February 28, 2023
The US Supreme Court today ruled that the $10,000 penalty for "nonwillful" failure to report foreign financial accounts applies per-report, not per account. This is an important case for taxpayers who find that they have missed filing the so-called "FBAR" annual form.
Taxpayers with foreign financial accounts aggregating $10,000 or more at any time during the year are required to file Form 114, Report of Foreign Bank and Financial Accounts, with the Financial Crimes Enforcement Network, or FinCEN.
The penalties for failing to file these reports start at severe and escalate from there. The penalty for a "non-willful" failure starts at $10,000. The penalty for a willful failure can reach half of the amount not reported.
The Syllabus of the opinion lays out was at stake for the taxpayer:
Petitioner Alexandru Bittner—a dual citizen of Romania and the United States—learned of his BSA reporting obligations after he returned to the United States from Romania in 2011, and he subsequently submitted the required annual reports covering five years (2007 through 2011). The government deemed Bittner’s late-filed reports deficient because the reports did not address all accounts as to which Bittner had either signatory authority or a qualifying interest. Bittner filed corrected FBARs providing information for each of his accounts—61 accounts in 2007, 51 in 2008, 53 in 2009 and 2010, and 54 in 2011. The government neither contested the accuracy of Bittner’s new filings nor suggested that Bittner’s previous errors were willful. But because the government took the view that nonwillful penalties apply to each account not accurately or timely reported, and because Bittner’s five late filed annual reports collectively involved 272 accounts, the government calculated the penalty due at $2.72 million. Bittner challenged that penalty in court, arguing that the BSA authorizes a maximum penalty for nonwillful violations of $10,000 per report, not $10,000 per account.
The court, in a 5-4 opinion by Justice Gorsuch, limited the penalty to $10,000 for each year the form was filed late, reducing the penalty by about $2.6 million.
It's good news for the taxpayer, but "even" a $10,000 foot-fault penalty is nothing to sneeze at. Foreign financial accounts can include a lot of things, including bank accounts, brokerage accounts, and business accounts used for cross-border businesses. Even cash-value life insurance accounts and annuities with foreign insurers can fall under the FBAR rules. Consult your Eide Bailly tax pro to learn more.
Related: Offshore Voluntary Disclosure; Penalty Help.
Supreme Court Rules In Taxpayer’s Favor On FBAR Penalties - Kelly Phillips Erb, Forbes
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