On February 28, 2023, the U.S. Supreme Court issued a groundbreaking decision in the case of Alexandru Bittner v. United States (No. 21-1195), holding that the penalty for a non-willful failure to file a Report of Foreign Bank and Financial Accounts (FBAR) applies on a per-report basis, and not on a per-account basis. In reaching its conclusion, the Court adopted the position advocated by the American College of Tax Counsel (ACTC) in an amicus brief filed by Kostelanetz attorneys Caroline D. Ciraolo, Megan L. Brackney, Caroline Rule, and Garrett L. Brodeur, with the support of paralegals David Taylor, Beatriz Oliveira, Liz Grant, Ashley Morales, and Jas Singh.
Alexandru Bittner is a dual Romanian-U.S. citizen who failed to file FBARs regarding his interests in several foreign financial accounts. Under the Bank Secrecy Act (BSA), U.S. persons are required to annually report their financial interests in or authority over foreign financial accounts, and a non-willful failure to accurately do so results in a maximum penalty of $10,000 under the statute. The government imposed a $2.72 million penalty on Bittner for his non-willful failure to report his interests in 272 accounts over a five-year period. Bittner challenged the amount of the penalty on the grounds that the penalty applied per FBAR, not per account, and therefore was limited to $50,000. While the district court agreed with Bittner, the Fifth Circuit reversed, holding that the penalty applied on a per-account basis, United States v. Bittner, 19 F.4th 734 (5th Cir. 2021), creating a split with the Ninth Circuit, which held in United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021), that the failure to file an annual FBAR constitutes a single violation, “no matter the number of accounts.”
As a result of the circuit split, the Internal Revenue Service took the position that the calculation of non-willful FBAR penalties turned on the U.S. person’s geographic location.
The U.S. Supreme Court granted Bittner’s petition for certiorari on June 21, 2022, to resolve the issue of whether a non-willful “violation” of the BSA’s reporting requirements is the failure to file an annual FBAR (no matter the number of foreign accounts) (“per form” approach) or the failure to report an individual account on the FBAR (“per account” approach).
Kostelanetz’s brief on behalf of the ACTC was cited by both of the Court’s majority and dissenting opinions. Justice Gorsuch, writing for the majority, credited the ACTC for identifying incongruities in the treatment of similarly situated filers due to certain regulatory provisions that relieve account holders with more than 25 foreign financial accounts from the obligation to provide account details. [Gorsuch, J., Opinion of the Court, p. 13]. Justice Barrett, writing for the dissenting justices, also credited the ACTC’s brief for highlighting important information in the IRS’s past administrative guidance documents. [Barrett, J., dissenting, p. 8]
