2 Recent Cases Impacting FBAR Filing for 2022: Bittner and Boyd

Jan 31, 2022

A recent decision issued out of the United States Court of Appeals for the Ninth Circuit is important to take note of, as it is unfortunately adverse to taxpayers. In particular, the case of United States v. Bittner, 19 F.4th 734 (5th Cir. 2021) held that the $10,000 penalty cap imposed by  31 U.S.C. §5321(a)(5)(B) for non-willful failure to file violations was on a “per account” and not on a “per form” basis. This meant that the taxpayer in that case was obligated to pay $10,000 for each account in violation. Find below an overview of the DDD case, as well as the relevant sibling case preceding it, United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021).

On November 30, 2021, the Fifth Circuit parted ways with the taxpayer friendly decision of the Ninth Circuit that non-willful penalties are capped at $10,000 per FBAR filing instead of the $10,000 per unreported bank account argued by the government. District courts in New Jersey, Connecticut, and Texas had all ruled in the taxpayer’s favor that non-willful penalties were capped at $10,000 per form. In United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021), the Ninth circuit reversed the district court’s per-account determination and made the per-form cap the law within the 9th Circuit. United States v. Bittner, No. 20-40597 (5th Circuit), was on appeal from a taxpayer friendly decision reducing the $2.7 Million dollar penalty to $50,000 based on a $10,000 per form cap on non-willful FBAR penalties. Although not guaranteed, it appeared that the momentum was in the taxpayer’s favor for an affirmance of the reduction.  However, the Fifth Circuit reversed the favorable district court decision and held that the “$10,000 penalty cap therefore applies on a per-account, not a per-form basis.”

Relevant Legal Background

The Bank Secrecy Act, passed by Congress in 1970, authorized the Department of Treasury to collect certain information from U.S. persons who have financial interests in or signature authority over financial accounts that are maintained with financial institutions outside the USA. Additionally, back in April 2003, the Financial Crimes and Enforcement Network delegated its enforcement authority with respect to FBARs to the Internal Revenue Service. See https://www.irs.gov/pub/irs-utl/irsfbarreferenceguide.pdf. U.S. persons must file a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (referred to as “FBAR”), if the aggregate maximum values of the foreign financial accounts exceed $10,000 at any time during the calendar year. For purposes of FBAR reporting, a “U.S. person” includes a citizen or resident of the United States, an entity created or organized in the United States or under the laws of the United States (including corporations, partnerships, and limited liability companies), a trust formed under the laws of the United States, or an estate formed under the laws of the United States.

To see if you might have an obligation to report your foreign assets to the IRS, check out the free and confidential FBAR Wiz Tool.