Supreme Court Limits FBAR Penalties for US Expats

Apr 8, 2023

As a US expat, it’s important to stay up-to-date with legal developments that could affect our finances. On Feb. 28, 2023, the US Supreme Court issued a ruling in the case of Bittner v. United States that could have a significant impact on non-willful penalties for failing to file the Foreign Bank and Financial Accounts (FBAR) report.

The case centered around Alexandru Bittner, a dual citizen of Romania and the United States who returned to the US in 2011 and learned about his FBAR reporting obligations. He submitted the required annual reports covering 2007 through 2011, but the government informed him that the reports were deficient and that he had missed 25 or more of his foreign accounts. Mr. Bittner filed corrected reports providing detailed information for all of his foreign accounts.

Mr. Bittner assumed that the maximum non-willful penalty would be $50,000, calculated as a $10,000 penalty for each report not accurately or timely reported. However, the government argued that the penalty should apply to each account not accurately or timely reported, resulting in a staggering assessment of $2.72 million in penalties for Mr. Bittner’s late-filed reports.

The case made its way to the US Court of Appeals for the Fifth Circuit, which sided with the government’s interpretation of the penalty provision. However, the Ninth Circuit had previously ruled in United States v. Boyd that only one non-willful penalty should apply when an untimely but accurate FBAR is filed, no matter the number of accounts.

With these conflicting interpretations, the Supreme Court reviewed Mr. Bittner’s case and ultimately ruled in his favor. The Court concluded that the non-willful penalty applies to the quantity of violations and not accounts, meaning that the penalty for failure to file a legally compliant report is one violation carrying a maximum penalty of $10,000, not a cascade of penalties calculated on a per-account basis.

This decision is good news for US expats who may be facing non-willful penalties for late or inaccurate FBAR reports. While a $10,000 penalty per violation is still significant, it is substantially less than a per-account penalty, which could amount to millions of dollars.

As US expats, it’s important to be aware of our reporting obligations and to seek professional advice when necessary. This ruling provides some clarity around non-willful penalties for FBAR reporting and may help to alleviate some of the financial burden for those who have made mistakes in their reporting.

We offer free tax advice via email to help all US expats understand international tax laws. Whether you’re a client or just reading our blog, our expert tax professionals are ready to assist you. Contact us with any questions or concerns about double taxation or reducing your tax liability. We’re committed to providing accurate and timely information to help you navigate these complexities.

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