foreign accounts are required to file the Report of Foreign Bank and Financial Accounts (FBAR) with their annual tax returns, even if they are not currently living or earning income in the United States. The BSA does not tax foreign accounts; instead, it is intended to assist the IRS in identifying funds that may be used for illegal purposes and/or may be subject to taxation. According to the BSA, non-willful violations of the FBAR report may be fined by a penalty of up to $10,000.
Bittner vs. United States
The U.S. Supreme Court ruled this week on Bittner v. United States, a long-standing case in which petitioner Alexandru Bittner, who is a dual citizen of the United States and Romania, was initially unaware of the obligation to file an FBAR while he was living and working in Romania. Upon returning to the United States and learning of the requirement, he filed five separate FBAR reports for 2007-2011 tax years for accounts that he held in Romania, Switzerland, and Lichtenstein.
An IRS audit determined that Mr. Bittner’s late reports were not only untimely, but also deficient because they did not address all of the accounts of which Mr. Bittner was a signatory authority or qualifying interest.
Subsequently, Mr. Bittner filed corrected FBAR reports to provide complete information on all of his accounts, which totaled 272 accounts collectively. The IRS did not contest the accuracy of the corrected filings and did not imply or suggest that Mr. Bittner’s previous omissions were willful. However, the IRS took the position that non willful penalties should apply to each of the accounts, which calculated to a penalty of $2.72 million.
Although Mr. Bittner challenged the penalties, arguing that BSA allows a penalty of up to $10,000 for each report, not each individual account, the Fifth Circuit court upheld the IRS’s assessment.
Supreme Court Revokes Fifth Circuit Ruling
Whether the BSA allows a penalty for each violation or each report matters significantly, especially for immigrants who hold accounts in their home countries or for American citizens who live outside of the United States. In Bittner v. United States, the Fifth Circuit read the law as one penalty per violation while in another case, United States v. Boyd, the Ninth Circuit upheld one penalty per accurately filed, though untimely, report. Due to the discrepancy in rulings, the Supreme Court agreed to hear the case.
The exact circumstances of United States v. Boyd and Bittner v. United States offer insight into the reading of the law. In the case of United States v. Boyd, the petitioner had filed FBAR reports that were untimely, but accurate, while Mr. Bittner’s initial reports were both untimely and inaccurate. In the Bittner case, the IRS did not contest the inaccuracy of Mr. Bittner’s reports or indicate that his violations were willful when they assessed the $2.72 million fee; they simply assessed the penalty due to the untimeliness of the reports.
After extensive deliberation and examination of applicable cases and law, the Supreme Court reversed and remanded the Fifth Circuit’s decision in a 5-4 vote read by Justice Gorsuch, determining that the maximum penalty for the non willful failure to file a complaint FBAR report is assessed per report, rather than per account. This reduces Mr. Bittner’s penalty to $50,000, a $10,000 fine for each of the five FBAR reports.
Consult With Arizona’s Leading Tax Attorney Firm
Whether you are seeking advice on foreign reporting, facing an IRS audit, seeking innocent spouse relief, or are dealing with another tax controversy for which you need experienced legal advice in Arizona, the attorneys at Silver Law, PLC, are ready to provide guidance and representation. We provide aggressive, ethical representation based on our collective decades working with tax law and our experience as former IRS employees. Let Arizona’s trusted tax attorney firm assist you with litigation, defense, or legal advice for your tax situation. Contact our office today to schedule your confidential consultation with one of our attorneys.
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