Supreme Court Gives Taxpayers an FBAR Win

March 16, 2023  |  New York Law Journal

For more than a decade, the Internal Revenue Service and the Department of Justice have devoted substantial resources to cracking down on taxpayers who fail to disclose their offshore accounts on Reports of Foreign Bank and Financial Accounts (FBARs). While taxpayers who willfully fail to comply with their FBAR reporting obligations are exposed to imprisonment and civil penalties equal to 50% of the highest balance of their unreported accounts, taxpayers who fail to report their offshore accounts "due to negligence, inadvertence, or mistake or ... a good faith misunderstanding of the" legal requirements are subject to "non-willful" penalties of $10,000 per violation.

In recent years, a split developed between the Ninth Circuit, which agreed with taxpayers that the $10,000 penalty applies on a “per-year” basis, and the Fifth Circuit, which agreed with the government’s “per-account” approach. In this article, Jeremy Temkin reviews the Supreme Court's February 28, 2023 decision in Bittner v. United States, which resolves this circuit split. In a 5-4 decision that cut across ideological lines, the Court handed taxpayers a victory by limiting the government to a single $10,000 penalty for each year, regardless of how many accounts had gone unreported. Bittner demonstrates that the “plain meaning” of a statutory text is often far from “plain” and that how the Justices line up in a given case can be difficult to predict.

US Supreme Court Gives Taxpayers an FBAR Win (pdf | 160.56 KB)