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Upcoming SCOTUS Case May Have Big Impact On FBAR Filers

Is the FBAR penalty per account or per form?  We may know soon.

This fall, the Supreme Court is set to hear a case that could impact U.S. persons with financial accounts abroad. In the upcoming case of United States v. Bittner, arising out of the Fifth Circuit, the Supreme Court will hear and decide how penalties related to non-willful failure to file the Foreign Bank and Financial Accounts Report (FBAR) will be enforced.

U.S. persons must annually file FinCEN Form 114 to report certain foreign financial accounts. The form is required when the taxpayer has a financial interest in or signature authority on a foreign account, and the total cumulative value of these foreign financial accounts exceeded $10,000 USD at any time during the calendar year. Failure to file this form can result in significant fines without reasonable cause.

During the next Supreme Court term, United States v. Bittner will decide how FBAR fines will be enforced for these non-willful violations. Under the Bank Secrecy Act, the act which requires FBAR reporting, penalties related to non-willful filing “shall not exceed $10,000.” What is unclear by the statute, and subsequent Treasury regulations, is how the penalty is to be enforced.

Precedent on the issue is currently divided. While the Fifth Circuit holds that the penalty is based on a per account basis, the Ninth Circuit, of which California is a part of, differs. Decided just last year, in the case of United States v. Boyd, the Ninth Circuit held opposite of the Fifth Circuit and interpreted the penalty to apply only to the unfiled FBARs. Now with Mr. Bittner’s case in the Supreme Court, this interpretation of the law could soon be defined for everyone.

Should the IRS prevail, the result could cause U.S. taxpayers with accounts overseas to face massive penalties for non-willful violations. In Mr. Bittner’s case, this difference could be fines of $50,000 versus $2.7 million.  The difference is so vast because it is either a penalty that can only be applied once per year or on every account every year.

For those people who are, or think they might be, subject to FBAR filing requirements, adequate preparation is crucial. U.S. taxpayers living abroad or those living in the U.S. with foreign financial accounts are encouraged to speak with a tax professional to avoid possible penalties.  Furthermore, there are still amnesty options to get FBARs filed without penalties, making immediate action even more important.

Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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