BREAKING NEWS: Supreme Court Rejects the Government's Aggressive FBAR Argument; FBAR Nonwillful Penalties Apply Per Form.
By Jeffrey M. Glassman on February 28, 2023
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Jeffrey M. Glassman
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When a taxpayer omits a foreign account from an FBAR form and that omission is nonwillful, federal law can still impose a steep monetary penalty. Originally that penalty was capped at $10,000, but the law requires that the maximum penalty be inflation-adjusted each year. Currently, the maximum nonwillful penalty is $15,611.
The government has recently taken the position that the nonwillful penalty should apply separately for each foreign account that is omitted from an FBAR form. Under that line of reasoning, penalties can add up fast. Say a taxpayer nonwillfully omitted five foreign bank accounts from two years of FBAR filings. If so, the government could impose cumulative penalties of $156,110 ($15,611 * 5 accounts * 2 years), rather than penalties of $35,222 ($15,611 * 2 years) if the penalty were to apply per FBAR form.
In Bittner v. United States (link), Mr. Bittner, a dual citizen of Romania and the United States, was charged millions of dollars of FBAR nonwillful penalties mostly attributable to the government’s aggressive application of penalties on a per-account basis . Mr. Bittner had only learned of his FBAR filing obligations after returning to the United States from Romania, where he was born and spent most of his adult life. Shortly after returning to the United States, Mr. Bittner filed the delinquent FBAR forms but nonwillfully omitted 272 accounts across five years of FBARs. When the government found the delinquent FBARs to be deficient, Mr. Bittner voluntarily filed corrected FBAR forms. The government, in turn, determined that Mr. Bittner was still liable for a $10,000 penalty per account and sent Mr. Bittner a bill for $2.72 million dollars. Mr. Bittner challenged the penalties in court and argued that he could be billed only $10,000 per FBAR form (i.e., a maximum of $50,000). Fortunately, after losing in the lower courts, just today the Supreme Court determined that Mr. Bittner was right: The law allows only one nonwillful penalty to be charged per FBAR form—not per account—and reduced Mr. Bittner’s tax bill to $50,000.
So, what happens now for taxpayers who may have paid FBAR nonwillful penalties based on the government’s now decidedly incorrect view that the penalties should apply per omitted account? Those taxpayers should consider whether they may be able to claim a refund from the IRS. And they may need to act quickly as there are generally strict limitations regarding when those claims must be filed.
If you have any questions about this article or any other tax matter, please contact me at 214-749-2417 or jglassman@meadowscollier.com.
The government has recently taken the position that the nonwillful penalty should apply separately for each foreign account that is omitted from an FBAR form. Under that line of reasoning, penalties can add up fast. Say a taxpayer nonwillfully omitted five foreign bank accounts from two years of FBAR filings. If so, the government could impose cumulative penalties of $156,110 ($15,611 * 5 accounts * 2 years), rather than penalties of $35,222 ($15,611 * 2 years) if the penalty were to apply per FBAR form.
In Bittner v. United States (link), Mr. Bittner, a dual citizen of Romania and the United States, was charged millions of dollars of FBAR nonwillful penalties mostly attributable to the government’s aggressive application of penalties on a per-account basis . Mr. Bittner had only learned of his FBAR filing obligations after returning to the United States from Romania, where he was born and spent most of his adult life. Shortly after returning to the United States, Mr. Bittner filed the delinquent FBAR forms but nonwillfully omitted 272 accounts across five years of FBARs. When the government found the delinquent FBARs to be deficient, Mr. Bittner voluntarily filed corrected FBAR forms. The government, in turn, determined that Mr. Bittner was still liable for a $10,000 penalty per account and sent Mr. Bittner a bill for $2.72 million dollars. Mr. Bittner challenged the penalties in court and argued that he could be billed only $10,000 per FBAR form (i.e., a maximum of $50,000). Fortunately, after losing in the lower courts, just today the Supreme Court determined that Mr. Bittner was right: The law allows only one nonwillful penalty to be charged per FBAR form—not per account—and reduced Mr. Bittner’s tax bill to $50,000.
So, what happens now for taxpayers who may have paid FBAR nonwillful penalties based on the government’s now decidedly incorrect view that the penalties should apply per omitted account? Those taxpayers should consider whether they may be able to claim a refund from the IRS. And they may need to act quickly as there are generally strict limitations regarding when those claims must be filed.
If you have any questions about this article or any other tax matter, please contact me at 214-749-2417 or jglassman@meadowscollier.com.
