U.S. Supreme Court Rules FBAR Penalties Apply per Report
In a significant win for U.S. persons with financial accounts outside the U.S., the Supreme Court on February 28 held that non-willful FBAR penalties apply per form, and not, as the government had argued, per account.
In a 5-4 decision written by Justice Neil M. Gorsuch, the Court concluded in Bittner v. United States that the Bank Secrecy Act’s maximum penalty for non-willful violations of the requirement to file the annual report known as an "FBAR" – the Report of Foreign Bank and Financial Accounts – accrues on a per-report, not a per-account, basis.
Joining Justice Gorsuch in the majority were Chief Justice John Roberts and Justices Samuel A. Alito, Brett M. Kavanaugh, and Ketanji Brown Jackson. Justices Clarence Thomas, Sonia Sotomayor, and Elena Kagan joined Justice Amy Coney Barrett, who wrote a dissenting opinion.
The Bank Secrecy Act (BSA) requires individuals who have an interest in or signatory authority over certain foreign bank accounts with an aggregate balance of more than $10,000 to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) with the federal government. Those with signatory authority or a qualifying interest (including directly or indirectly through certain U.S. entities if certain ownership thresholds are met) in fewer than 25 accounts must provide details about each account. Individuals with 25 or more accounts, however, need only check a box and disclose the total number of accounts.
The statute imposes a maximum $10,000 penalty for non-willful violations of the law, but it does not provide a definition of the term "violation."
In this case, Petitioner Alexandru Bittner immigrated to the U.S. from Romania and became a naturalized U.S. citizen. Bittner eventually returned to Romania, where he opened various bank accounts as part of his business activities. Bittner was not aware of the reporting obligation imposed by the BSA until he returned to the U.S., at which point he filed the required reports, but not in time to avoid violations. The IRS fined Bittner $2.72 million in civil penalties—$10,000 for each unreported account each year from 2007 to 2011.
Bittner challenged the penalties in federal court, arguing that the BSA authorizes a maximum penalty for willful violations of $10,000 per report, not per account. A U.S. district court agreed with Bittner, and reduced the fines to $50,000, holding that the $10,000 maximum penalty is related to each failure to file an annual FBAR report, not to each failure to report an account. On appeal, the U.S. Court of Appeals for the Fifth Circuit reversed and reinstated the $2.72 million penalty, holding that each failure to report a qualifying foreign account constituted a separate reporting violation and that the penalty applied on a per-account basis.
The U.S. Court of Appeals for the Ninth Circuit had reached the opposite conclusion in a similar case, holding that the BSA authorizes "only one non-willful penalty when an untimely, but accurate, FBAR is filed, no matter the number of accounts." United States v. Boyd, 123 AFTR 2d 2019-1651 (C.D. Cal. 2019). The Supreme Court granted certiorari to resolve the conflict between the two courts of appeals.
In its analysis, the Court first turned to the terms of the statute -- Section 5314 of title 31 of the U.S. Code, which states an individual’s legal duties under the BSA, and Section 5321, which establishes civil penalties for non-willful FBAR violations.
Section 5314 provides that the Secretary of the Treasury shall require certain persons to "keep records, file reports, or keep records and file reports" regarding transactions with a foreign financial agency. Justice Gorsuch noted that "Section 5314 does not speak of accounts or their number but rather the legal duty to file reports . . . "
Section 5321 authorizes the Secretary to impose a civil penalty for "any violation" of Section 5314. Gorsuch again pointed out that the non-willful penalty provision under Section 5321 "does not speak in terms of accounts but rather pegs the quantity of non-willful penalties to the quantity of ‘violation[s]."
Gorsuch acknowledged that the statute does impose per-account penalties in some cases that involve willful violations, but rejected the government’s argument that the Court should infer that Congress meant to do so for non-willful violations. That interpretation, Gorsuch wrote, "defies a traditional rule of statutory construction: When Congress includes a particular language in one section of a statute and omits it from a neighbor, the Court normally understands that difference in language to convey a difference in meaning . . . ." In fact, noted Gorsuch, the absence of explicit language regarding accounts in the non-willful penalty provision is evidence that "when Congress wished to tie sanctions to account-level information, it knew exactly how to do so."
The Court also found a number of "contextual clues" to bolster its conclusion, including various IRS statements in public guidance indicating that the failure to file a report represents a single violation. This inconsistency in the government’s position, while not dispositive, may be taken into account in evaluating the persuasiveness of the government’s interpretation.
Finally, the Court turned to the statute’s legislative history, but found no indication "that Congress sought to maximize penalties for every non-willful mistake."
Gorsuch pointed out that the government’s position would result in anomalies, because willful violators could be subject to lower penalties than non-willful violators.