The Tax Times: 3 Groups Urge Supreme Court To Review Non-Willful FBAR Penalty

According to Law360, whether a foreign bank account reporting penalty is assessed Per Unreported Account or Per Unfiled Form should be determined by the U.S. Supreme Court, tax and business groups said, arguing a circuit split on the issue warrants high court intervention.

In amicus briefs filed on April 1, 2022, the U.S. Chamber of Commerce, Center for Taxpayer Rights and American College of Tax Counsel told the Supreme Court it should resolve the divergent findings by two appeals courts on the proper application of the penalty for a person or business' nonwillful failure to disclose foreign accounts.

While the Ninth Circuit determined that the penalty for a person's nonwillful failure to disclose foreign accounts is assessed on a per-year basis, the Fifth Circuit found in Alexandru Bittner's case that he was liable for the penalty for each account that he failed to disclose.

This Circuit Split, Plus Some Differing Conclusions Arrived To By Several District Courts On The Issue, Creates Significant Uncertainty For Taxpayers And Can Only Be Fixed By The Supreme Court, The Three Groups Argued.

"The arguments for these conflicting interpretations have been fully aired, and further percolation would only allow uncertainty to continue to be a drain on our economy," the chamber said in its brief. "There is no good reason to delay review."

The American College of Tax Counsel likewise noted that "the lower courts have thoroughly analyzed this issue." "Waiting for further decisions will only add to the uncertainty," the ACTC's brief said. "In light of the diametrically opposed and irreconcilable positions taken, there is a clear need for the court to step into the fray."

The three tax and business groups filed their briefs in Bittner's dispute over the correct application of the maximum penalty for nonwillful failures to timely file FBAR forms, an issue that has divided the Fifth and Ninth Circuits and district courts in New Jersey and Connecticut. Anyone who has foreign bank accounts with balances exceeding $10,000 is required to file a single form disclosing the accounts, and that filing is due April 15 the year following the calendar year being disclosed.

Bittner, a Texas resident with citizenship in Romania, had been assessed $2.7 million in penalties in 2017. The Internal Revenue Service sued him in 2019 seeking to collect the funds, but a Texas federal judge ruled that Bittner was liable for nonwillful penalties at a $10,000 maximum per year and rejected the government's argument that he should be on the hook for a penalty per account.

The Fifth Circuit disagreed, though, saying in its November opinion that the penalty applied for each failure to file an annual FBAR was inconsistent with the Bank Secrecy Act, which requires the disclosures, and its corresponding regulations. That decision departed from one by the Ninth Circuit in U.S. v. Jane Boyd, which found that Boyd committed a single violation in failing to file an FBAR reporting her accounts, making her liable for a $10,000 penalty rather than a $50,000 sum for each of her five accounts.

In Their Three Briefs, The Chamber, Center And ACTC Told
The Supreme Court That The Lack Of Uniformity

In The Application Of This Penalty Has Negative
Consequences For Taxpayers And For Business Conditions.

Both the chamber and center said in their briefs that the Fifth Circuit's decision has "draconian" results, as it can result in harsh penalty amounts with no direct connection to the harm done to the government by a person's unintentional failure to file an FBAR.

"Imposing the nonwillful FBAR penalty 'per-account,' as endorsed by the Fifth Circuit, renders this penalty regime draconian, disproportionately affecting groups of taxpayers for reasons entirely unrelated to their offending conduct," the center said.

"The amicus briefs reflect the views of every major stakeholder affected by this issue, including corporations, experts and scholars, consumers and practitioners," Geyser said. "Those briefs deftly underscore the immediate need to correct the IRS' overreach and restore national consistency on this important question."

ACTC representative Caroline D. Ciraolo of Kostelanetz & Fink LLP said it's "hopeful that the court will grant the petition."

"As we noted in our brief, U.S. persons are entitled to clear, unambiguous and reasonable interpretations of penalty statutes," Ciraolo said Monday.

Have an FBAR Penalty Problem?