Supreme Court To Resolve FBAR Penalty Dispute

Finally we will obtain clarity on the FBAR penalty found on FinCEN Form 114, under Code of Federal Regulations (CFR)- Internal Revenue Service to CFR Title 31- Money and Finance: Treasury and managed by FinCEN- the Federal Crimes Enforcement Network. The U.S. Supreme Court on Tuesday, June 21, 2022 agreed to hear the case of whether the FBAR penalty for non-willful violation is $10,000.00 per account per annum or a straight $10,000.00 per annum.

The U.S. Supreme Court on Tuesday agreed to hear the case of Romanian-American businessman Alexandru Bittner, who was held liable for $2.72 million in penalties for failing to file Financial Crimes Enforcement Network (FinCEN) Forms 114, Report of Foreign Bank and Financial Accounts (FBAR) (Bittner, No. 21-1195 (U.S. 6/21/22) (petition for cert. granted)).

By granting certiorari in the appeal of the Fifth Circuit’s decision, the Court will likely address a split between the Fifth and Ninth circuits on whether the maximum civil penalty per non willful violation of the requirement to file an FBAR is applied per unreported foreign account per year, as the Fifth Circuit held, or, as Bittner argued and the Ninth Circuit has held in another case, per unfiled FBAR covering all foreign accounts each year. The latter interpretation of the relevant statute would have resulted in a total penalty of $50,000 for Bittner.

FBARs are required annually by the Bank Secrecy Act of 1970, P.L. 91-508, as amended. Although the form is issued by the Treasury’s FinCEN, it is filed with the IRS, due each April 15 for the preceding calendar year. U.S. persons must report on FBAR all financial interests in, or signature or other authority over, financial accounts located outside the United States (with certain exceptions) if the aggregate value of those financial accounts exceeded $10,000 at any time during the calendar year covered by the FBAR.

Bittner emigrated from Romania to the United States in 1982 and became a naturalized U.S. citizen in 1987 or 1988. He filed a number of U.S. income tax returns but did not file FBARs for 1996–2011 until 2012, despite maintaining an aggregate balance of more than $10,000 in foreign financial accounts.

The IRS assessed FBAR penalties for 2007 through 2011 totaling $2.72 million on 272 accounts. Bittner contested the penalties in a district court that held for him in 2020 (Bittner, 469 F. Supp. 3d 709 (E.D. Tex. 2020)). The government appealed, and the Fifth Circuit last November reversed the district court on this issue in Bittner, 19 F.4th 734 (5th Cir. 2021).

The statute (31 U.S.C. Section 5321(a)(5)(B)) prescribes a civil penalty of up to $10,000 for a non willful violation of any provision of the FBAR filing requirement (unless due to reasonable cause) but does not define a violation for this purpose. In rejecting the district court’s holding and finding that the maximum applies per account, the Fifth Circuit noted that the penalty for a willful violation under 31 U.S.C. Section 5321(a)(5)(C) does define “violation,” partly in terms of an account’s existence and balance.

In the Ninth Circuit case, Jane Boyd was penalized $47,279 by the IRS for non willfully failing to report more than a dozen accounts in the United Kingdom on a single FBAR. A district court granted the  government’s motion for summary judgment in Boyd, No. 18-cv-803-MWF-JEM (C.D. Cal. 4/23/19).

Boyd appealed to the Ninth Circuit, which reversed the district court in Boyd, 991 F.3d 1077 (9th Cir. 2021). The Ninth Circuit noted that 31 U.S.C. Section 5321(a)(5)(A)’s language defining the penalty for a violation of “any provision of [31 U.S.C.] Section 5314,” which, most relevantly to the case, requires filing the report and ensuring it contains the required information.

The Supreme Court will not hear and decide the Bittner case until sometime during its next term, which starts in October.

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