On February 28, 2023, the U.S. Supreme Court decided Bittner v. United States, No. 21-1195, holding that the Bank Secrecy Act (“BSA”) treats the failure to file a Report of Foreign Bank and Financial Accounts (“FBAR”) as one violation carrying a maximum penalty of $10,000, regardless of how many bank accounts are at issue.
Individuals must file FBARs to report a financial interest in or signature or other authority over at least one financial account located outside the United States with a value in excess of $10,000, with multiple accounts being reported on a single form. The penalty for a failure to file an FBAR is limited to $10,000 per violation. The IRS had long contended that this penalty applied for each account that was supposed to be reported, rather than each form that was required to be filed. Taxpayers, of course, contended the opposite, and the circuit courts were split on the issue.
The Supreme Court has now resolved this issue squarely in favor of taxpayers, holding in Bittner v. United States that the penalty for a non-willful FBAR violation applies on a per-form basis. The Court examined the statutory language and noted that the statute did not speak of accounts or their number but rather the legal duty to file reports. Likewise, the non-willful penalty provision pegs the quantity of non-willful penalties to the quantity of “violations,” which occur when an individual fails to file a report consistent with the statute’s commands. Further, multiple IRS and Treasury publications (e.g., proposed rules, letter warnings, fact sheets, and instructions) stated that penalties would not exceed $10,000. Based on all of this, the Court concluded that “[b]est read, 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.”
The Court’s decision in Bittner is a major victory for taxpayers and may mean the difference of millions of dollars in penalties for large, non-willful FBAR violators. However, taxpayers should keep in mind that Bittner does not affect willful FBAR violations, which could result in penalties up to 50% of a taxpayer’s foreign accounts. What constitutes a “willful” versus a “non-willful” violation may well be the subject of a future Supreme Court case.
Currently, it is undetermined if the IRS will retroactively go back and refund overpayments of non-willful penalties. We will continue to monitor and will report back once a determination is made.
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