On June 21, 2022, the U.S. Supreme Court decided to hear the United States. v. Bittner, No. 20-40597 (5th Cir. 2021) regarding the penalty for non-willful failure to report foreign bank accounts. The Fifth Circuit and Ninth Circuit Court of Appeals ruled differently on similar FBAR penalty dispute cases.
BACKGROUND: The Bank Secrecy Act requires any U.S. individual or business to file a FinCEN Form 114, also known as FBAR, to report certain foreign financial bank accounts. Specifically, the taxpayer must report “a financial interest in or signature or other authority over at least one financial account located outside the U.S. if the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.” Failure to timely file a complete and correct FBAR may be subject to civil monetary penalties, criminal penalties, or both.
Ninth Circuit Rules That the Penalty is Imposed ONCE per year: In United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021), the taxpayer Jane Boyd had a financial interest in multiple financial accounts in the United Kingdom. She received interest and dividends from these accounts but did not report the interest and dividends on her 2010 federal income tax return or disclose the account to the Internal Revenue Service (IRS). In 2012, the taxpayer participated in the Internal Revenue Service’s Offshore Voluntary Disclosure Program and submitted a FBAR listing her fourteen foreign accounts for 2010. She also amended that year’s tax return to include the interest and dividends from those accounts. The IRS concluded that the taxpayer had committed thirteen non-willful violations of the reporting requirements under 31 USC § 5314—one for each account she failed to report timely for 2010. As a result, Boyd was penalized $47,279 by the IRS, plus additional late-payment penalties and interest for non-willful violations. However, the Ninth Circuit Court of Appeals reasoned that Boyd was only required to file a single FBAR to report multiple foreign financial accounts; therefore, she only committed one violation, and the maximum penalty for that violation was $10,000. The court concluded that § 5321(a)(5)(A) authorizes the IRS to impose only one non-willful penalty when an untimely but accurate FBAR is filed, no matter the number of accounts.
Fifth Circuit Rules That the Penalty is Imposed FOR EVERY ACCOUNT HELD: In the United States. v. Bittner, No. 20-40597 (5th Cir. 2021), Alexandru Bittner, with dual Romanian-United States citizenship, had multiple non-U.S. personal bank accounts (8 or fewer each year) and owned stock in a number of Romanian corporations that also owned foreign bank accounts. Bittner lived in Romania for several years and was unaware that he was required to file U.S. income tax returns reporting his foreign income as well as file FBAR to report foreign financial accounts. Shortly after returning to the United States in 2011, he discovered that he should have filed U.S. tax returns and FBAR while living abroad. The IRS determined that Bittner failed to timely file FBARs for five years (2007-2011), and during those years, Bittner had over 25 foreign accounts. As a result, the IRS asserted Bittner had violated the Act a full 272 times—once for each account that was not reported in each of those five years. Therefore, Bittner was penalized $2.72 million by the IRS, representing a $10,000 fine for each account he ultimately reported on his untimely FBARs. In this case, the Fifth Circuit Court of Appeals agreed with the IRS’s position and held that the Act imposes a standalone duty on taxpayers to report each account—and thus, “each failure to report a qualifying foreign account constitutes a separate reporting violation subject to a penalty.”
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