Do you file the FBAR? A few weeks ago, the United States Supreme Court handed down an important judgment… It didn’t make many headlines…
You won’t have seen it on the front page of most newspapers… unlike other controversial Supreme Court cases, like the Dobbs decision on abortion last year, or the case against the Biden administration’s student debt forgiveness scheme.
But, for American taxpayers who live and work overseas, the ruling in Bittner v. United States is a big deal…
The case involved one Alexandru Bittner, who holds both U.S. and Romanian citizenship.
He immigrated to the States in the 1980s and obtained U.S. citizenship, but moved back to Romania in 1990.
In the following two decades, Bittner made more than US$70 million from investments, including real estate and securities.
He held multiple foreign bank accounts… But as a U.S. citizen, he could not escape his U.S. tax obligations, even though he lived abroad (and held dual citizenship).
Now, this should set alarm bells going in your brain, dear reader.
Let’s say a U.S. person holds US$10,000 in a foreign bank account (or across multiple accounts) at any point during the calendar year, he’s required to report that money by filing an FBAR (Foreign Bank and Financial Accounts form)…
Failure to report can mean big penalties
Originally, the FBAR law (which dates to 1970) was only meant to penalize “willful” violations—in other words, if you purposefully do not report the account information.
But in 2004, Congress amended the law so it also included “non-willful” violations. So, you could be punished even if you only accidentally failed to report.
The penalty for willful failure to report is US$100,000, while a non-willful failure carries just a US$10,000 fine…
Bittner claimed not to know about the filing requirement and did not file any FBARs until 2012.
The IRS accepted that Bittner did not know about the filing requirements and therefore his violations were “non-willful.”
However, they still slapped a gigantic fine on him: a total of US$2,720,000.
This was a very simple calculation by the IRS: Bittner had made 272 separate violations of the law, since he failed to report 272 accounts between 2007 and 2011. (Bittner’s failures to file prior to 2007 were not counted, thanks to the statute of limitations.)
US$10,000 multiplied by 272 equals US$2.72 million.
Bittner objected (who wouldn’t) and took the case as far as the Supreme Court…
Start Your New Life Today, Overseas
Was It 5 Violations—Or 272?
Bittner argued that the penalty, as written in the law, applies to each failure to file an FBAR, not to each account…
So, even if he owned 177 foreign bank accounts (the number he admitted to) between 2007 and 2011, with more than US$10,000 in them… the number of accounts didn’t matter.
You only have to file one FBAR per year—not one per foreign bank account.
So, Bittner argued he should be penalized five times over—one for each year he failed to file an FBAR—not hundreds of times over, for each account he failed to report…
He argued, essentially, he should be punished for the five forms he failed to fill out, not the hundreds of accounts he failed to report…
Five times US$10,000 is of course a much smaller amount to have to pay…
Good News For Taxpayers (For Once)
In a 5 to 4 ruling on Feb. 28, the Supreme Court sided with Bittner: The US$10,000 penalty applies per failure to file an FBAR, not per foreign account.
So, American expat groups around the globe celebrated the decision…
It’s good news for people with offshore bank accounts… and really for all taxpayers, I think, as it’s a slap on the wrist for the IRS.
The IRS approach to raising money through excessive penalties isn’t on solid ground.
At a minimum, it’s a good thing for people who are simply unaware of the FBAR filing requirements who get caught up in these things…
My own personal view is that the IRS will decide from now on that all violations are “willful” and seek the maximum US$100,000 penalty.
But Alex Bittner just saved himself US$2.67 million by taking his fight to the highest court in the land…
Good for Alex.
Stay diversified,
Lief Simon
Editor, Simon Letter
