The Supreme Court recently ruled in Bittner vs. United States that federal law prescribes that maximum penalties for the non-willful failure to file a report are calculated per report, not per account. In Bittner, the Court was tasked with interpreting the Bank Secrecy Act (the “Act”) and its effect on taxpayers who fail to file a Report of Foreign Bank and Financial Accounts, or FBAR. The Court’s holding significantly affects U.S. taxpayers who fail to disclose offshore financial accounts.
The Bank Secrecy Act requires U.S. persons with an interest in or authority with respect to a foreign bank or financial account with a balance in excess of $10,000 at any time during the year to disclose the existence and balance of these accounts to the Internal Revenue Service (IRS). Individuals must disclose this information in an FBAR. You do not use an FBAR to report a tax liability, only your interests in these accounts. Substantial fines and penalties exist if you fail to timely and correctly file an FBAR form.
If you have been assessed a penalty by the IRS for the failure to file an FBAR, call the Tax Professionals at the Thorgood Law Firm at 212-490-0704 to schedule a FREE consultation. We can answer your questions and discuss your options. Explore financial relief and gain peace of mind with an experienced Tax Professional!
What are the Penalties for Failing to File an FBAR?
Civil penalties differ, based on whether the failure to file the FBAR is “non-willful” or “willful.” For a non-willful violation, the statute indicates that Federal law may impose a monetary penalty of $10,000 on the taxpayer. Penalties are higher for a willful violation and are calculated as either the greater of (a) $100,000 per violation, or (b) 50% of the account balance.
The IRS has traditionally taken the position that penalties for a non-willful violation are computed as $10,000 penalty for each unreported offshore bank account. Based on this argument, a taxpayer who failed to file one FBAR but had eight different accounts would receive a substantial fine for each of the eight unreported accounts. Taxpayers, including Bittner, have argued that failing to file the FBAR itself constitutes a single $10,000 penalty.
In Bittner, the IRS assessed a $2,72 million penalty against Bittner for non-willful violations over five years. The penalty was based on the IRS calculating the penalties “per account” and Bittner had 25 accounts. Bittner argued that the IRS should assess the penalty as $10,000 for each year ($50,000 for five years) he failed to file the FBAR.
The Issue in Bittner
In Bittner vs. United States, the Supreme Court considered and answered the question “Does the federal Bank Secrecy Act require the IRS to assess $10,000 penalties for non-willful violations per report or per account?”
The Ruling in Bittner
The court ruled 5-4 in favor of Bittner, holding that non-willful penalties under the Bank Secrecy Act only apply to each unfiled FBAR rather than each account for which no FBAR is filed. In other words, the IRS must apply the penalty on a per-report basis rather than a per-account basis. To Bittner, this ruling saved him over $2.6 million since it meant the proper penalty was $50,000 rather than $2.7 million. While the court interpreted the language of the statute to mean per-report, it also found that a $50,000 penalty for a non-willful violation (in the absence of intent) made much more sense than a $2.7 million penalty.
How Does the Bittner Ruling Affect Taxpayers?
The court’s decision in Bittner only addresses non-willful penalties for the failure to file an FBAR. Taxpayers subject to FBAR reporting requirements who “non-willfully” fail to meet the requirement to file FBARs no longer have to worry about significant penalties for their unintentional omissions. If a taxpayer has eight accounts for which they are required to file one FBAR, the taxpayer will receive a single $10,000 penalty rather than multiple penalties based on eight violations.
One of the bases the Court used to decide that the IRS must impose non-willful penalties on a per-report basis was the absence of the word “account” anywhere in the language of the Bank Secrecy Act’s non-willful statute. However, as noted by Justice Gorsuch, the language of the Act’s provisions regarding willful penalties specifically references an “account” in assessing penalties. Justice Gorsuch went on to say that “the statute does so only for a certain category of cases that involve willful violations, not for cases like ours that involve only non-willful violations.” Yet, the statute‘s reference to “account” makes no connection to the $100,000 penalty formulation under the willful penalty statute.
Any taxpayers who recently paid a non-willful penalty the IRS assessed per account very likely paid penalties in excess of the penalty the IRS should have per report. In this situation, the taxpayer may be eligible for a refund. A tax professional can help you determine the correct penalty and determine if you are eligible for a refund.
Talk to a Qualified Tax Professional!
If you live in New York or the Tri-State area and have any questions or issues related to FBARS, or any other tax-related issue, call 212-490-0704 today for a FREE consultation. You can also learn more online here – THE TAX EXPERTS. We can help you plan now to save on your 2023 tax bill!
