#FBAR Decision: Bittner Wins! Non-willful Civil Penalty Restricted Based On The One Form And Not On Each Account

On November 2, 2022 the Supreme Court of the United States heard arguments in the Bittner FBAR case. I have previously written about this case here and here. An audio of the oral argument at the Supreme Court (along with commentary) is here. On February 28, 2023 the Court issued it’s ruling.

The issue was whether:

In assessing non-willful civil FBAR penalties the government is restricted to imposing one penalty for failing to file an accurate FBAR form or may the government impose a separate penalty for each mistake related to each account. In other words, is the penalty based on the failure to file a correct form or is a separate penalty allowed for each mistake in relation to the form?

Interestingly and notably the Gorsuch majority decision specifically notes that the period in which the FBAR penalties were assessed were for years that Mr. Bittner was living in Romania. There is no acknowledgment of this in the Barrett dissent!! In addition, Ms. Boyd (of 9th Circuit fame) was also assessed penalties for the years she was living in the UK! To be clear: this decision is very relevant for Americans abroad!!

The court’s decision

My initial thoughts are captured in the following twitter thread …

In general …

The Court’s ruling is based on the proper interpretation of the existing statute and specifically does not (with the exception of Justices Gorsuch and Jackson) deal with the broader issue of issue of permissible limitations on FBAR penalties. This decision would NOT prevent Congress from simply amending the statute to impose a penalty based on each account.

Specifically …

In a 5 to 4 ruling the Supreme Court ruled that the best reading of the statute was that civil non-willful penalties should be based on the failure to accurately file the FBAR form (regardless of the number of mistakes) rather than a penalty based on each mistake in relation to an account. In other words, the penalties are to be assessed on a per form basis and not on a per account basis.

Mr. Bittner has won the battle! However, a 5 to 4 decision suggests many more battles until the war is finally over. The justices in the majority were Gorsuch, Jackson, Roberts, Alito and Kavanagh. The justices in the minority were Barrett, Thomas, Kagan and Sotomoyor.

After the initial euphoria wore off

As the initial euphoria over Mr. Bittner’s victory had worn off, I read the decisions more carefully. I am now inclined to think that:

It’s a win for Mr. Bittner. But it’s a major loss for the general public. The rest of this post will explain my reasoning (which is not likely to be popular).

A small step forward for Mr. Bittner, but a large step backward for Mankind!

First, it’s incredible and deeply concerning that 31 USC 5314 (the FBAR statute) could both be so unclear and allow for the result of such draconian penalties. All people have the right to know what a law requires and what a low prohibits before being subjected to such draconian penalties. This is the larger problem. The difficulty in interpreting the law is a consequence of its lack of clarity.

Second, seven of the nine Justices considered ONLY how the existing statute should be interpreted and WOULD NOT consider whether the objective difficulty in interpretation was relevant and/or whether there were general limitations on the government.

To be clear:

Justices Roberts, Alito, and Kavanagh ruled ONLY that the the best interpretation of 5314, 5321 and the interaction between the two sections was that the existing FBAR statute should be interpreted in a way that capped the non-willful penalty on a per form basis.

Justices Barrett, Kagan, Sotomoyor and Thomas ruled that the best interpretation of 5314, 5321 and the interaction between the two sections was that the existing FBAR statute allowed for a penalty to be assessed on a per account basis.

Justices Gorsuch and Jackson ruled that the best interpretation was the that the penalty should be based on the form and not the number of accounts (joined by Justices Roberts, Alito and Kavanagh) but IN ADDITION added some general comments ( Part II–C) about statutory interpretation which were NOT joined by Justices Roberts, Alito and Kavanagh.

To put it another way: seven of the nine Justices considered ONLY the question of how to interpret the existing statute. Two of nine Justices (Gorsuch and Jackson) considered the broader question of what are the proper tools of statutory interpretation. By failing to join Justices Gorsuch and Jackson the remaining seven Justices failed to take the opportunity to establish principles for limiting these kinds of penalties.

The Bittner decision can be viewed either as:

Bittner wins in a 5 to 4 decision; or

The public loses in a 7 to 2 decision!

I add that this in the second time in a matter of months (remember the Court’s refusal to hear the Toth FBAR case) that the court has specifically refused to consider a general limitation on how FBAR penalties can be assessed. This leaves open the possibility for Congress to make minor changes in the language of the existing statute that would allow the government to assess penalties on a per account basis! (The decision may also encourage the government to attempt to assess more willful penalties!)


Now that my initial euphoria has worn off and I have had the opportunity to read the decision a second time, I view the decision as a “Bittner Specific Victory” and a possible loss in the general fight for a more just FBAR regime (if such a thing is possible).

It’s worth including text of Part II–C of Justice Gorsuch’s ruling which seven of the nine Justices specifically declined to join …

Part II–C

To the extent doubt persists at this point about the best reading of the BSA, a venerable principle supplies a way to resolve it. Under the rule of lenity, this Court has long held, statutes imposing penalties are to be “construed strictly” against the government and in favor of individuals. Commissioner v. Acker, 361 U. S. 87, 91 (1959). Following that rule here requires us to favor a per-report approach that would restrain BSA penalties over a per-account theory that would greatly enhance them.

The government resists this conclusion by seeking to distinguish Acker. That case involved a penalty provision in the Internal Revenue Code, the government emphasizes, while this case involves a penalty provision in the BSA. Brief for United States 44–45. But that distinction makes no difference. The rule of lenity is not shackled to the Internal Revenue Code or any other chapter of federal statutory law. Instead, as Acker acknowledged, “[t]he law is settled that penal statutes are to be construed strictly,” and an individual “is not to be subjected to a penalty unless the words of the statute plainly impose it.” 361 U. S., at 91 (internal quotation marks omitted and emphasis added). Notably, too, Acker cited to and relied on cases applying this same principle to penalty provisions under a wide array of statutes, including the Communications Act of 1934, a bankruptcy law, and the National Banking Act. See ibid. (citing FCC v. American Broadcasting Co., 347 U. S. 284, 296 (1954); Keppel v. Tiffin Savings Bank, 197 U. S. 356, 362 (1905); and Tiffany v. National Bank of Mo., 18 Wall. 409, 410 (1874)); see also Scalia & Garner at 297 (the rule of lenity applies “to civil penalties”). Two additional features of this case make it a particularly appropriate candidate for the rule of lenity. First, the rule exists in part to protect the Due Process Clause’s promise that “a fair warning should be given to the world in language that the common world will understand, of what the law intends to do if a certain line is passed.” McBoyle v. United States, 283 U. S. 25, 27 (1931); see also Connally v.General Constr. Co., 269 U. S. 385, 393 (1926); Wooden v. United States, 595 U. S. ___, ___–___ (2022) (GORSUCH , J., concurring in judgment) (slip op., at 6–9). And the government’s current theory poses a serious fair-notice problem. The relevant provisions of the BSA nowhere discuss per-account penalties for nonwillful violations. A number of the government’s own public guidance documents have seemingly warned of per-report, not per-account, penalties for non-willful violations. See Part II–B, supra; Brief for Tax Counsel 6–24. We are even told that, until 2008 and 2009, when the government began aggressively enforcing FBAR penalties, “many experienced tax professionals and return preparers were not aware of the FBAR reporting obligations,” let alone aware of the government’s current theory about the scope of penalties for non-willful violations. Brief for Center for Taxpayer Rights as Amicus Curiae 24, 20–28, and n. 21. If many experienced accountants were unable to anticipate the government’s current theory, we do not see how “the common world” had fair notice of it. McBoyle, 283 16

Second, the question before us has criminal as well as civil ramifications. Section 5321 outlines civil penalties for nonwillful and willful “violation[s]” of the BSA. Next door, §5322 provides criminal sanctions for “willfully violating” the Act. The term “violation” or “violating” is a constant between these two provisions. Accordingly, if the government were right that violations accrue on a per-account rather than a per-report basis under §5321, the same rule would apply under §5322. Each willfully misstated or late reported account, rather than each deficient or late-filed report, would give rise to a separate criminal violation carrying the possibility of a $250,000 fine and five years in prison. In a case like Mr. Bittner’s, involving 5 reports and 272 accounts, that would mean a person who willfully violates the BSA could face a $68 million fine and 1,360 years in prison rather than a $1.25 million fine and 25 years in prison. In these circumstances, the rule of lenity, not to mention a dose of common sense, favors a strict construction. See Leocal v. Ashcroft, 543 U. S. 1, 12, n. 8 (2004) (len-ity applies when a disputed statutory provision has “both criminal and noncriminal applications”); see also FCC, 347 U. S., at 296; United States v. Thompson/Center Arms Co., 504 U. S. 505, 517–518 (1992) (plurality opinion).

Bottom line: This is a win for Mr. Bittner. It is not necessarily a win for people going forward. The closeness of the decision and the negative tone toward Bittner in the minority decision reinforces my view that:

“All Roads Lead To Renunciation!”

You can read the complete decision here …

Bittner Sup Ct decision 28 Feb 2023

John Richardson– Follow me on Twitter @Expatrationlaw

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