The Supreme Court has docketed Bittner v. U.S. for its fall calendar, setting it to resolve a split between the Fifth Circuit and the Ninth Circuit on the penalty for violation of the Report of Foreign Bank and Financial Accounts, or FBAR, filing requirement.
At issue is whether the Bank Secrecy Act of 1970 intended to establish the penalty for non-willful failure to disclose a foreign account on a per-account or a per-FBAR form basis.
The BSA tasked the Treasury with collecting information from U.S. persons who have financial interests in or signature authority over financial accounts maintained with financial institutions located outside the U.S. The act requires that a FinCEN Form 114, “Report of Foreign Bank and Financial Accounts (FBAR),” be filed if the aggregate maximum values of the foreign financial accounts exceed $10,000 at any time during the calendar year. In April 2003, the Treasury’s Financial Crimes and Enforcement Network (FinCEN) delegated enforcement authority regarding the FBAR to the Internal Revenue Service.
Although only willful violations were initially subject to penalty, Congress amended the act in 2004 to include penalties for non-willful violations, according to Clark Hill member Rachael Rubenstein, who argued the Bittner case in the district court and the Fifth Circuit Court of Appeals.
The question presented is whether a violation under the act is 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.
Rubenstein summarized the facts in her petition to the court: Alexandru Bittner was born in Romania in 1957, immigrated to the United States in 1982, and became a citizen in 1987. He returned to Romania in 1990, where he became a successful businessman and investor. He lived there for over 20 years, and was unaware that as a U.S. citizen he was required to file U.S. income tax returns, or of his duty to file FBARs.
After returning to the U.S. in 2011, he engaged an accountant to prepare and file the returns and the FBAR reports. The IRS determined that he failed to timely file FBARs for five years (2007-2011), and concluded that Bittner’s delinquency was non-willful, but still sought to impose a maximum penalty. It asserted that he had violated the act 272 times — once for each account that was not reported in each of the five years, finding him liable for a combined penalty of $2.72 million. The district court, on cross-motions for summary judgment, determined that the IRS’s penalty assessment was unlawful and the proper amount was capped at $50,000, or $10,000 for each annual FBAR form. The Fifth Circuit reversed, finding that the penalty applied on a per-account basis.
In the Boyd case, the Ninth Circuit was faced with the same issue, Rubenstein remarked: “They reversed a lower court opinion which held against the taxpayer. They held that the penalty applies on a per-form basis, not on a per-account basis. The Ninth Circuit decided this at the same time our Fifth Circuit appeal was pending.”
The punitive nature of the penalty makes it unlikely that Congress intended the interpretation offered by the government in the initial legislation, Rubenstein believes.
“The government interpretation of the statute is not rationally focused on the text of the statute or its history,” she said. “Prior to 2004 Congress did not impose any penalties at all for BSA violations related to FBAR. Why would Congress intend non-willful behavior to be punished so severely?”
