Earlier this summer, the U.S. Supreme Court agreed to hear a case which is expected to determine the extensiveness of the penalty for a U.S. person who fails to file required federal reports listing the person’s foreign bank accounts. Specifically, the Court granted certiorari in Bittner v. United States to review whether a non-willful “violation” under the Bank Secrecy Act means either the failure to file a Report of Foreign Bank and Financial Accounts (“FBAR”) or the failure to report a qualifying account. The Court’s decision could have a significant impact on the amount of penalties assessed for failure to file an FBAR.
The penalty for violating the Bank Secrecy Act is capped at $10,000 per non-willful violation. If the Court determines that a violation means the failure to file the required report, then a taxpayer’s liability for non-willful failure to file an FBAR would be limited to $10,000 for the year, no matter how many qualifying accounts the taxpayer maintained (the “per-form” theory). On the other hand, if the Court determines that a violation means the failure to report a qualifying account, then the taxpayer’s liability for non-willful failure to file an FBAR would be $10,000 for every foreign bank account the taxpayer failed to report (the “per-account” theory). Until it is resolved by the Supreme Court, various circuits of the Courts of Appeal currently are divided between the per-form and per-account theories.
The Court’s decision could mean millions of dollars for taxpayers who have not complied with FBAR filing requirements. For instance, Alexandru Bittner, the taxpayer-petitioner in Bittner v. United States, failed to report an alleged 272 foreign bank accounts he maintained over the course of five years. Under the per-account theory, the U.S. Internal Revenue Service assessed $2.72 million in civil penalties against Bittner— $10,000 for each unreported account each year during the five-year period at issue—and sued to reduce these penalty assessments to judgment. In his defense, Bittner pleaded under the per-form theory that the penalty assessments were limited to $50,000—$10,000 for each of the five years he did not file an FBAR. The trial court originally sided with Bittner but was reversed by the appellate court. The Supreme Court’s decision will determine whether Bittner, and other taxpayers like him, may be assessed a maximum penalty of $2.72 million or $50,000 for his failure to file FBARs. Oral argument has been set for 2 November 2022.