Supreme Court ruling limits non-wilful FBAR fines to $10k/year

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international001
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Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by international001 »

https://americansoverseas.org/en/news/o ... reporting/
The US Supreme Court has ruled in favor of Alexandru Bittner, throwing out a $2.72 million fine due to failing to file reports listing foreign bank accounts. The ruling limits the maximum penalty to $10,000 under the Bank Secrecy Act, which had been contested by the Biden Administration. The ruling has wider implications, with many Americans living abroad giving up their US citizenship due to the Foreign Account Tax Compliance Act.
Good news for expats

Similar to what happened for Spaniards few months ago (https://www.europeantax.blog/post/102hj ... of-capital)
Last edited by international001 on Sun Apr 02, 2023 9:55 pm, edited 2 times in total.
TedSwippet
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Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by TedSwippet »

Thanks for the posting.

FWIW, the Bittner case did not really involve FATCA. The Americans Overseas article only mentions it tangentially. (I have changed the subject line to something a bit more accurate.)

Bittner contested fines applied under the Bank Secrecy Act. This is the notorious FBAR form, FinCEN 114. The IRS wanted to apply a $10,000 penalty per account over five years. However, Bittner asserted, and the court agreed, that the $10,000 penalty could apply only per report, so $10,000/year.

The government's demand for $2,720,000 was clearly absurd, but even after winning the case, a fine of $10,000/year for simply and accidentally failing to file a single piece of (virtual) paperwork, with no consequent loss of tax or any other revenue to the government caused by this omission, still stands. And this is outrageous in and of itself; at the limit, 100% of your money (not gains, but principal).

The $10,000 threshold for filing the FBAR was set in 1970, when $10,000 was a decent amount of money. It has never been raised, so thanks to inflation, ever more people now have FBAR filing requirements. However, in a striking and epic display of double standards, in 2015 congress cited "inflation" as their justification for raising the FBAR penalties from $10,000 and $100,000 (wilful) to $12,459 and $124,588, and increasing annually with inflation from then onwards.
Topic Author
international001
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by international001 »

THanks.. the mixed up was a lapsus and I was thinking on editing the title already.

So the article is not precise, and it should say the max penalty is '$12,459' ?
JohnFiscal
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by JohnFiscal »

I’ve been happily filing the FBAR for 7 years or so now, so this thread caught my eye. I was aware of some horrendous consequences of not filing this form, and even cases where it seemed innocent error was made but suffered severely. But my thought was “wow! Even 10 grand is a lot of dough!”

Thanks all for posting some of the history of this reporting and the dollar values.
TedSwippet
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by TedSwippet »

international001 wrote: Sun Apr 02, 2023 9:57 pm So the article is not precise, and it should say the max penalty is '$12,459' ?
The case involved deficient FBARs from 2007 to 2011, and the maximum penalty at that time was $10,000.

Congress did not raise the penalty (due to "inflation") to $12,459 until 2015, and it has been inflation linked since them. The maximum penalty for non-wilful -- that is, accidental -- FBAR non-compliance is currently $15,611. Next year it will of course be higher still.
Leesbro63
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by Leesbro63 »

How might this extrapolate to the seemingly cruel an unusual penalties for failure to file the right Solo 401K form?
EddyB
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by EddyB »

Leesbro63 wrote: Mon Apr 03, 2023 4:45 am How might this extrapolate to the seemingly cruel an unusual penalties for failure to file the right Solo 401K form?
Do you have multiple solo 401(k) accounts?
assyadh
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by assyadh »

Podcast on why this may not be the best news : https://prep.podbean.com/e/the-us-supre ... ing-after/

Hint : status of limitation.
Leesbro63
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by Leesbro63 »

EddyB wrote: Mon Apr 03, 2023 5:37 am
Leesbro63 wrote: Mon Apr 03, 2023 4:45 am How might this extrapolate to the seemingly cruel an unusual penalties for failure to file the right Solo 401K form?
Do you have multiple solo 401(k) accounts?
I do not. But I'm not sure what that has to do with my question. The penalty for such accounts with assets over $250,000 is $250 per day for not properly filing Form 5500. I seem to recall a post on here where someone was subject to huge penalties for an honest oversight.
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by EddyB »

Leesbro63 wrote: Mon Apr 03, 2023 6:26 am
EddyB wrote: Mon Apr 03, 2023 5:37 am
Leesbro63 wrote: Mon Apr 03, 2023 4:45 am How might this extrapolate to the seemingly cruel an unusual penalties for failure to file the right Solo 401K form?
Do you have multiple solo 401(k) accounts?
I do not. But I'm not sure what that has to do with my question. The penalty for such accounts with assets over $250,000 is $250 per day for not properly filing Form 5500. I seem to recall a post on here where someone was subject to huge penalties for an honest oversight.
The question in the FBAR case was whether the statute imposing the $10,000 penalty should be read to apply on a per-filing basis or on a per-account basis.

The court didn’t decide that the government’s proposed penalty couldn’t stand because it was ridiculously disproportionate, but rather the court found that the government erred in counting the number of “violations.” The court concluded that the statute imposes the $10,000 penalty on a per-filing basis (not a per-account basis), but had no problem with the government imposing that (still absurd) penalty.

Is there some argument that the penalty for the 5500 is similarly misapplied?
TedSwippet
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by TedSwippet »

assyadh wrote: Mon Apr 03, 2023 5:48 am Podcast on why this may not be the best news : https://prep.podbean.com/e/the-us-supre ... ing-after/
It's a depressing listen. Also, it could be shorter.

For anyone without over half an hour to spare, the Cliff's Notes version is that while it's a technical win for one individual, it may simply motivate the IRS in future to routinely seek the much higher wilful penalty, currently $156,107 (per form year, presumably) instead of a non-wilful one, and then challenge taxpayers to try to convince them that any non-compliance was not intentional. And of course, proving absence of intent is going to be borderline impossible for the average taxpayer.
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by sperry8 »

It sounds to me the subject of the IRS audit was trying in some way to evade taxes... in which case he deserves the fines. But for a citizen who pays taxes, what is the point?
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by EddyB »

sperry8 wrote: Wed Apr 05, 2023 4:14 am It sounds to me the subject of the IRS audit was trying in some way to evade taxes... in which case he deserves the fines. But for a citizen who pays taxes, what is the point?
I don’t think the IRS even claimed he owed taxes—where do you see a basis for thinking he was evading taxes?
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sperry8
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by sperry8 »

EddyB wrote: Wed Apr 05, 2023 5:16 am
sperry8 wrote: Wed Apr 05, 2023 4:14 am It sounds to me the subject of the IRS audit was trying in some way to evade taxes... in which case he deserves the fines. But for a citizen who pays taxes, what is the point?
I don’t think the IRS even claimed he owed taxes—where do you see a basis for thinking he was evading taxes?
I don't, it was just a guess. It just seems weird they'd go for full amount of penalties for someone who did pay taxes. They have latitude in these cases re penalties and could've waived them, reduced them, etc. For them to go all in - they had to be pissed about something. And it seems to me they wouldn't be pissed about an honest mistake where someone paid all they owed.
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by EddyB »

sperry8 wrote: Wed Apr 05, 2023 6:18 am
EddyB wrote: Wed Apr 05, 2023 5:16 am
sperry8 wrote: Wed Apr 05, 2023 4:14 am It sounds to me the subject of the IRS audit was trying in some way to evade taxes... in which case he deserves the fines. But for a citizen who pays taxes, what is the point?
I don’t think the IRS even claimed he owed taxes—where do you see a basis for thinking he was evading taxes?
I don't, it was just a guess. It just seems weird they'd go for full amount of penalties for someone who did pay taxes. They have latitude in these cases re penalties and could've waived them, reduced them, etc. For them to go all in - they had to be pissed about something. And it seems to me they wouldn't be pissed about an honest mistake where someone paid all they owed.
Sounds nice, but doesn’t at all match my (professional) experience with US administrative agencies.
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by TedSwippet »

sperry8 wrote: Wed Apr 05, 2023 6:18 am
EddyB wrote: Wed Apr 05, 2023 5:16 am
sperry8 wrote: Wed Apr 05, 2023 4:14 am It sounds to me the subject of the IRS audit was trying in some way to evade taxes... in which case he deserves the fines. But for a citizen who pays taxes, what is the point?
I don’t think the IRS even claimed he owed taxes—where do you see a basis for thinking he was evading taxes?
I don't, it was just a guess. ...
A wrong guess:

The IRS and the Eighth Amendment - WSJ
Alexandru Bittner, a Romanian-American dual citizen, nonwillfully failed to file five foreign bank account reports, or FBARs, with the IRS while living in Romania between 2007 and 2011. Taxpayers fill out annual FBAR forms if they have “foreign financial accounts exceeding $10,000.” When Mr. Bittner moved back to the U.S., he discovered this responsibility and had his certified public accountant file these forms to the IRS. The IRS responded by imposing a $2.72 million penalty even though there were no allegations of tax fraud or any additional taxes owed.
So, someone uncovered their mistake, tried to do the right thing -- that is, backfile pointless paperwork, with zero tax loss or other damage to the government -- and the IRS nevertheless put them through the wringer with absurd claims for penalties. And this had to go all the way to the Supreme Court before it was decided.

Not exactly a proud moment for the IRS, or for the US in general.

Edit to add: Further reading:

The IRS Versus The Clumsy Taxpayer
Alexandru Bittner is a Rumanian-U.S. businessman with complicated affairs and a lot of bank accounts. He paid taxes correctly. The IRS assessed him for five years of failing to report his foreign accounts. He should have sent in one FBAR, listing every account, annually.

The statutory penalty is $10,000 per violation. That sounds like $50,000 for this offender. Oh, no, said the IRS. We want $10,000 per account, per year. So give us $2.7 million. The tax collectors won in the Fifth Circuit.

This is ludicrous, argued Bittner’s attorney, Daniel L. Geyser of Dallas, in a Supreme Court hearing last month. For one thing, three of the accounts had trivial balances (below $50). For another, the IRS’s interpretation would permit a criminal case, if the government had taken that course, seeking a 1,360-year jail sentence. This for someone who paid all his taxes but omitted some forms.
Not an isolated incident either. The article quoted above includes descriptions of multiple similar cases.
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by OrangeKiwi »

Thanks to everyone for the great links and extra context. Very interesting information.
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sperry8
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Re: Supreme Court ruling limits non-wilful FBAR fines to $10k/year

Post by sperry8 »

TedSwippet wrote: Wed Apr 05, 2023 7:31 am
sperry8 wrote: Wed Apr 05, 2023 6:18 am
EddyB wrote: Wed Apr 05, 2023 5:16 am
sperry8 wrote: Wed Apr 05, 2023 4:14 am It sounds to me the subject of the IRS audit was trying in some way to evade taxes... in which case he deserves the fines. But for a citizen who pays taxes, what is the point?
I don’t think the IRS even claimed he owed taxes—where do you see a basis for thinking he was evading taxes?
I don't, it was just a guess. ...
A wrong guess:

The IRS and the Eighth Amendment - WSJ
Alexandru Bittner, a Romanian-American dual citizen, nonwillfully failed to file five foreign bank account reports, or FBARs, with the IRS while living in Romania between 2007 and 2011. Taxpayers fill out annual FBAR forms if they have “foreign financial accounts exceeding $10,000.” When Mr. Bittner moved back to the U.S., he discovered this responsibility and had his certified public accountant file these forms to the IRS. The IRS responded by imposing a $2.72 million penalty even though there were no allegations of tax fraud or any additional taxes owed.
So, someone uncovered their mistake, tried to do the right thing -- that is, backfile pointless paperwork, with zero tax loss or other damage to the government -- and the IRS nevertheless put them through the wringer with absurd claims for penalties. And this had to go all the way to the Supreme Court before it was decided.

Not exactly a proud moment for the IRS, or for the US in general.

Edit to add: Further reading:

The IRS Versus The Clumsy Taxpayer
Alexandru Bittner is a Rumanian-U.S. businessman with complicated affairs and a lot of bank accounts. He paid taxes correctly. The IRS assessed him for five years of failing to report his foreign accounts. He should have sent in one FBAR, listing every account, annually.

The statutory penalty is $10,000 per violation. That sounds like $50,000 for this offender. Oh, no, said the IRS. We want $10,000 per account, per year. So give us $2.7 million. The tax collectors won in the Fifth Circuit.

This is ludicrous, argued Bittner’s attorney, Daniel L. Geyser of Dallas, in a Supreme Court hearing last month. For one thing, three of the accounts had trivial balances (below $50). For another, the IRS’s interpretation would permit a criminal case, if the government had taken that course, seeking a 1,360-year jail sentence. This for someone who paid all his taxes but omitted some forms.
Not an isolated incident either. The article quoted above includes descriptions of multiple similar cases.
Surreal reading.
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