SCOTUS Rules FBAR Penalty Determined on Per-Report Basis
Taxpayers with foreign bank accounts who forgot to file an annual Report of Foreign Bank and Financial Accounts (FBAR) received some good news at the end of February. In Bittner v. United States, the Supreme Court ruled that the penalty for nonwillful failure to file an FBAR should be assessed on a per-report basis—capping fines at $10,000 per year, regardless of the number of accounts.
Which foreign accounts should taxpayers include in FBAR?
The Bank Secrecy Act (BSA) requires that taxpayers report foreign accounts in which they hold a financial interest, including:
- Bank accounts
- Brokerage accounts
- Mutual funds
- Unit trusts
- Other financial accounts (“Bank Secrecy Act,” IRS.gov)
One type of financial account is conspicuous by its absence: FBAR does not currently apply to accounts exclusively holding virtual currency. However, the Financial Crimes Enforcement Network (FinCEN) has already announced its intention to propose regulations that would “include virtual currency as a type of reportable account under 31 CFR 1010.350” (FinCEN Notice 2020-2).
Why did SCOTUS issue this ruling?
The majority opinion argues that the government’s per-account method for calculating nonwillful FBAR fines is not supported by statute, Treasury guidance, or Congressional statement of purpose (5-9, 11). They note that these examples actually serve as evidence for determining nonwillful fines on a per-report basis, including the following:
- “Section 5314 provides that the Secretary of the Treasury ‘shall’ require certain persons to ‘keep records, file reports, or keep records and file reports’ when they ‘mak[e] a transaction or maintai[n] a relation’ with a ‘foreign financial agency’”
- “Section 5321 authorizes the Secretary to impose a civil penalty of up to $10,000 for ‘any violation’ of Section 5314”
- “In 2010, the Department of the Treasury issued a notice of proposed rulemaking warning that, under its proposed rules, ‘[a] person who is required to file an FBAR and fails to properly file may be subject to a civil penalty not to exceed $10,000’”
- “Instructions included with the FBAR form have cautioned that ‘[a] person who is required to file an FBAR and fails to properly file may be subject to a civil penalty not to exceed $10,000’”
- “Congress has declared that the BSA’s ‘purpose’ is ‘to require’ certain ‘reports’ or ‘records’ that may assist the government in everything from criminal and tax to intelligence and counterintelligence investigations”
Since there is no mention of per-account fines for nonwillful violations—and many government documents instead seemingly indicate per-report fines—SCOTUS ultimately sided with Bittner, reaffirming that penalties should be clearly stated in “language that the common world will understand” (15).
How can I learn more about FBAR?
We offer a new course on DrakeCPE.com dedicated to teaching paid tax return preparers about reporting foreign financial accounts. After completing Reporting Foreign Financial Accounts: FinCEN and FBAR, you will know what led to the creation of FBAR and how to meet relevant preparation and filing guidelines.
Source: “Bank Secrecy Act,” IRS.gov; Bittner v. United States, No. 21-1195 (2023); FinCEN Notice 2020-2