The U.S. Supreme Court should consider whether penalties for non-willful failures to report foreign bank or financial accounts are authorized for each account taxpayers fail to disclose, the Justice Department argued.
In its Tuesday brief, the DOJ agreed with a taxpayer that the Supreme Court should review a ruling from the US Court of Appeals for the Fifth Circuit. The man appealing, Alexandru Bittner, argued that his non-willful failures to report foreign bank accounts through filings known as “FBARs” should have been hit with penalties for each year of non-reporting, not for each account he didn’t report.
The Fifth Circuit’s November decision contrasted with a March 2021 Ninth Circuit ruling that the penalty applies once per year. Division between appeals courts is one factor that could attract Supreme Court interest in the case.
The Justice Department wrote approvingly of the Fifth Circuit’s decision, but said the Ninth Circuit’s ruling “threatens to significantly weaken the deterrent effect of the penalty provisions within the Ninth Circuit.”
“The question presented is important and will often recur, and this case would be an appropriate vehicle in which to address it,” the department said.
The Fifth Circuit’s ruling in Bittner’s case reversed a lower court’s conclusion on how the non-willful penalty applies, increasing Bittner’s penalties to $2.72 million from $50,000.
Before the Fifth Circuit’s ruling, the non-willful penalty issue had proved an exception to the government’s broad winning streak over legal questions tied to the reporting penalties. It has prevailed multiple times, for example, in pushing for a relatively broad definition of “willful” reporting violations—a designation that can trigger penalties of up to 50% of foreign account assets for each year of non-reporting.
In his petition to the Supreme Court, Bittner said non-willful penalties arise “all the time” and, if the appeals court division stays in place, taxpayers will face different penalties for the same conduct in different parts of the country.
The case is Bittner v. United States, U.S., No. 21-1195, brief 5/17/22.