Supreme Court: nonwillful FBAR penalty applies per report, not per account

On Feb. 28, 2023, the U.S. Supreme Court issued a decision in Bittner v. United States, No. 21-1195, where it held that the $10,000 maximum penalty for the nonwillful failure to file a Report of Foreign Bank and Financial Accounts (FBAR) is determined on a per report basis, not a per account basis.

Background

The Bank Secrecy Act of 1970 (BSA) and regulations thereunder require that a U.S. person file an FBAR if the U.S. person has a financial interest in or signature authority over one or more financial accounts outside of the United States and the aggregate maximum value of the account(s) exceeds $10,000 at any time during the calendar year. Financial Crimes Enforcement Network (FinCEN) Form 114 is used for satisfying the reporting requirement.

Civil penalties may be imposed under the BSA for both willful and nonwillful violations of the FBAR requirement (separately, for willful violations, criminal penalties may also be imposed). The statutory maximum civil monetary penalty allowed for a willful failure is equal to the greater of $100,000 or 50% of the balance in the account at the time of the violation, whereas a $10,000 maximum penalty may be imposed for a nonwillful “violation.”

The case before the Supreme Court involved the imposition of civil penalties for nonwillful violations of the law where businessperson Alexandru Bittner filed late (and deficient but subsequently corrected) FBARs for each of the calendar years 2007 through 2011 for which there were reportable foreign financial accounts totaling 61 in 2007, 51 in 2008, 53 in each of 2009 and 2010, and 54 in 2011. Collectively, the late-filed FBARs involved 272 account instances which was the basis upon which the government imposed a penalty of $2.72 million (i.e., $10,000 maximum civil penalty for nonwillful violations of law determined on a per account basis).

Bittner challenged the penalty in a district court and then appellate courts, arguing that the BSA authorizes a maximum penalty for nonwillful violations of $10,000 per report (or a total of a $50,000 penalty for the five late-filed FBARs), and not $10,000 per account (the $2.72 million penalty imposed), but the Fifth Circuit upheld the government’s assessment.

The Fifth Circuit’s decision was at odds with the separate Ninth Circuit decision in United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021), where that other court found that the statute, read with the regulations, authorizes a single nonwillful penalty for the failure to file a timely FBAR, rejecting the position that the penalty applies per account. It was on the basis of this split between the Fifth and Ninth Circuit decisions that the Supreme Court agreed to take the case. The Supreme Court reversed the Fifth Circuit’s decision in Bittner.

Supreme Court’s decision

The questions raised by the court were as follows: “Does someone who fails to file a timely or accurate annual report commit a single violation subject to a single $10,000 penalty? Or does that person commit separate violations and incur separate $10,000 penalties for each account not properly recorded within a single report?”

In a 5-4 decision authored by Justice Neil Gorsuch, the Supreme Court found that, “best read, the [non-willful penalty rules] treat 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” in holding that the BSA’s $10,000 maximum penalty for the nonwillful failure to file an FBAR is determined on a per report, and not per account, basis.

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