The Bank Secrecy Act (“BSA”) and its implementing regulations require U.S. persons with certain financial interests in foreign accounts to file an annual report know as an “FBAR” (the Report of Foreign Bank and Financial Accounts). The BSA authorizes the Secretary to impose a civil penalty up to $10,000 for non-willful violations of the law.
In Bittner, the taxpayer filed late FBARs for the 2007 through 2011 years and the government deemed Bittner’s late-filed FBARs deficient because the reports did not address all accounts as to which Bittner had either signatory authority or a qualifying interest. Bittner then filed corrected FBARs providing information for each of his accounts.¹ The government took the view that the non-willful penalties applied to each account not accurately or timely reported and because Bittner’s five late-filed FBARs collectively involved 272 accounts, the government calculated the penalty due at $2.72 million. Bittner challenged that penalty in court, arguing that the BSA authorizes a maximum penalty for non-willful violations of $10,000 per report, not $10,000 per account. The non-willful penalty provision does not speak of accounts or their number but rather pegs the quantity of non-willful penalties to the quantity of “violation[s].”
The district court reduced the assessment to $50,000, holding that the $10,000 penalty applied to each failure to file a report and not per account.² The Fifth Circuit Court of Appeals however, disagreed with the district court and held that each account not properly disclosed on the FBAR constituted a separate failure to file and thus, vacated and remanded this part of the district court’s judgement.³
In U.S. v. Boyd⁴ however, the Ninth Circuit Court of Appeals ruled that the non-willful FBAR penalty applies on a per-report basis so that there was a discrepancy between how the Fifth and Ninth Circuits interpreted the statutory language relating to non-willful FBAR penalties. Considering such discrepancy, Bittner appealed to the U.S. Supreme Court for review.
On November 2, 2022, the U.S. Supreme Court heard oral arguments in Bittner’s appeal of his non-willful FBAR penalty. On February 28, 2023, the U.S. Supreme Court in a 5 – 4 decision reversed the judgment of the Fifth Circuit Court of Appeals and held in Justice Gorsuch’s majority opinion that “the BSA treats the failure to file a legally compliant report as one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per-account basis." Justice Barrett filed a dissenting opinion in which Justices Thomas, Sotomayor and Kagan joined.
If you would like more information regarding the content of this tax alert please contact a member of the International Tax Services group, or contact Leon Dutkiewicz at firstname.lastname@example.org.
¹ Under governing regulations, filers with signatory authority over or a qualifying interest in fewer than 25 accounts must provide details about each account, but individuals with 25 or more accounts need only check a box and disclose the total number of accounts. 31 CFR §1010.350(g). Instead of employing that expediency, however, Bittner and his accountant volunteered details for each and every one of his accounts—61 accounts in 2007, 51 in 2008, 53 in 2009 and 2010, and 54in 2011.
² U.S. v. Bittner, 469 F. Supp. 3d 709, 724–726 (ED Tex. 2020)
³ U.S. v. Bittner, 19 F.4th 734 (5th Cir. 2021)
⁴ 991 F.3d 1077 (9th Cir. 2021)
Our specialists are here to help.
Get in touch with a specialist in your industry today.