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The case of U.S. v. Bittner has been winding its way through the courts for quite some time. At issue is whether the $10,000 nonwillful penalty for failure to file a FinCEN Report 114, “Report of Foreign Bank and Financial Accounts” (FBAR) applies per form or per the number of financial accounts required to be reported on that form.
As of this writing, the dispute has reached its final destination: the U.S. Supreme Court. On November 2, 2022, the Court heard oral arguments in the defendant’s appeal of a highly substantial nonwillful FBAR penalty.
Under the Internal Revenue Code, every U.S. person who has a financial interest in or signature or other authority over a financial account or accounts in a foreign country must report the account(s) annually using an FBAR if the aggregate value of the foreign financial account(s) exceeds $10,000 at any time during the calendar year. One FBAR is used to report multiple accounts.
The U.S. Secretary of the Treasury may impose a civil monetary penalty on any person who violates or causes a violation of the FBAR filing requirements. The maximum amount of the penalty depends on whether the violation was nonwillful or willful.
The maximum penalty for a nonwillful violation is $10,000. In the case of any person willfully violating, or willfully causing a violation, the maximum penalty is the greater of $100,000 or 50% of an amount determined under specific tax rules.
The defendant in Bittner is a naturalized U.S. citizen who decided to return to his native Romania in 1990. While there, he became a successful businessman. However, the defendant was unaware that, as a U.S. citizen, he still had to report his interests in certain foreign financial accounts, so he never filed FBARs while living in Romania.
When the defendant came back to the United States in 2011, he hired a CPA to prepare his outstanding FBARs. These original FBARs were deficient: They failed to report 25 or more foreign financial accounts that should have been reported. So, he hired a new CPA who filed corrected FBARs. Nonetheless, in 2017, the IRS assessed $2.72 million in nonwillful FBAR penalties — $10,000 for each unreported account.
In 2020, a Texas district court rejected the defendant’s reasonable cause defense but held that the maximum penalty applied per annual FBAR, not per reportable account. However, on appeal, the U.S. Court of Appeals for the Fifth Circuit reversed the district court, finding that the FBAR penalty applies per reportable foreign financial account, not per annual FBAR.
Notably, this decision diverged from the U.S. Court of Appeals for the Ninth Circuit’s decision in U.S. v. Boyd. In that case, the Ninth Circuit argued against “stacking” nonwillful penalties against taxpayers who fail to disclose multiple foreign financial accounts on a single FBAR.
In June 2022, the Supreme Court agreed to hear Bittner. During oral arguments in November, the Court seemed sympathetic to the defendant. It rigorously questioned the government’s interpretation of the statute and appeared to disagree that the statute supported the government’s position that the nonwillful penalty applies on a per account rather than a per FBAR basis.
As this article went to press, the case was still pending adjudication by the Supreme Court. That decision will presumably be the final word on the “per form vs. per account” debate. Stay tuned.
U.S. v. Bittner, No. 21-1195, Nov. 2, 2022, Transcript of Oral Argument (U.S. Supreme Court)
U.S. v Boyd, No. 19-55585, March 24, 2021 (U.S. Ninth Circuit)
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