FBAR Fines: Anti-money laundering defends by IRS

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FBAR Questioned in Supreme Court Clash

US Supreme Court [Bittner v. United States, 21-1195].

Justices voiced concern over the Federal Government’s imposed exorbitant penalties on unwitting taxpayers who fail to report and disclose their foreign bank accounts.

  • Facts of the Case: Alexandru Bittner is a dual Romanian-US citizen. However, FACTA and FBAR regulations required him to report all his foreign bank accounts annually, which he failed to do on time.
  • The Appeal: Bittner is appealing a penalty of $2.72 million assessed under the Bank Secrecy Act after failing to report foreign bank accounts he held during his residence in Romania.
  • The Law: The FBAR regulations apply to US citizens and residents. It imposes a maximum penalty of $10,000 for unintentional violations.
  • The IRS argument:  According to the IRS version, Bittner violated the law 272 times. Therefore, they argue that he is guilty of one count for each foreign account not reported for each of the five years in question. In addition, the IRS insisted that every account held by a US taxpayer on foreign soil self-evidently concerned the US.
  • Bittner’s defense:  Bittner’s version is that he violated the law only five times, once for each annual report he did not file. Therefore, Bittner argued that the maximum penalty is $50,000.

The Justices tested the Biden Administration’s interpretation of the law grounded in the belief that severe penalties deter money laundering and tax evasion.

Justice Alito remarked that many foreign account holders are unacquainted with FBAR and the Treasury Regulations. Furthermore, he added that noncompliance was irksome to probe.

Counsel for the IRS contended that a ‘reasonable cause’ provision in the law safeguarded unwitting offenders.

Justice Ketanji Brown Jackson claimed that the Government penalized taxpayers for using multiple bank accounts lawfully on the back of a regulation Congress intended merely to identify individuals who fail to disclose foreign bank accounts.

Bittner argued that the mere threat of penalties forced taxpayers to spend money on lawyers. For the average taxpayer, this is especially perilous considering the massive fines resulting from an unfavorable verdict.

Ten times more Americans abroad are giving up their American Citizenship because the compliance issues have become more onerous after the promulgation of FACTA legislation.

Another unintended consequence of FACTA is that foreign institutions that refuse to engage the US bureaucracy now restrict US citizens from accessing essential financial products and services, like bank accounts and mortgages.

Point of View Of Institutions

New-Orleans-based 5th US Circuit Court of Appeals

  • Found for the Government, in this case.
  • Another federal appeals court found for Bittner in this case.

US Chamber of Commerce

  • Disagrees with the 5th US Circuit Court, saying it introduces more severe penalties than intended by Congress. Source of this article accountingToday.com

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services.  This article cannot serve as a substitute for such professional services or advice.  Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation.  This article is subject to change at any time and for any reason.

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