updated 5:02 PM CEST, Sep 30, 2022

Alexandru Bittner is latest FBAR litigant to petition Supreme Court for definitive penalties ruling

Alexandru Bittner, who has been one of the most visible challengers of the United States' notoriously persecutory FBAR penalty regime in recent years, has now become the latest FBAR litigant to urge the U.S. Supreme Court to rule, once and for all, on the way non-willful FBAR penalties should be determined. 

In a petition for a writ of certiorari filed with the Supreme Court last month, Bittner's lawyers argued that the issue at the heart of a circuit court ruling at the end of November (United States v. Bittner, 19.F4th 734 (5th Cir. 11/30/21) – which held that had held that the FBAR non-willful US$10,000 penalty should be applied on a per (bank) account rather than per (FBAR) form basis.

“This critical issue arises all the time," the 37-page petition continues, referring to the inconsistent way non-willful FBAR (Foreign Bank Account Report) penalties are assigned, with the result that the non-willful FBAR penalties awarded to otherwise "identically situated" taxpayers "will now turn on whether the taxpayer is from California or Texas.

"The question presented is: Whether [an FBAR] 'violation' under the [Bank Secrecy] Act is [deemed to be] the failure to file an annual FBAR, no matter the number of foreign accounts, or whether there is a separate violation for each individual account that was not properly reported."

Bittner isn't the first to petition the Supreme Court to rule on the way FBAR penalties are determined. As reported, lawyers for an American taxpayer named Alice Kimble also attempted to petition the Supreme Court, although some observers argued the Kimble case was complicated by certain details, including questions as to whether her FBAR violation actually was "non-willful," as claimed, an argument other FBAR petitioners  reportedly have also encountered.  

Long-running per account
vs. per FBAR issue  

One point just about everyone who knows what an FBAR is agrees on is that the lack of clarity as to how non-willful Foreign Bank Account Report penalties should be determined is an issue that has been in need of addressing for some time.

Almost since the IRS first began imposing penalties on those who failed to file FBAR forms (penalties for non-willful violations were introduced in 2004) in fact – although the discrepancy in agreement as to just how the penalties were to be determined took a few more years to emerge.

(The law which officially established the requirement for U.S. citizens to report to the IRS on their non-U.S. bank account holdings, the Bank Secrecy Act, actually dates back to 1970, but the ability of the IRS to obtain the data it needed to catch out those who failed to file, and the political mandate to do so, grew gradually, fuelled in part by  media reports around 2007 and 2008 of the use by wealthy Americans of overseas banks, in places like Switzerland, to hide their wealth.) 

Today, all American citizens, whether at home or abroad, are required to file FBARs (electronically, these days) with the U.S. Financial Crimes Enforcement Network (FinCEN) for every year that the "aggregate value" of all of their non-U.S. "financial accounts" exceeds US$10,000 (even if it does so for less than a day during the year in question).

Even before the question as to how non-willful FBAR penalties are determined is taken into account, FBARs have become infamous recently – again, to those who know what they are (which some have only discovered after being hit with penalties for failing to file them) – because of what some critics regard as their unfairly high penalties, and the low (US$10,000) minimum amount necessary to trigger the need to file an FBAR, which has been unchanged since 1970.

Throw in clear inconsistencies by various U.S. district courts that have ruled on the question as to whether non-willful FBAR penalties should be determined on a per-form or per-account basis, and what appears to be a growing chorus of calls for Supreme Court involvement becomes understandable. 

A taxpayer like Bittner, for example, is never going to accept a court's conclusion that his penalties are to be determined by the number of financial accounts they held at the time they were found to have failed to file the requisite FBAR, rather than just on the number of years that they failed to file, if a district court in a different jurisdiction takes the opposite – and far less harsh – position, when ruling on an essentially identical FBAR matter involving someone else, lawyers and others say.  

Bittner's case focused on five years' worth of un-filed FBARs. The IRS assessed penalties of US$2.72 million against Bittner, on the basis that he had 272 reportable accounts over that five-year period. Bittner contended that not all of those accounts were reportable, but conceded that 177 accounts were, forming the basis of the US$1.77 million penalty, according to a spokesperson for his legal team.  

As was pointed out in 2020, if Bittner's FBAR penalties were to be assigned on the per-year basis, with an annual cap of US$10,000 per year, his bill for FBAR violations during the years in question (2007 through 2010) would total just US$40,000 for these 177 overseas accounts, rather than the US$1.77m (see table below, from court documents)  he'd be deemed to owe, if calculated on a per-form basis.

US govts claim of penalties against Mr Bittner 2007 2010

As noted in that 2020 report, advocates of the per-form non-willful penalty approach have pointed out that this and other data from the Bittner archives make clear why Bittner would have felt that the U.S. government's initial demand, for US$3m in civil, non-willful FBAR penalties, was excessive, given that his amended tax returns for the years in question totaled only US$625 in unpaid taxes.

(Another element of the Bittner case involves the fact that the majority of the bank accounts in question were not his own personal accounts, but accounts owned by corporations that he owned stock in. The problem for Bittner is that taxpayers who own more than 50% of a corporation's stock are obliged to file FBARs for these corporations' bank accounts as well.) 

Started out as immigrant
'dishwasher and plumber'

According to the court documents, Bittner is a Romanian-American dual citizen who worked "as a dishwasher and plumber" after moving to the U.S. in 1982, before becoming a naturalized American "in 1987 or 1988", and then moving back to Romania in 1990, where he lived until 2011, without having renounced his American citizenship. He was last known to be living in Texas.

Amicus brief on penalty amounts

A measure of the interest in the confusion surrounding FBAR penalities may be seen in the fact that the American College of Tax Counsel (ACTC), a non-profit organization of tax lawyers in private practice, law school-teaching positions and government, filed a "friend of the court” brief in connection with another, also closely-watched FBAR case in November, 2019.

In its amicus brief, the ACTC said the US$10,000 “non-willful” FBAR penalty should be applied “per year” (and/or “per FBAR”) – and not per account. 

As for whether the Supreme Court is likely to agree to address the non-willful penalty matter, at least one FBAR expert thinks there are good reasons why this time, it just might. 

While it's not unusual for circuit courts around the U.S. to disagree ("split") on a matter in the way that the Ninth and Fifth Circuit courts recently have over FBAR penalties, "there may be some factors at play here that might cause the Supreme Court to exercise discretionary review here," says Jack Townsend, a Charlottesville, Virginia-based tax expert, who writes a blog for other tax law practitioners on such topics as FBARs.

"First, although the split involves an FBAR issue rather than a tax issue, the court may view the issue as related to taxes, and thus treat it as a tax issue, for its informal quota of tax cases that it accepts over time.

"The court seems to accept perhaps three to five tax cases each year. This case could meet that need.

"Second, this is probably as good a 'tax' case for the court to accept as it could expect to get – one with a binary choice, without really any compelling need to make one choice (per form) or the other (per account). Any choice is not that bad, so long as a single choice is made, so that taxpayers across the country are treated the same.

"In other words, in my view, the Supreme Court can do no major damage with either choice. 

Third, it has been a long time since the Supreme Court accepted an FBAR case. With the FBAR civil penalty now being widely litigated and discussed, it would give the court an opportunity to provide guidance, without messing things up too badly.

"Finally, in making the binary choice here, the court will not have to drain its resources (and limits) in this tax-related area, since making this choice shouldn't really be that hard."

 

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