US Supreme Court to Rule on FBAR Penalties Case

The debate over FBAR penalties for non-willful failure to disclose all of an individual’s or business’ foreign bank accounts has reached the Supreme Court.

The issue is whether the maximum $10,000 Foreign Bank Account Reporting (FBAR) penalty should apply on a per-account basis, or rather than in one unified annual basis.

The Fifth and the Ninth Circuit Appellate Courts have produced inconsistent rulings that could mean the difference between a multi-million dollar penalty and one in the thousands.

In its legal brief, the Justice Department agreed with a taxpayer that the Supreme Court should review a ruling from the US Court of Appeals for the Fifth Circuit. The taxpayer, Alexandru Bittner, argued that his non-willful failures to report foreign bank accounts should have been assessed with penalties for each year of non-reporting, not for each account.

The Fifth Circuit’s November decision contrasted with a March 2021 Ninth Circuit ruling that the penalty applies once per year. Division between appeals courts is one factor that could attract Supreme Court interest in the case.

The Justice Department wrote approvingly of the Fifth Circuit’s decision, but said the Ninth Circuit’s ruling “threatens to significantly weaken the deterrent effect of the penalty provisions within the Ninth Circuit.”

“The question presented is important and will often recur, and this case would be an appropriate vehicle in which to address it,” the department said.

The Fifth Circuit’s ruling in Bittner’s case reversed a lower court’s conclusion on how the non-willful penalty applies, increasing Bittner’s penalties to $2.72 million from $50,000.

Before the Fifth Circuit’s ruling, the non-willful penalty issue had proved to be an exception to the government’s broad winning streak over legal questions tied to the reporting penalties. It has won multiple times, for example, in pushing for a relatively broad definition of “willful” reporting violations, which can trigger penalties of up to 50% of foreign account assets for each year of non-reporting.

In his petition to the Supreme Court, Bittner said non-willful penalties arise “all the time” and, if the appeals court division stays in place, taxpayers will face different penalties for the same conduct in different parts of the country.

It is hoped that the Supreme Court rules in favor of a per filing and not per account basis.

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