Introduction
Suggest #Americansabroad comment on this article at @TaxConnectons: "How Will The U.S. Supreme Court Rule On This #FBAR Penalty Case?" FYI – Mr. Bittner was a US Citizen Abroad for the years he was awarded penalties on a "per account basis" 2.7 penalty! https://t.co/OBN3P2LbCx
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) November 4, 2022
On November 2, 2022 the Supreme Court of the United States heard the appeal in the case of:
ALEXANDRU BITTNER, Petitioner, v. UNITED STATES, Respondent
On November 2, 2022 the Supreme Court Of The United States heard the Bittner case. The issue was whether in the context of a non-willful FBAR penalty:
1) The government is restricted to imposing one penalty based on the failure to file one FBAR; or
2) The government is authorized to impose one non-willful penalty for each of the accounts that should have been reported on the single FBAR form.
For example, let’s imagine that a US citizen has ten accounts that are “foreign” and he fails to file an FBAR form. Is the penalty based on the failure to file the form itself (one form means one $10,000 penalty)? Or may the government impose a penalty based on the failure to disclose each of the accounts on the FBAR form (10 times $10,000 = $100,000)?
Mr. Bitter is/was a dual US Romanian citizen who was living in Romania during the years that the FBAR penalties were imposed. According to the closing comments of his lawyer, Mr. Bittner (while living in Romania) had filed US tax returns for years that he had a business connection to the United States (apparently investing in a relative’s business in California). In other words, there is some evidence that Mr. Bittner was not fully aware that as a US citizen, his US tax and reporting obligations applied even when he did not live in the United States. In any case, Mr. Bitter argues that he should have received one $10,000 penalty for each of the five years ($50,000). The government imposed penalties of 2.7 million dollars based on a failure to report 52 accounts.
On Wednesday November 2, 2022 the Supreme Court of the United States heard argument on the “per account vs. per form” issue.
A transcript of the arguments is here:
http://citizenshipsolutions.ca/wp-content/uploads/2022/11/21-1195_5i36.pdf
A post describing the background and some initial discussion is here.
The briefs are available here.
Purpose of this post
The purpose of this post is to identify the questions and dialogue with counsel that suggest which areas the Justices found most important, interesting and troubling. Although one cannot predict the outcome, the dialogue suggests the following three broad themes and areas of concern:
First: Many of the Justices had difficulty agreeing (based on the plain text of 5314) with the Government’s claim that it can impose a separate FBAR penalty based on and only on a failure to report each account. Justices Jackson, Gorsuch and Thomas appeared to be the strongest advocates of this position. (Justices Kagan and Sotomayor comprised the most vocal opposition.)
JR Comment: The issue is whether the Justices will decide the case based on what the statute actually says (which favors the per account interpretation) or based on what they think Congress “might have intended” in the complete legislative scheme. The legal arguments for the “per form” penalty were compelling.
Second: A number of the Justices were clearly troubled by the their view that the “per form” penalty would mean that all non-willful FBAR penalty violators would be assessed penalties based on the “form”. Basing the penalty on and only on single form, would mean that a $10,000 penalty would be the maximum non-willful penalty regardless of the facts. Should a person who fails to report one simple checking account be assessed the same penalty as someone with millions of dollars and multiple accounts? Justices Roberts and Kagan seemed particularly focussed on this issue. (See the audio clip of Justice Roberts below.)
JR Comment: Interestingly the hearing did not discuss (in the question and answer) that non-willful violators can be assessed ZERO penalties. My impression was that the argument proceeded on the basis that the $10,000 penalty was the default penalty for the failure either file the form or report the account. The default penalty is NOT $10,000. The language of 5321(1)((5) includes: “Except as provided in subparagraph (C), the amount of any civil penalty imposed under subparagraph (A) shall not exceed $10,000. Neither the assessment of penalties NOR the $10,000 penalty is automatically assessed. My point is that the statute does allow for the calibration of penalties based on the facts of the case.
Third: The court expressed concern over whether “reasonable cause” really was a defence to a civil non-willful penalty assessment. Presumably if “reasonable cause” were a defence, it would serve the purpose of appropriately calibrating penalties. See the clips of Justices Alito, Gorsuch and Jackson below. The concern appeared to be: Does the “reasonable cause” defence work in practical application?
JR Comment: Does the existence of “reasonable cause” make it easier for the Justices to rule that a “per account” penalty may be permitted? Alternatively were the Justices simply concerned by the draconian potential of the penalties?
These are the three “pieces of the puzzle” that I expect will inform the decision.
The complete audio of the hearing is available here:
And a version from C-span (that picks up the audio from some protestors) is here:
https://www.c-span.org/video/?523324-1/bittner-v-united-states-oral-argument
I have included the statutory provision as *Appendix A below.
I have included the regulations as **Appendix B below.