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FBAR penalty – A welcomed decision by the Supreme Court

Mar 14, 2023

On Feb. 28, 2023, the U.S. Supreme Court ruled in the case of Bittner v. United States1 that the non‑willful penalty for failure to file the Foreign Bank and Financial Accounts (FBAR) report was on a per report basis, not per account basis.

The petitioner

When Alexandru Bittner, a dual citizen of Romania and the United States, returned from Romania in 2011 he learned of his FBAR reporting obligations. Subsequently, he submitted the required annual reports covering 2007 through 2011. The government informed him the annual FBARs were deficient ⁠–⁠ missing 25 or more of his foreign accounts. Mr. Bittner filed corrected FBARs providing detailed information for all of his foreign accounts for the years in question.

With five late‑filed FBAR reports from 2007 to 2011, Mr. Bittner assumed the maximum non‑willful penalty would be $50,000, calculated as a $10,000 penalty for each FBAR report not accurately or timely reported. The government, however, took the view that non‑willful penalties apply to each account not accurately or timely reported. As such, Mr. Bittner’s late‑filed reports for the years in question collectively involved 272 accounts, resulting in a staggering assessment of $2.72 million in penalties.

Mr. Bittner successfully appealed the interpretation of the penalty provision to the district court, but this was overturned by the U.S. Court of Appeals for the Fifth Circuit,2 confirming the government’s interpretation of the provision.

Difference of opinion

The Fifth Circuit’s ruling contrasts with the Ninth Circuit’s ruling in United States v. Boyd,3 where the court ruled to apply “only one non‑willful penalty when an untimely, but accurate, FBAR is filed, no matter the number of accounts.”4

With conflicting interpretations between the Fifth Circuit (penalty per account) and Ninth Circuit (penalty per report), the Supreme Court reviewed Mr. Bittner’s case.

Supreme Court ruling

In a 5‑4 decision, the Supreme Court concluded the non‑willful penalty under 31 U.S.C. §§5321(a)(5)(A) and (B)(i) pegs the quantity of penalties to the quantity of violations and does not speak in terms of accounts. The court’s decision seemed to focus on the different legislative wording used between willful and non‑willful penalties. The wording for willful violations in §5321(a)(5)(D)(ii) makes specific reference to accounts, which is absent in the wording for non‑willful penalties.

The court commented that “when Congress includes particular language in one section of a statute but omits it from a neighbor, we normally understand that difference in language to convey a difference in meaning.” From this observation, along with other reasons, the Court ruled “the BSA5 treats the failure to file a legally compliant report as one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per‑account basis.”

Welcomed decision

This is a welcomed decision for U.S. taxpayers who are potentially facing non‑willful penalties for late or inaccurate FBAR reports. While a $10,000 penalty per report violation is still significant, it can be substantially less than a per account penalty, which could amount to millions of dollars.

At Baker Tilly Canada, our cross‑border tax specialists can provide expert insight and guidance on the intricacies and nuances relating to FBAR and a range of other U.S. taxation rules.