Updates & Other Tidbits
|06 April 2023
|Government, Public Sector, Real Estate and Construction, Tax, Inward/ Foreign Investment, Real Estate, Tax Treaties
|Mr Michael Bennett and Wooyoung Lee
TAXPAYER F.B.A.R. VICTORIES
The Bank Secrecy Act ("B.S.A.") requires U. S. persons with certain financial interests in foreign accounts to file an annual report known as an "F.B.A.R.," which is embodied in FinCEN Form 114 (Report of Foreign Bank and Financial Accounts). Two February decisions provided welcomed news to F.B.A.R. non-filers.
Penalties Assessed Per Report
In a 5-4 split decision, the U.S. Supreme Court held in Bittner v. U.S. 1 that non-willful F.B.A.R. violations apply on a per-report basis, not a per-account basis, significantly reducing potential penalties.
The petitioner was a dual citizen of Romania and the U.S. He returned to Romania in the 1990's where he launched a successful business career. Like many dual citizens, he was unaware that the U.S. required its citizens to report their overseas financial accounts even while living abroad. After returning to the U.S. in 2011, he learned of his reporting obligations and prepared the required F.B.A.R. forms. Upon review, the government asserted the reports neglected to address more than 25 of his accounts.
Section 5314 of the B.S.A. requires individuals to file reports related to foreign accounts. Section 5312 authorizes the Secretary of the Treasury to impose a penalty of up to $10,000 for violations of '5314. The government assessed a $2.72 million penalty for nonwillfully failing 272 time to report accounts over a five-year period (on average, 54.4 accounts x $10,000 each x 5 years = $2.72 million). The petitioner challenged the government's assessment arguing the penalty should apply per report, not per account.
Initially, the U.S. Federal District Court ruled for the petitioner,2 but the Fifth Circuit Court of Appeals reversed3 and upheld the government's assessment creating a split among the U.S. Federal Circuit Courts of Appeal.4 The Supreme Court granted certiorari in order to resolve the conflict, and held in favor of the petitioner.
The Court observed that the nonwillful penalties under 31 U. S. C. ' '5321 do not speak in terms of accounts. The government insisted that since Congress explicitly authorized per-account penalties for some willful violations, the Court should infer that Congress meant to do so for analogous nonwillful violations. The Court rejected the argument and stated that if Congress intended to subject nonwillful violations to penalties on a per-account basis, it should have explicitly done so like it had with similar provisions. The Court further observed that previously issued guidance repeatedly seemed to inform the public that the failure to file a report represents a single violation exposing a nonwillful violator to one $10,000 penalty. In particular, the Court stated in n.5:
Our point is not that the administrative guidance is controlling. Nor is it that the government's guidance documents have consistently endorsed Mr. Bittner's reading of the law. It is simply that, when the government (or any litigant) speaks out of both sides of its mouth...
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