A narrow U.S. Supreme Court decision in Bittner has curtailed federal penalties in a major case involving failure to file FBARs.
The U.S. Supreme Court has ruled 5-4 against a $2.72 million fine on a businessman who didn’t file reports for five years when he was living in Romania.
This case, Bittner v. United States, presented a conflict over statues 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 a separate violation for each account that isn’t properly reported.
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.
Bittner maintained that he owed $50,000, or the penalty for each year. The IRS claimed he owed for each account, a total of 272 violations.
Writing for the Court, Justice Neil Gorsuch backed Bittner. “The BSA treats the failure to file a legally compliant report as one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per-account basis,” Gorsuch wrote.
Gorsuch also said the government had tried to penalize Bittner without fair warning under the statute that punishments would be handed out on per-account. He called the government’s attempt to assess a massive penalty against Bittner “incongruous” with how it would have treated someone with a single high-balance account.
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 sought a maximum penalty: that he had committed 272 violations and owed a combined penalty of $2.72 million. A federal court in Texas sided with Bittner; the government appealed and won in the Fifth Circuit Court of Appeals.
Supreme Court Justices Amy Coney Barrett, Clarence Thomas, Sonia Sotomayor and Elena Kagan dissented in the Feb. 28 ruling.
Barrett wrote that even though Bittner “held as much as $16 million across more than 50 bank accounts in Romania, Switzerland, and Liechtenstein” and “failed to report 272 accounts,” he minimized his wrongdoing by arguing that he violated the law only five times.
She also said Bittner “put no effort into ascertaining” those obligations despite operating as a sophisticated business professional.
The recent ruling is likely to have implications both immediate and long-lasting for Americans living abroad and for U.S.-based holders of foreign accounts.
“The U.S. and Eritrea are the only two countries in the world that tax people based on citizenship, rather than where they live,” an article in Bloomberg read within hours of the Bittner decision. “The result of all the compliance hurdles has meant that many Americans living abroad have trouble accessing bank accounts, mortgages and other financial services because institutions don’t want the hassle of dealing with the US bureaucracy.”
Added The Irish Times from Dublin soon after, “Irish emigrants living in the US who retain bank accounts at home and fail to notify the US authorities run the risk of significant penalties. But a ruling in the US Supreme Court on Tuesday may reduce the financial pain.”
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