No one likes uncertainty, even the Internal Revenue Service (IRS). Therefore, expect to see this issue taken up by the Supreme Court at some point because of a split in the circuit court decisions on the Report of Foreign Bank and Financial Accounts (FBAR) penalty assessments. As of today, several cases have now addressed this contentious question with different results.
US v. Bittner
The Fifth Circuit’s decision in the US v. Bittner case stands in stark contrast to the Ninth Circuit’s decision in US v. Boyd. In the latter case, the Ninth Circuit argued against stacking non-willful penalties against taxpayers who fail to disclose multiple foreign financial accounts on a single FBAR. The Fifth Circuit did not see it that way.
The Case in Question
The defendant in US v. Bittner, a naturalized US citizen, returned to his native Romania in 1990. He was unaware as a US citizen he had to report his interests in certain foreign financial accounts, so he never filed FBARs while he lived in Romania.
When the defendant returned to the United States in 2011, he hired a CPA to prepare his outstanding FBARs. These original FBARs were deficient. They failed to report 25 or more foreign financial accounts that should have been reported. He went on to hire a new CPA who filed corrected FBARs.
In 2017, the IRS assessed $2,720,000 in non-willful FBAR penalties to Bittner, equaling $10,000 for each unreported account.
Lesson Learned
If you’re responsible for a foreign financial account, your optimal move is to handle the annual filing of an FBAR carefully and properly. We may eventually receive clarity as to how these penalties are assessed if the Supreme Court finally addresses this issue.
If you need help understanding your FBAR reporting requirements, contact Moore Doeren Mayhew’s international tax advisors today. We can help you mitigate penalties.
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