U.S. Supreme Court to Address FBAR Violations

 Posted on July 01,2022 in Taxation Law

There are a variety of situations where U.S. taxpayers may face penalties related to foreign assets. Some taxpayers are required to report these accounts to the IRS by filing a Foreign Bank and Financial Account Report (FBAR). Failure to file these reports when required or failure to include accurate information when filing can result in significant penalties. However, there has been some confusion about what constitutes a violation and what penalties may apply. The U.S. Supreme Court will be addressing this issue in an upcoming case.

Penalties for Non-Willful FBAR Violations

Different courts have addressed FBAR violations in different ways, and this has resulted in different penalties being applied depending on where a case was heard. The confusion involving FBAR penalties is related to non-willful violations, or situations where a person did not properly report foreign accounts because they were unaware of how the tax laws applied to them or did not know about their reporting requirements. Courts have differed on whether penalties should apply based on a report that was incorrect or based on each individual account that was not reported correctly.

Depending on how FBAR violations are handled, the penalties that taxpayers could face may be much higher if their cases are handled in certain courts. The Court of Appeals for the Ninth Circuit has ruled that FBAR penalties apply on a “per form, per year” basis. This means that no matter how many accounts are included on a form, a single penalty will apply for each year in which a form was not correctly prepared and filed. However, the Court of Appeals for the Fifth Circuit has ruled that penalties apply on a “per account, per year” basis, and a taxpayer may be required to pay a penalty for each account that was misreported even if on a single form. 

The case of Bittner v. United States, which the Supreme Court will consider during the 2022-2023 term, will address this issue. This case involves a Romanian immigrant who failed to properly report dozens of foreign accounts between 2007 and 2011. While a district court in Texas had found that penalties should be assessed on a per-year basis for a total of $50,000, the Fifth Circuit Court of Appeals reversed this decision and found that he was required to pay penalties of $2.72 million based on a penalty for each of the accounts that were not reported correctly. The Supreme Court’s decision in this case may result in a final decision on how penalties for non-willful FBAR violations will be assessed going forward.

Contact Our San Jose FBAR Violation Defense Attorney

At John D. Teter Law Offices, we help taxpayers address issues related to reporting foreign assets and penalties for FBAR violations or other tax-related issues. We can help you determine your options for compliance with IRS reporting requirements, and we will provide you with representation to help you minimize any penalties that you may face. Contact our San Jose, CA foreign tax compliance lawyer at 408-866-1810 to get effective legal help with these and other tax-related issues.

Sources:

https://www.journalofaccountancy.com/news/2022/jun/supreme-court-resolve-fbar-penalty-dispute.html

https://ballotpedia.org/Bittner_v._United_States