United States: Non-Willful, Per-Form Penalties Suffer A Bittner Fate: Supreme Court Resolves FBAR Penalty Dispute

The Supreme Court has released its 5–4 decision in Bittner v. United States, No. 21-1195, holding that the Bank Secrecy Act's penalty for non-willful failure to file a Report of Foreign Bank and Financial Accounts (FBAR) applies on a per-form basis—and not on a per-account basis, as argued by the government.

The decision released on February 28, 2023, resolves the split existing between the Fifth and Ninth Circuits following the Fifth Circuit's holding in United States v. Bittner, 19 F.4th 734 (5th Cir. Nov. 30, 2021), which held that penalties for non-willful failures to report foreign bank accounts should apply to each unreported bank account. That decision directly conflicted with the March 2021 decision of the Ninth Circuit in United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021), applying non-willful FBAR penalties to each failure to file an annual FBAR.

Under U.S.C. § 5321(a)(5)(A), the Bank Secrecy Act authorizes the imposition of a civil penalty of up to $10,000 for any "violation" of § 5314. Whereas § 5314 addresses FBAR filing requirements and the type of information to be required within filed reports, the definition of "violation" and the basis pursuant to which penalties may be assessed, remained unclear prior to the Supreme Court's decision.

The Bittner case emanated from a Romanian businessman's failure to report his interests in foreign bank accounts, as required by the Bank Secrecy Act. The U.S. District Court for the Eastern District of Texas assessed penalties of $50,000 on a per-report basis. The Fifth Circuit, however, concluded that the district court wrongly applied 31 U.S.C. § 5314 and found that a violation is triggered for each failure to report an account—thereby resulting in the steeper penalty of $2.72 million.

The Bittner decision provides resolution to interpretation of statutory language, whereas the alternative interpretation of applying penalties on a per-account basis could result in additional penalties (i.e., millions of dollars, in the case of Bittner). Taxpayers with FBAR filing requirements should consider the significance of Bittner to the potential computation of penalties and the extent to which refund claims may be appropriate.

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