Here is the audio recording of the November 2, 2022 Bittner FBAR hearing …
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.
The above podcast contains the audio file of the live arguments.
A transcript of the arguments is here:
A recording from C-span is here:
The following twitter thread reflects my impressions while listening to the arguments …
Earlier podcasts discussing this case are included as an *Appendix to this post.
Some (not quite) random thoughts – two ships passing in the night
I once heard it said that two great lawyers arguing the opposite position in a case are like “two ships passing the night”. The arguments made by the lawyer for Bitter and the the lawyer for the United States of America qualify.
The lawyer for Mr. Bittner was arguing his case based on what the FBAR statute and regulations seem to say.
The lawyer for the United States was arguing that (almost regardless of what the statute says) that the FBAR law should be interpreted to be a general authorization to punish those who engage in all things foreign.
A simple minded interpretation? Perhaps. But, somebody has to view the issue in simple terms.
A. Bittner’s argument for a per form penalty – The per account penalty is not authorized as a matter of law. This may be concluded from a reading of the statute, the regulations and how the statutes and regulations interact.
B. The United States argument for a per account penalty – The per account penalty is not restricted by the law. This may be concluded by understanding the overall purpose of the civil FBAR statute which should be understood to be a “roaming penalty provision at large”.
The FBAR penalties imposed on Mr. Bittner were based on years when he was a US citizen living outside the United States in Romania. Therefore, this decision is hugely important for the community of Americans abroad.
For US citizens living outside the United States almost all of their bank and financial accounts are foreign to the United States. The vast majority of Americans abroad (because their financial lives are foreign to the United States) do have an FBAR obligation. The US Treasury has the statutory authority to exempt Americans abroad from the FBAR requirement. Nevertheless, Treasury has made a deliberate decision to require Americans abroad to file FBARs reporting their accounts (which are local to them). Therefore, (as recognized in the superb amicus brief submitted by the Center For Taxpayer Rights), the decision in Bittner has huge implications for Americans abroad. Interestingly, Justice Jackson, in her questioning, specifically recognized the application of the FBAR to Americans abroad.
The Bittner case is very important to Americans abroad. I have previously written a series of posts discussing the FBAR rules which may be found here.
Of specific interest and relevance is:
Part 6: Mr. FBAR’s Civil Penalty – Does 31 USC 5321(a)(5) Authorize The Imposition Of ANY Civil Penalty For Failure To File An FBAR?
Impressions of the lawyer’s arguments and the responses of the Justices
A. Bittner’s argument for a per form penalty
On September 22, 2022, Tax Connections published a blog post discussing the interaction between 31 USC 5314 (which imposes the obligation) and 31 USC 5321(a)(5) (which imposes the penalty for the failure to comply with the obligation). The argument was made that the USC 31 5321 could not justify ANY civil non-willful penalty. The reason is that 5314 imposes an obligation on and only on the Treasury Secretary. Although unintended, this is what the statute says (or doesn’t say). Interestingly (probably in deference to America’s presumption of penalty) this argument was not directly raised. That said, Mr. Bittner’s lawyer spent a great deal of time focussing on the text of the statute and the regulations to argue that as a matter of “textual interpretation”:
1. Title 31 is a law that authorizes the Treasury Secretary to make regulations to require the reporting of certain types of foreign accounts and to define exactly how those reporting obligations are to be met; and
2. The regulations require the filing of a single form.
Therefore, it is the failure to FILE THE FORM IN THE PRESCRIBED WAY that constitutes the penalty. Because only one form is required there can only be one penalty imposed.
Justices Jackson and Gorsuch were clearly sympathetic to this argument. Justices Kavanaugh, Thomas and Alito appeared to be sympathetic to the argument. (Interestingly Justice Thomas flat out told the government lawyer that Title 31 did NOT in its express terms say what the government was stating it said.)
Bottom line: At least five of the Justices paid attention to what the statute and regulations actually say. Bittner should be very encouraged by this.
On the other hand, Justice Thomas seemed to think (and Mr. Bittner’s lawyer agreed) that Treasury did have the authority to simply modify the regulations to change the nature of the reporting obligation to clearly require a report of each account!
This creates a situation where:
– Mr. Bittner could win the appeal; but
– the result of the win would be that Treasury would just clarify/tighten the regulations!
(Be careful what you wish for!)
B. The United States argument for a per account penalty
In fairness the government lawyer had a difficult job. None of the statute, the regulation nor the context support the government’s demand for such draconian penalties. The government’ argument (I think in fairness) may be summarized as:
It is in the interest of the United States that it have wide discretion to punish U.S. citizens who maintain bank accounts that are foreign to the United States!
Nevertheless, Justices Kagan and Sotomayer appeared to be sympathetic to the Government’s sentiments.
Final thoughts …
Mr. Bittner deserves credit for bringing this issue to the Supreme Court of the United States.
Americans abroad will eagerly await the Supreme Court decision in Bittner because of the huge implications it has for their financial lives.
Resident Americans are likely not interested in this case. But, they should be! All resident Americans need to understand their future is to observe how the United States treats Americans abroad!
John Richardson – Follow me on Twitter @Expatriationlaw
I have previously discussed the Bittner case in podcasts with:
Virginia La Torre Jeker – October 31, 2022
Jimmy Sexton – November 1, 2022
The bank and account are not foreign as long as that American is living outside the US