WASHINGTON (CN) — The Supreme Court on Tuesday ruled in favor of a dual citizen who is fighting a nearly $3 million fine for failing to pay taxes on his international earnings.
Originally born in Romania, Alexandru Bittner moved to the United States as a child. He became a U.S. citizen after nine years in the country and has retained his dual Romanian-U.S. citizenship since moving back to Romania. In his home country, Bittner spent 20 years becoming a successful businessman.
Bittner was unaware that as a dual citizen he was required to file U.S. income tax returns reporting his foreign income. He said he was not even aware of the name of the annual report — FBAR, or the Report of Foreign Bank and Financial Accounts — he was supposed to file.
When Bittner returned to the U.S. in 2011, he discovered his delinquency in filing his FBAR while living in Romania. In response, he hired an accountant to file those returns for him.
The IRS said Bittner failed to file timely FBAR reports for five years and concluded he should pay a penalty, even as the government acknowledged Bittner’s failure was nonwillful. While concluding that Bittner only failed to submit five annual forms, the IRS said he had violated the Bank Secrecy Act 272 times, totaling all of Bittner’s accounts not reported in those years. The IRS imposes a $10,000 fine for each delinquency, bringing Bittner’s penalty to $2.72 million.
The district court said the government’s penalty amount was unlawful, finding it should be capped at $50,000. The Fifth Circuit, however, reversed, sending the case to the high court.
Bittner claimed the IRS’s penalty is a case of government overreach.
“The IRS is using this type of leverage to pressure taxpayers into resolving these issues at the agency level — and few taxpayers have the resources to devote to extensive litigation challenging the IRS’s position,” Daniel Geyser, an attorney with Haynes and Boone representing Bittner, wrote in his brief.
He argued he should only face a single violation for his failure to report, not a violation for every single account on that form.
“Because there is no independent duty to report each account, there is no independent violation every time an account is not reported,” Geyser wrote.
The government, meanwhile, claimed Congress made clear in the text of the act that every undisclosed account should amount to a separate violation.
“Petitioner’s contrary view wrongly conflates the statutory requirement to report each foreign financial account with the Secretary’s administrative decision to permit multiple reports to be made on a single form (generally with additional pages for accounts beyond the first one),” U.S. Solicitor General Elizabeth Prelogar wrote in the government's brief. (Parentheses in original.)
The Supreme Court disagreed with the government’s argument Tuesday and ruled that the $10,000 maximum penalty for nonwillful failure to file a report accrues on a per-report basis, not per-account. In the majority’s interpretation of the Bank Secrecy Act, the statute does not speak of accounts, but rather the requirement to file a consistent report.
However, penalties may be measured by accounts for certain cases involving willful violations such as failing to report the existence of an account, according to the majority opinion penned by Justice Neil Gorsuch. In such cases, the Treasury Department may impose a maximum penalty of either $100,000 or 50% of the balance in the account at the time of the violation – whichever is greater.
Gorsuch noted that the government itself has issued public notices stating that if a person fails to properly file an FBAR, they may be subjected to “a civil penalty not to exceed $10,000.”
“We see evidence…that the point of these reports is to supply the government with information potentially relevant to various kinds of investigations, criminal and civil alike. But what we do not see is any indication that Congress sought to maximize penalties for every nonwillful mistake,” such as a late filing or transposed account number, the ruling states.
Gorsuch said the Bank Secrecy Act treats the failure to file an FBAR as a single violation punishable by a $10,000 fine, “not a cascade of such penalties calculated on a per-account basis.”
“Because the Fifth Circuit thought otherwise, we reverse its judgment and remand the case for further proceedings consistent with this opinion,” the Donald Trump appointee wrote.
Justice Amy Coney Barrett wrote a dissenting opinion and was joined by Justices Clarence Thomas, Sonia Sotomayor and Elana Kagan.
According to them, the BSA’s reporting requirement attaches to each individual account, and “a person who fails to report multiple accounts on the prescribed reporting form violates the law multiple times, not just once.”
“So the government was within its rights to assess a separate penalty against Bittner for each qualifying foreign account that he failed to report properly,” Barrett wrote.
The dissent states that the Treasury Department should have instructed citizens to report each account on a separate form, rather than reporting all of their accounts on a single form, in order to highlight an account-specific obligation.
Rachael Rubenstein, one of Bittner’s attorneys from Clark Hill, said his legal team is “overjoyed with the result.”
“We have represented Mr. Bittner for all these years and are absolutely thrilled to achieve this result on his behalf. We are particularly thankful for Haynes Boone’s excellent representation before the Supreme Court, led by Daniel Geyser, who masterfully argued the case,” Rubenstein said.
Geyser and the solicitor general’s office did not immediately respond to a request for comment.
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