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FOREIGN ACCOUNTS PENALTY CASE HEADS TO SUPREME COURT

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July 22nd, 2022 – New York, United States  

Foreign Accounts Penalty Case Heads to Supreme Court

 

Click here to read it in Spanish.

Click here to read it in Portugese.

 

Tax filing – and penalties – for foreign accounts may soon be the subject of a major legal decision.

The U.S. Supreme Court plans this fall to hear Bittner v. U.SThis case presents a conflict over statutes under the Bank Secrecy Act (BSA). The question is whether a “violation” under the BSA is the failure to file an annual FBAR no matter the number of foreign accounts or whether there is a separate violation for each account that isn’t properly reported.

The 1970 BSA initially charged the U.S. Treasury Department with collecting information from U.S. persons who have financial interests in or signature authority over financial accounts maintained with financial institutions outside the U.S. In 2003, the Treasury delegated enforcement to the Internal Revenue Service. Although only willful violations were initially subject to penalty, Congress amended the act in 2004 to include penalties for non-willful violations.

Regulations require filing a single annual FBAR for anyone with an aggregate balance over $10,000 in foreign accounts. The penalty for non-willful violation is up to $10,000.

Concerning the case in question, Alexandru Bittner was born in Romania in 1957, immigrated to the U.S. in 1982 and became a citizen five years later. He returned to Romania in 1990, where he became a successful businessman and investor. He lived there for more than 20 years and was unaware that he was required to file U.S. income tax returns or FBARs. After returning to the U.S. in 2011, he engaged an accountant to prepare and file the returns and FBARs.

The IRS determined that he had failed to timely file FBARs for 2007 through 2011 and concluded that his delinquency was non-willful but still sought to impose a maximum penalty. The agency asserted that he had violated the act 272 times and found him liable for a combined penalty of $2.72 million.

A federal court in the Eastern District of Texas sided with Bittner, saying the proper penalty was $50,000. The government appealed and won in the Fifth Circuit Court of Appeals, which agreed with the IRS that there was a separate violation for each foreign account not timely reported on a FBAR.

Bittner is now appealing to the U.S. Supreme Court. The conflict now arises given a decision of the Ninth Circuit, which held in materially similar case (United States v. Boyd) that when an untimely but accurate FBAR is filed, the IRS could impose only one non-willful penalty no matter the number of accounts.

 

A decision upholding the Ninth Circuit’s interpretation could impact other BSA penalties. 

 

About the Author 

Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high net worth families and their advisors. Alicea has more than 17 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm. Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.

Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S. Alicea is fluent in Spanish and has a working knowledge of Portuguese.

Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York City Bar, the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA) and the International Fiscal Association (IFA).  She is the New York/Northeast Regional Representative of the Women of IFA Network (WIN). Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA Forty Under 40 Award. She was selected as someone that has notable skills and is visibly making a difference in the accounting profession.

 

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