The U.S. Supreme Court has ruled 5-4 against a $2.72 million fine on a businessman who didn't file reports for five years when he was living in Romania.
This case, Bittner v. United States, presented a conflict over statues under the Bank Secrecy Act (BSA). The question is whether a “violation” under the BSA is the failure to file an annual FBAR no matter the number of foreign accounts or a separate violation for each account that isn’t properly reported.
Regulations require filing a single annual FBAR for anyone with an aggregate balance over $10,000 in foreign accounts. The penalty for non-willful violation is up to $10,000.
Bittner maintained that he owed $50,000, or the penalty for each year. The IRS claimed he owed for each account, a total of 272 violations.
Writing for the Court, Justice Neil Gorsuch backed Bittner. “The BSA treats the failure to file a legally compliant report as one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per-account basis,” Gorsuch wrote.
Gorsuch also said the government had tried to penalize Bittner without fair warning under the statute that punishments would be handed out on per-account. He called the government’s attempt to assess a massive penalty against Bittner “incongruous” with how it would have treated someone with a single high-balance account.
Alexandru Bittner was born in Romania in 1957, immigrated to the U.S. in 1982 and became a citizen five years later. He returned to Romania in 1990, where he became a successful businessman and investor. He lived there for more than 20 years and was unaware that he was required to file U.S. income tax returns or FBARs. After returning to the U.S. in 2011, he engaged an accountant to prepare and file the returns and FBARs.
The IRS determined that he had failed to timely file FBARs for 2007 through 2011 and sought a maximum penalty: that he had committed 272 violations and owed a combined penalty of $2.72 million. A federal court in Texas sided with Bittner; the government appealed and won in the Fifth Circuit Court of Appeals.
Supreme Court Justices Amy Coney Barrett, Clarence Thomas, Sonia Sotomayor and Elena Kagan dissented in the Feb. 28 ruling.
Barrett wrote that even though Bittner “held as much as $16 million across more than 50 bank accounts in Romania, Switzerland, and Liechtenstein” and “failed to report 272 accounts,” he minimized his wrongdoing by arguing that he violated the law only five times.
She also said Bittner “put no effort into ascertaining” those obligations despite operating as a sophisticated business professional.
The recent ruling is likely to have implications both immediate and long-lasting for Americans living abroad and for U.S.-based holders of foreign accounts.
“The U.S. and Eritrea are the only two countries in the world that tax people based on citizenship, rather than where they live,” an article in Bloomberg read within hours of the Bittner decision. “The result of all the compliance hurdles has meant that many Americans living abroad have trouble accessing bank accounts, mortgages and other financial services because institutions don’t want the hassle of dealing with the US bureaucracy.”
Added The Irish Times from Dublin soon after, “Irish emigrants living in the US who retain bank accounts at home and fail to notify the US authorities run the risk of significant penalties. But a ruling in the US Supreme Court on Tuesday may reduce the financial pain.”
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About the Author
Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high net worth families and their advisors. Alicea has more than 17 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm. Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.
Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S. Alicea is fluent in Spanish and has a working knowledge of Portuguese.
Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the Global Referral Network (GRN).
Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA Forty Under 40 Award. She was selected as someone that has notable skills and is visibly making a difference in the accounting profession.
In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth's Powerwomen Awards in the category USA - Woman of the Year - Business Growth (Boutique). In 2023, she continued her winning streak by receiving the Gold award for Company of the Year Female Leadership (Boutique). Furthermore, Alicea is currently listed in the Global Elite Directory 2023, which is an annual exclusive directory of the world's elite lawyers and outstanding wealth advisors advising ultra-high net-worth clients.
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Alicea Castellanos, CPA, TEP, N.P.
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