FBAR and the Supreme Court: FATCA’s Constitutionality and the New FBAR Penalty Showdown

2025-08-12 13:56:51

The Supreme Court upheld FATCA and reined in FBAR penalties. Understand what these decisions mean for U.S. expats with foreign accounts.

Start Filing

Recap: What Are FATCA and FBAR?

• FATCA (Foreign Account Tax Compliance Act) was enacted in 2010 and requires foreign banks to report U.S. account holders to the IRS. It also introduced IRS Form 8938, adding new foreign asset reporting for U.S. taxpayers.
  
  

• FBAR (FinCEN Form 114) has existed since 1970 and requires any U.S. person with over $10,000 in foreign accounts to report annually. Enforcement ramped up in the 2000s as the government targeted offshore evasion.
  
  

Supreme Court Upholds FATCA Under Taxing and Spending Powers

After FATCA became law, it faced lawsuits claiming it was unconstitutional—too invasive and burdensome. Some argued that forcing foreign banks and individuals to report to the IRS exceeded the government’s power under the Taxing and Spending Clause.

The Supreme Court declined to strike down FATCA, effectively letting lower court rulings stand. The courts reasoned that requiring financial disclosures to stop tax evasion is a valid use of government power. The result? FATCA survived.

 For expats: This means the reporting rules—whether through your bank or your tax return—aren’t going anywhere.

FATCA Fallout: Real-World Consequences for Expats

Since the Supreme Court let FATCA stand:

• Foreign banks have closed accounts for U.S. citizens or refused service
  
  

• Expats often face hurdles in opening bank or investment accounts abroad
  
  

• Joint accounts with foreign spouses must be reported
  
  

• Data-sharing continues between international banks and the IRS
  
  

Advocacy groups have pushed for reforms like higher thresholds or exemptions for retirement accounts, but no major changes have passed. FATCA remains fully in force—by both law and precedent.

Enter the Supreme Court Again: FBAR Penalties in Bittner v. United States

In 2023, the Court ruled in Bittner v. U.S., a key case about how FBAR penalties should be calculated. The question: If someone fails to file FBARs, should they be penalized per form or per account?

The IRS had imposed $2.72 million in penalties on Mr. Bittner for non-willful violations over multiple accounts and years. But the Court, in a 5–4 decision, sided with Bittner and ruled that penalties apply per year, not per account.

The result? His penalties dropped to $50,000 max—a massive win for taxpayers who make honest mistakes.

Why the Bittner Case Matters

This case changed the FBAR enforcement landscape:

• Non-willful violations now carry a maximum of $10,000 per year, not per account
  
  

• Accidental oversights won't lead to crippling fines
  
  

• The IRS must now follow a narrower interpretation of FBAR fines
  
  

 If you forgot to file FBARs in the past but didn’t intend to hide anything, this decision may significantly lower your penalty risk.

The Balance of Power: SCOTUS, Congress, and the IRS

These two Supreme Court decisions show a nuanced stance:

• On FATCA, the Court declined to intervene, affirming Congress’s broad power to enforce financial transparency
  
  

• On FBAR penalties, the Court stepped in to prevent disproportionate punishment not clearly supported by law
  
  

In short: You must comply with reporting, but enforcement must be reasonable.

What About Future Cases?

Other cases involving FBAR penalties and constitutional claims are emerging. One such case, involving Monica Toth, challenged an FBAR fine as an “excessive fine” under the Eighth Amendment. While the Supreme Court hasn’t taken that case yet, the fact that such issues are being appealed shows there’s still legal movement around offshore reporting.

If the Court eventually rules that FBAR penalties are punitive (not just regulatory), it could open the door for further limits under the Constitution.

Key Takeaways for U.S. Expats and International Taxpayers

• FATCA is here to stay. There’s no constitutional relief from reporting requirements.
  
  

• FBAR fines are now capped more clearly—non-willful errors won’t ruin you.
  
  

• The IRS may get more aggressive labeling violations “willful”—but the courts are watching.
  
  

• Congress, not the courts, will need to act if expat tax relief is ever to happen.
  
  

What Should You Do?

If you have foreign accounts and haven’t filed FBARs, act now:

• File overdue FBARs if you qualify for the Delinquent FBAR submission procedures
  
  

• Don’t wait for an IRS audit—voluntary compliance is safer
  
  

• If you’re unsure whether your noncompliance was willful, talk to an attorney or tax expert
  
  

• Stay compliant with FATCA and FBAR every year—even if you don’t owe tax
  
  

Final Thoughts

The Supreme Court doesn’t often weigh in on tax enforcement, but when it does, it sets a tone. The message here? Transparency is required, but fairness matters.

Americans abroad must report. But if they mess up unintentionally, the consequences won’t be unlimited. For now, the best defense is still full compliance, smart planning, and staying informed.

Need help with FBAR filing or want to make sure you’re on the right side of compliance? Visit eFileFBAR.com — we make offshore reporting easier and safer.

M.Daniyal