Fines For Failing To Report Overseas Accounts Are Regulated By The Supreme Court

The US Supreme Court has ruled in a decision likely to benefit some Americans who live abroad that the penalties for failure to file reports listing foreign bank accounts have been scaled back.

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By a vote of 5-4, the Supreme Court threw out a $2.72 million fine imposed by Romanian law on Alexandru Bittner, a businessman who did not file reports for five years when he lived there. It has been argued by Bittner that under federal law, the maximum penalty is $50,000.

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During the battle, it was primarily about the Bank Secrecy Act, a law designed to combat tax evasion and the laundering of money by requiring US citizens and residents to report their foreign holdings in order to combat tax evasion and money laundering. According to the law, penalties of up to $10,000 can be imposed for unintentional violations of the law.

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Bittner was found to have violated the Internal Revenue Service's requirements 272 times, once for every account that was not reported in each of the five years, according to the IRS investigation. He claimed that he had broken the law at most five times, once for each annual report he failed to submit.

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Bittner's interpretation of the law was backed by Justice Neil Gorsuch, who wrote for the court.

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“If read correctly, the BSA treats the failure to file a legally compliant report as one violation that carries a maximum penalty of $10,000, and not as a cascade of smaller penalties calculated on a per-account basis,” he stated in his letter.

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There were some unusual divisions among the justices of the court. Dissension was expressed by Justices Amy Coney Barrett, Clarence Thomas, Sonia Sotomayor, and Elena Kagan.

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During the 2007-2011 period in question, Bittner, who is a dual American and Romanian citizen, was required to file a form known as an FBAR, which is what is at issue in the case. Those who support Bittner's position say the government's interpretation leaves taxpayers vulnerable to draconian fines for obligations they are unaware of and for which they do not know they are responsible.

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It was the Biden administration that defended the higher fines, arguing that each foreign account is a matter of distinct concern for the government, thereby justifying the higher penalties. In response, the administration emphasized that under the law, people are excluded from fines if they are guilty of a violation due to "reasonable cause," adding that the law gives the Treasury Department discretion to impose a penalty that is lower than the maximum penalty when it is warranted.

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It has become increasingly difficult for Americans living abroad to comply with their tax obligations in the last decade, leading to many Americans giving up their passports due to these issues. With the Foreign Account Tax Compliance Act that was passed by Congress in 2014, Congress added a new set of paperwork to the process.

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Neither the U.S. nor Eritrea taxes people based on where they live, but on their citizenship. Having to deal with the US bureaucracy has resulted in many Americans living abroad having difficulty accessing bank accounts, mortgages, and other financial services.

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A decade ago, before the FATCA law went into effect, there were a few hundred people who gave up their US citizenship each year. Now, thousands give up their US citizenship every year, up from just a couple hundred ten years ago.

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