U.S. Supreme Court Decides on Leniency for Non-Willful FBAR Violations

March 13, 2023
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A recent Supreme Court case may have significant impacts on individuals who hold foreign financial accounts.

In Alexandru Bittner, Practitioner, v. United States, the U.S. Supreme Court ruled that the Bank Secrecy Act’s (BSA) $10,000 maximum penalty for the non-willful failure to report foreign bank accounts applies per form and not per account.

Background of Alexandru Bittner, Practitioner v. United States

Alexandru Bittner, a dual citizen of Romania and the United States, learned of his BSA reporting obligations after returning to the US from Romania in 2011. He subsequently submitted his required FBAR reporting covering five years, 2007-2011.

The government deemed Bittner’s late-filed reports deficient. This was because the reports did not address all accounts for which Bittner had either signature authority or a qualifying interest. Bittner then filed corrected Report of Foreign Bank and Financial Accounts (FBARs) for the years 2007-2011, amounting to 272 accounts in total.

The IRS did not contest the accuracy of Bittner’s late FBARS nor if the late filing was willful. However, the IRS asserted non-willful penalties apply to each inaccurate or late account (subjecting penalties on all 272 accounts), producing a $2.72 million penalty.

Results of the U.S. Supreme Court Decision

In its opinion, the U.S. Supreme Court considered the language of 31 U.S.C. Section 5314, which describes an individual’s legal duties under the Bank Secrecy Act, and Section 5321, which details the penalties that follow for failing to satisfy those duties.

Section 5314 proves the Secretary of Treasury shall require certain persons to “keep records, file reports, or keep records and file reports.” The Court read the statute as not speaking of accounts or their number, but rather the legal duty to file reports containing the required foreign financial information.

Further, the Court held Section 5321’s non-willful penalty provision to not focus on accounts but rather the quantity of non-willful penalties to the quantity of violations. Section 5314 provides that a violation occurs when an individual fails to report consistent with the statute’s commands. Therefore, when looking at the interplay between Section 5321 and 5314, the Court held multiple deficient reports may result in multiple $10,000 penalties. However, these penalties occur on a per-report, rather than a per-account basis.

The Court made sure to emphasize that this decision does not relate to willful violations, whose penalties are considered on a per-account basis. The IRS argued that non-willful and willful violations in similar circumstances should be considered on a per-account basis. The Court disagreed and concluded that non-willful penalties for FBARs should be considered on a per-report basis.

The Importance of the Case

This case is of consequence for many reasons, including:

  • The Court has cleared the uncertainty regarding whether the non-willful FBAR penalty is calculated on a per-form or per-account basis
  • Applying the penalty for non-willful FBAR penalties per FBAR report can reduce possible penalty exposure for foreign account holders.

The findings of Alexandru Bittner, Practitioner v. United States have important considerations on future tax penalty exposure for those individuals who hold foreign accounts across the world.

It’s important to understand the impact of this and other legislative and judicial precedence concerning international tax filing obligations. Working with a trusted advisor can help ensure all foreign disclosures are properly filed.

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