On February 28th 2023, the Supreme Court ruled on Bittner v. The United States, a case brought forward by businessman Alexandru Bittner on the issue of how FBAR penalty payments ought to be calculated. The Supreme Court ruled that the penalty will be calculated on a per-report, and not on a per account, basis.
About the FBAR
U.S citizens with business activity or assets abroad are obliged to disclose said assets on a document commonly known as the FBAR. Unlike regular taxes, the FBAR must be filed through the U.S Treasury. As it’s an entirely separate and lesser-known process, it is not uncommon for citizens to fail to file it simply because they do not know they need to. This results in a non-willful violation of U.S law. While a proper and experienced accountant should be able to avert this problem, once an FBAR has not been filed, the penalty is significant at $10,000.
Until now, legislation has remained open to interpretation with regard to how the penalty can be applied. While the number itself is fixed by the legislation at $10,000, whether this should be multiplied by the number of accounts relevant to the violation or by the number of annual reports not submitted has been unclear in the case of non-wilful violations.
For wilful violations – that is, intentional withholding of FBAR submission – penalties have long been understood to be more severe. They are calculated at fifty percent of the account value rather than by a fixed rate, and in addition, can lead to a criminal trial.
In the case of Bittner, local courts have debated across many circuits whether the defendant should pay $2.7 million dollars per account (of which there were 272 unreported over a five-year period), or $50,000 per each document that was unreported.
The Importance of FBAR Filing – And How It Relates To You
The Supreme Court ruling is essential because it clarifies the way in which the penalty for non-wilful withholding of reports will be calculated hereon. But it’s also a valuable opportunity to consider the importance of knowing the tax law required of you inside-out – or, at the least, having professionals on your side who will flag this for you.
The case of Bittner, a dual national who had lived outside of the U.S for years and claimed he had no idea he was ever supposed to file an FBAR, is not unique. Many American citizens are surprised to learn they have this duty, or mistakenly assume that the threshold for reporting is extremely high and does not apply to them. In fact, the lower threshold is only $10,000 worth of value from your totaled financial accounts. This includes accounts for which you are a signatory, or manage the account for somebody else’s benefit.
Thankfully, the Supreme Court ruling means that those who have found themselves in this position stand to lose a substantially smaller amount of money in penalties. This, in addition with the clarity the ruling provides, is good news for holders of any foreign account with U.S citizenship.
If you are unsure about the status of your reporting, don’t wait – in light of the conclusion of Bittner v. The United States, the number you’ll pay in penalties will grow considerably with each tax year.