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Supreme Court: Penalty for Foreign Account Violations Accrues Per Report, Not Per Account

S.J. Steinhardt
Published Date:
Mar 17, 2023

iStock-922171778 SCOTUS United States US Supreme Court

The U.S. Supreme Court’s decision in Bittner v. U.S. settled confusion among practitioners and taxpayers regarding penalties associated with a provision of the Bank Secrecy Act (BSA).

The law requires U.S. persons with certain financial interests in foreign accounts with an “aggregate value of those foreign financial accounts [that exceed] $10,000 at any time during the calendar year reported” to file an annual Report of Foreign Bank and Financial Accounts (FBAR). A maximum $10,000 penalty is imposed for nonwillful violations of the law.

In this case, the petitioner, Alexandru Bittner, filed annual reports covering five years after learning of the BSA reporting provision. After the government deemed his late-filed reports deficient because they did not include all accounts on which he had either signatory authority or a qualifying interest, the petitioner filed corrected FBARs providing information for each of his accounts.

The government argued that the nonwillful penalties apply to each account not accurately or timely reported, and because Bittner’s late-filed reports involved 272 accounts, it sought a fine of $2.72 million. Bittner argued that the penalties should apply per report, so that that the most he would owe for the five reports would be $50,000. While the district court agreed with Bittner, the U.S. Court of Appeals for the 5th Circuit, reversed, upholding the government’s position.

The Supreme Court reversed the 5th Circuit, agreeing with Bittner that the Bank Secrecy Act's $10,000 maximum penalty for the nonwillful failure to file a compliant report accrues on a per-report, not a per-account, basis. Justice Neil M. Gorsuch wrote the opinion, joined by Chief Judge John G. Roberts Jr. as well as justices Ketanji Brown Jackson, Samuel A. Alito and Brett M. Kavanaugh.

"The court will look more closely as to the reasonableness in filing late," Diane Nobile, a tax attorney at law firm Saul Ewing, told Accounting Today. "The willfulness standard will be even more heavily interpreted and scrutinized," adding that it is reasonable that someone not living in the United States would be unaware of the requirement.

"The 'per account' interpretation seemed to be excessive, and I don't think it was Congress' intent to be that draconian in the extreme results that resulted, Nobile said. "That's why we have regulations to interpret what the statute says. The issue of willfulness plays a heavy role, because nonwillfulness brings us into the realm of criminal sanctions."

"For many that have been negatively affected by the 'per account' interpretation, the decision will enable them to file for refunds," Reuben Muller, a tax attorney at law firm Cole Schotz, told Accounting Today. "In fact, it would not be surprising if the government issues a procedure for them to do so." 

Before the high court’s decision, many taxpayers elected to settle their cases and pay increased penalties based on a mistaken reading of the law that allowed the IRS to recover penalties for nonwillful violations on a per-account basis, according to Archer attorneys Mark Oberstaedt and Kenneth Wahl. They told Accounting Today that, in response to the decision, the IRS could decide that more violations were willful.

Brett Cotler, a tax attorney at Seward & Kissel, agreed. "But from a taxpayer's point of view, it may result in earlier settlements in nonwillful FBAR audits, knowing they will have a $10,000 penalty,” he told Accounting Today. “A lot would consider that to be more attractive to wrap up the case and pay the $10,000, rather than go through protracted litigation."

The decision is unlikely “to have any major effect on the government’s efforts to limit money-laundering,” Columbia Law School Professor Ronald Mann wrote in Scotusblog. “Even in these partisan times, it is safe to expect that the IRS could obtain from Congress any amendments to the Bank Secrecy Act that are truly necessary to its mission in that area.”

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