In long-awaited landmark FBAR ruling, Supreme Court finds in favor of Bittner, and 'per form/year' accounting of penalties
In what is being seen as a major victory for Americans with non-U.S. bank accounts that they've failed to report to U.S. officials, the U.S. Supreme Court today ruled that the US$10,000 maximum penalty for such non-disclosure, if it's found to have been "non-willful," is to be applied on a per-form basis, and not per account.
The decision in Alexandru Bittner v. United States (No. 21-1195) will be welcomed by many Americans, in the U.S. as well as abroad. Few will have been as thrilled with the ruling, though, than Mr.Bittner himself, whose arguments against the far more persecutory "per-account" penalty system five out of the nine Supreme Court justices agreed with.
At issue in Bittner's case had been whether the United States' notoriously persecutory civil penalty regime for those found to have "non-willfully" failed to file Foreign Bank Account Reports for one or more years with the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) should be based on the number of bank accounts they failed to file FBARs for, or on the number of years (as represented by "forms", as in "FBAR forms") that they neglected to file.
For years courts have disagreed over the correct approach to take, and the confusion increased after the IRS changed its recommendation on the matter in 2019, FBAR experts point out. This difference in interpretations of how the penalties were to be applied has often resulted in staggeringly-different penalty amounts being applied.
In Bittner's case, for example, the "per-form/year" ruling announced today means that his penalty for failing to file FBARs over a five-year period will total just US$50,000 – less than a fiftieth of the US$2.72 million that he'd owe if the Supreme Court justices had agreed with the Circuit Court in Texas that had held him to be liable on the basis of all of the dozens of accounts he had failed to report in each of the five years in question.
Owing to his continued refusal to accept such lower-court decisions against him, Bittner – a Romanian-American businessman and investor – has emerged in the last few years as one of the most visible challengers of the increasingly notorious non-willful FBAR penalty regime.
Amid the celebrations over today's ruling, meanwhile, questions are certain to be asked by those who've lost earlier non-willful FBAR cases that obliged them to pay penalties based on the numbers of accounts they held, on grounds that failures to file Foreign Bank Account Reports were prosecuted. However, a lawyer familiar with the legislation told the American Expat Financial News Journal today that those whose non-willful FBAR cases "have been finalized – meaning decided, and the time has run out for further consideration by appeal or otherwise" are, unfortunately for them, "out of luck."
However he added, it's probable that all such cases that were still in the pipeline "when the Supreme Court granted the petition for certiorari [back in June, 2022] have been held open one way or the other, so as not to be final," and thus may now be decided on the basis of today's new precedent.
Bittner's legal team: U.S. taxpayers also win
Commenting on today's ruling, Clark Hill, the Texas law firm that assisted Bittner in his battle said its members (pictured above) were "overjoyed with this result, which brings to conclusion a 10-plus years-long controversy," but noted that U.S. taxpayers were also winners as a result of the decision.
"As a result of this decision, taxpayers now have a consistent and fair rule when it comes to inadvertent mistakes or misunderstandings, regarding their FBAR obligations. If their failure to timely or accurately file an FBAR was non-willful, the maximum penalty [the] IRS may impose is US$10,000 per FBAR," Clark Hill said in a statement.
The statement added: "Having represented Mr. Bittner for all these years, we are absolutely thrilled to achieve this result on his behalf, and [we're] particularly thankful for Haynes Boone’s excellent representation before the Supreme Court, led by Daniel L. Geyser, who masterfully argued the case."
'5 to 4 decision suggests
more battles to come'
John Richardson, a Toronto-based lawyer who specializes in helping expatriate Americans with citizenship issues, agreed that today's win was an important one, but warned that the "war" might not yet be over.
"Mr. Bittner has won the battle, but a 5-to-4 decision suggests many more battles [could lie ahead]," he told the American Expat Financial News Journal.
"The justices in the majority were Neil M.Gorsuch, Ketanji Brown Jackson, John G. Roberts Jr., Samuel A. Alito and Bret M. Kavanagh. The justices in the minority were Amy Coney Barrett, Clarence Thomas, Elena Kagan and Sonia Sotomoyor.
"The decision does not suggest a Liberal/Conservative split on the court, but rather, indicates a split between those justices who recognize the circumstances of Americans abroad,and immigrants – context matters, in other words – and those who would appear to believe that a person's total 'wealth' and the countries in which their non-U.S. bank accounts are located, somehow matters.
"Interestingly, the Justice Barrett dissent leads with a statement that Mr. Bittner was an 'American citizen' and that he had bank accounts in Liechtenstein and Switzerland, which contrasts notably with Justice Gorsuch's description of Mr. Bittner, which includes such aspects of his life as the fact of his dual citizenship, and that the period for which the FBAR penalties were assessed included years that he was living in Romania.
"There is no acknowledgment of these points in the Barrett dissent.
"The bottom line is that this is a win for Mr. Bittner, and for all Americans – but the closeness of the decision, and occasionally negative tone toward Bittner in the minority decision, remains concerning."
Richardson also said he thought that today's decision would cause the U.S. government to classify more cases of FBAR non-filing as "willful," thus enabling it to impose significantly harsher penalties on those found to have failed to file the necessary FBARS, a point echoed by other observers as well.
To view the 32-page ruling as it emerged from the Supreme Court today, click here.
Now in their 52nd year
Although many Americans are still unaware of FBARs – in spite of their potentially-ruinous penalties – they actually date back to 1970, when they were created by an early U.S. anti-tax-evasion/money laundering/crime bill known as the Bank Secrecy Act.
But it was only after globalization began to become truly global, and concerns about organized, cross-border crime and terrorism also began to mount, that the U.S. began ramping up enforcement of the FBAR legislation, beginning in 2001 with the post 9/11 Patriot Act.
The FBAR penalty regime was then further enhanced in 2004, with the introduction of a new potential penalty of up to US$10,000 per violation for "non-willful" violators. The willful penalty was also increased at this time from US$100,000 to "the greater of either US$100,000 or 50% of the taxpayer's account in question on the date it was meant to have been reported."
Meanwhile, in spite of inflation, the minimum US$10,000 amount necessary to trigger the need to file an FBAR has been unchanged since 1970. Had it been adjusted for inflation, that minimum today would be more than US$65,400, FBAR experts point out.
As far back as 2014, experts were calling for the FBAR regulations to be revisited. That's when Allison Christians, a law professor, associate dean of research and holder of the H. Heward Stikeman Chair in Tax Law at McGill University in Montreal, Canada, wrote a paper that is still referred to by advocates of FBAR revisions, entitled "Paperwork and Punishment: It's Time to Fix FBAR."
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