The U.S. Supreme Court rules that FBAR penalties apply on a per-report, not per-account basis

On June 21, 2022, the U.S. Supreme Court agreed to hear Bittner v. United States, a Fifth Circuit case on applying non-willful penalties for failure to report foreign financial accounts on FinCEN Form 114, the “FBAR”. The Supreme Court subsequently heard the case on November 2, 2022.  The Court addressed whether the standard $10,000 penalty imposed under Title 31 USC, Section 5321 for non-willful violations of the statute should apply pursuant to a taxpayer’s annual report filing requirement (resulting in a maximum of $10,000 per year), or on each and every financial account that should have been reported by such taxpayer on a 114.

In Bittner, the U.S. Fifth Circuit held that a separate violation occurred for each foreign account not timely reported on an FBAR form 114. This resulted in a penalty of $2.72 million over five years. However, Bittner argued that the penalty should only apply on a per-report basis, which would reduce the penalty to $50,000 in his circumstance. This position would reflect the Ninth Circuit’s decision in United States v. Boyd. In Boyd, wherein the district appellate court held that the non-willful penalty applies on a per-report basis, not on the number of reportable foreign accounts.

Title 31’s relevant Section 5321(3) reads as follows: “A person not filing a report under a regulation prescribed undersection 5315 of this title or not complying with an injunction undersection 5320 of this title enjoining a violation of, or enforcing compliance with, section 5315 or a regulation prescribed under section 5315, is liable to the Government for a civil penalty of not more than $10,000.” Person appears to be the operative word here, not account; so, is “person” to be considered synonymous with “report”?

On February 28, 2023, the U.S. Supreme Court settled the matter by making the taxpayer-friendly ruling that the penalty for violating the FBAR rules to report a qualifying account applies on a per-report basis, and not on a per-account basis.  The Court ruled 5 to 4 in favor of Bittner with Judges Gorsuch, Jackson, Roberts, Alito and Kavanaugh delivering the opinion, and Judges Barrett, Thomas, Sotomayor and Kagan dissenting.

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