The Supreme Court will decide the FBAR penalty case.

2022-07-07 09:50:33

The case of Romanian-American businessman Alexandru Bittner, who was fined $2.72 million 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)), was accepted by the U.S. Supreme Court on Tuesday.

By granting certiorari in the appeal of the Fifth Circuit's ruling, the Court will probably resolve a disagreement between the Fifth and Ninth circuits regarding whether the maximum civil penalty for non-willful FBAR filing violations is applied per unreported foreign account per year, as the Fifth Circuit held, or per unfiled FBAR covering all foreign accounts per year, as Bittner argued and the Ninth Circuit has held in another case. According to the second interpretation of the applicable law, Bittner would have faced a $50,000 fine overall.

The Bank Secrecy Act of 1970, P.L. 91-508, as modified, mandates the yearly filing of FBARs. Although the FinCEN division of the Treasury issues the form, it is submitted with the IRS and is due on April 15 of each year for the previous calendar year. With certain exceptions, U.S. citizens are required to report on their FBAR all financial interests in, signature rights over, or other authority over, financial accounts that are located outside of the country if the combined value of those accounts exceeded $10,000 at any point in the calendar year covered by the FBAR.

Bittner immigrated to the US from Romania in 1982 and was granted naturalization in either 1987 or 1988. Despite having multiple U.S. income tax returns filed and having a total balance of more than $10,000 in overseas financial accounts, he did not file FBARs for the years 1996 through 2011 until 2012.

For the years 2007 through 2011, the IRS imposed FBAR penalties totaling $2.72 million on 272 accounts. In 2020, Bittner successfully argued against the punishments in a district court (Bittner, 469 F. Supp. 3d 709 (E.D. Tex. 2020)). In Bittner, 19 F.4th 734, the Fifth Circuit last November overturned the district court's decision on the government's appeal (5th Cir. 2021).

A nonwillful violation of any part of the FBAR filing requirement may result in a civil penalty of up to $10,000 under the law (31 U.S.C. Section 5321(a)(5)(B)), however there is no definition of a violation for this purpose. The Fifth Circuit noted that the punishment 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, and rejected the district court's conclusion, concluding that the maximum applies per account.

For not knowingly omitting to record more than a dozen accounts in the United Kingdom on a single FBAR, Jane Boyd was fined $47,279 by the IRS in the Ninth Circuit case. In Boyd, No. 18-cv-803-MWF-JEM (C.D. Cal. 4/23/19), the government's petition for summary judgment was granted by the district court.

Boyd took his case on appeal to the Ninth Circuit, which overturned the district court's decision in Boyd, 991 F.3d 1077. (9th Cir. 2021). The Ninth Circuit pointed out that the language of 31 U.S.C. Section 5321(a)(5)(A), which is most pertinent to this case, defines the penalty for a violation of "any provision of [31 U.S.C.] Section 5314," includes filing the report and making sure it has the necessary information.

The Bittner case won't be heard by the Supreme Court until sometime in its upcoming term, which begins in October.

Yaffa Swinkenheimer