U.S. Supreme Court limits penalties for not reporting foreign accounts

(Reuters) - The U.S. Supreme Court on Tuesday limited the ability of the Internal Revenue Service to assess penalties for failing to file reports disclosing foreign bank accounts, as it overturned a $2.72 million fine the IRS imposed on a businessman.

The justices in a 5-4 ruling sided with Alexandru Bittner, a dual U.S.-Romanian citizen who argued the maximum penalty he should face for belatedly filing those reports pursuant to the Bank Secrecy Act was $50,000.

That law aims to combat money laundering and tax evasion by requiring U.S. citizens and residents to file reports disclosing their foreign bank accounts. Non-willful violations of the law are subject to a maximum penalty of $10,000 per violation.

Bittner said he only learned of the requirement to file the so-called FBAR reports after returning to the United States from Romania in 2011 and subsequently submitted five annual reports covering the years 2007 to 2011.

The question was whether violations are assessed based on the number of FBAR reports a taxpayer was supposed to file or the number of foreign bank accounts he or she was supposed to reveal on those reports.

The IRS contended Bittner had violated the law 272 times based on the number of accounts that were listed in his belated reports over the course of five years.

Bittner said he should be penalized for just five violations, reflecting the number of reports he failed to file disclosing as much as $16 million he had spread across more than 50 bank accounts in Romania, Switzerland and Liechtenstein.

While the New Orleans-based 5th U.S. Circuit Court of Appeals agreed with the government's reading of the law, conservative Justice Neil Gorsuch writing for Tuesday's majority said the statute never authorized per-account violations.

"Best read, 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.

He said in contrast with how Congress authorized per-account penalties for some willful violations, "conspicuously, the one place in the statute where the government needs per-account language to appear is the one place it does not."

Daniel Geyser, Bittner's lawyer at Haynes and Boone, in a statement said the ruling "correctly cabins the IRS's discretion and curbs agency overreach."

The dissenters came from across the court's ideological lines, with conservative Justices Amy Coney Barrett and Clarence Thomas joining with liberal Justices Sonia Sotomayor and Elena Kagan.

Barrett wrote that the "most natural reading of the BSA and its implementing regulations establishes that a person who fails to report multiple accounts on the prescribed reporting form violates the law multiple times, not just once."

The case is Bittner v. United States, U.S. Supreme Court, No. 21-1195.

For Bittner: Daniel Geyser of Haynes and Boone

For the United States: Solicitor General Elizabeth Prelogar

Our Standards: The Thomson Reuters Trust Principles.