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U.S. Supreme Court Agrees to Review Major FBAR Penalties Case

On June 21, 2022, the U.S. Supreme Court agreed to hear a major case regarding IRS penalties relating to Reports of Foreign Bank and Financial Accounts (FBARs). Kostelanetz & Fink represents the American College of Tax Counsel (the “College”), which filed an amicus brief in Alexandru Bittner v. United States asking the Court to grant certiorari and consider reversing a decision by the Fifth Circuit Court of Appeals to apply multiple civil penalties per year for the non-willful failure to report individual foreign financial accounts.

The College’s amicus brief was filed by K&F attorneys Caroline D. CiraoloMegan L. BrackneyCaroline Rule, and Garrett L. Brodeur, who represent the College’s governing Board of Regents in the matter.

The Ninth Circuit Court of Appeals took a different approach in March 2021 in United States v. Jane Boyd, issuing a taxpayer-favorable ruling and agreeing with the position advanced by the College in an amicus brief written by Ms. Ciraolo and Ms. Rule on behalf of the College that the civil non-willful FBAR penalty should be calculated “per-form” rather than “per-account.”

In response to the Supreme Court’s decision to grant certiorari, Ms. Ciraolo said, “The College is pleased that the Supreme Court will weigh in on the merits of this important issue. In light of the inconsistent positions taken by the IRS in its publications and administrative guidance, the irreconcilable conflict between the Fifth and Ninth Circuits, and the millions of Americans who maintain foreign financial accounts, there is a critical need for clear and uniform guidance on the appropriate civil penalty for non-willful violations.”

She continued, “U.S. persons who fail to file accurate, timely reports of foreign financial accounts as a result of non-willful conduct should not face millions of dollars in civil penalties, often substantially exceeding the balances in the accounts and where little or no tax is due. In these cases, the punitive and confiscatory penalties far outweigh any harm inflicted”

In a Bloomberg Tax report discussing the Supreme Court’s grant of certiorari, Ms. Ciraolo noted that “the penalties can be harsh, given that many FBARs are filed with respect to accounts that don’t generate any taxable income to the filer. Nonetheless, the IRS has assessed millions of dollars in civil non-willful FBAR penalties.”

In a similar Tax Notes report, Ciraolo emphasized “a critical need for an effective, fair, and uniform enforcement regime with regard to FBARs” due to the “rapid growth of the global economy and approximately 10 million U.S. citizens living abroad.”

Because of this split between two federal circuits, the Supreme Court’s decision to grant certiorari in Bittner should bring clarity to the conflict between the federal courts regarding the proper application of the non-willful FBAR penalty.