Case Background
At the center of the case involving the largest non-wilful FBAR penalty ever imposed by American courts is Alexandru Bittner. The Romanian-American businessman is a dual citizen, but in the year 1990, he left the US and relocated to his birth country of Romania.
While in Romania, Bittner’s business ventures became profitable, resulting in $70 million of total income for this period. Therefore, Bittner held several hundred foreign accounts between the years 2007 and 2011.
As a citizen of the United States of America, Bittner still had the responsibility to report these foreign accounts. However, he did not submit his FBAR forms on time, resulting in a cumulation of several $10,000 penalties. The IRS intended to charge Bittner on a per bank account basis, as opposed to according to a per report basis. This meant Bittner was expected to pay $2.7 million, as opposed to $50,000 (one $10,000 penalty for each year an FBAR was not reported).
The government and Bittner filed cross-motions against each other for partial summary judgment – both on the matter of how to calculate the FBAR penalty and on whether the defendant had reasonable cause for penalty relief.
The Court’s Opinion
Judge Mazzant, the relevant area’s district judge, issued his opinion in the summer of 2020. The ruling was that Bittner’s penalty would be paid on a per report, and not on a per-account basis. This ruling has a few points of significance – first, it is a mostly taxpayer-favoring opinion, and second, it disagrees with a comparable 2019 case from California, where the judge ruled in favor of a per-account basis.
The Court’s opinion was formed through two channels. First, the statutory analysis suggested that the Congress’ intention and spirit in writing this group of laws was not to burden the taxpayer unreasonably, and that number of accounts has no bearing on whether or how an individual file an FBAR. The Court also considered the Rule of Lenity, finding that while it was not entirely applicable in the case of Mr Bittner, where it did apply it was mostly in his favor.
While the ultimate ruling was made to Bittner’s benefit – saving him millions of dollars – the Court also examined some of Bittner’s arguments in a negative light. In particular, when Bittner claimed to have reasonable cause in not reporting his earnings owing to his lack of American education, the Court responded with the argument that ignorance is not usually considered a reasonable excuse for violating the law. Moreover, they disagreed with Bittner’s representation of himself, noting that with such a high level of profit, it was clear that he had the shrewdness it required to remain on top of legal reporting obligations.
Conclusion
While the decision could still be repealed by the government or the Ninth Circuit, the ruling on Bittner v. The United States so far comes across as a significant moment in tax law, favoring the taxpayer and lessening the financial burden of penalties in the case of non-wilful FBAR noncompliance.
As well as strengthening the argument for the FBAR penalty being calculated per report and not per account, the case is an example of the intensity of legal disagreements over even non-wilful misreporting. Educated business owners and managers of high-value companies should learn from Bittner, taking care not only to diligently report foreign earnings but also to represent themselves honestly during FBAR audits.
