U.S. Supreme Court Decision: FBAR Penalty Imposed Per Report, Not Per Account

In a decision that could benefit American citizens residing abroad or holding assets overseas, the US Supreme Court has reduced the federal penalties associated with the non-willful failure to file mandatory reports that disclose foreign bank accounts.

The Supreme Court justices voted 5-4 to overturn the $2.72 million penalty imposed on businessman Alexandru Bittner, who failed to file reports for five years while residing in Romania. Bittner argued that the maximum penalty allowed under federal law was $50,000, which the court accepted.

Background

Alexandru Bittner, a Romanian immigrant, became a naturalized U.S. citizen in the 1980s before returning to Romania in the 1990s to build a business empire. Bittner failed to report his interests in foreign bank accounts on annual Foreign Bank and Financial Accounts (FBAR) forms, which is required by the Bank Secrecy Act of 1970 (BSA), while he was in Romania. Bittner returned to the United States in 2011, whereupon he first learned of the requirement to report.

The IRS argued for a penalty per account, which would result in a penalty of $2.72 million based on Bittner's 272 unreported accounts over the five-year period. Bittner, on the other hand, argued for a penalty per report, which would result in a penalty of $50,000 based on five annual reports. Bittner filed a complaint in Federal District Court, which ruled in his favor, but the Fifth Circuit Court of Appeals ruled in favor of the IRS on appeal. Bittner then appealed to the Supreme Court, which agreed to hear the case due to a split within the circuit courts.

On February 28, 2023, the court reversed and remanded the decision of the United States Court of Appeals for the 5th Circuit in a 5-4 ruling. (Bittner v. United Sates)

Next Steps

The Court’s decision is a breath of relief for taxpayers with inadvertent and non-willful omissions but it has not lessened the penalties for willful or intentional omissions. It is just as important as ever to submit a complete and accurate FBAR before the deadline.  

The FBAR annual report filing deadline for U.S. persons is set for April 15, 2023. However, FinCEN provides an automatic extension until Oct. 15, 2023, for those who miss the original deadline. If you have any concerns or queries regarding your filing requirements, we encourage you to contact us or a qualified tax accountant for assistance.