The US Supreme Court scaled back the federal penalties for failing to file required reports listing foreign bank accounts in a ruling likely to help some Americans living abroad.
(Bloomberg) — The US Supreme Court scaled back the federal penalties for failing to file required reports listing foreign bank accounts in a ruling likely to help some Americans living abroad.
The justices, voting 5-4, threw out a $2.72 million fine on Alexandru Bittner, a businessman who didn’t file reports for five years when he was living in Romania. Bittner contended the maximum penalty under federal law is $50,000.
The fight centered on the Bank Secrecy Act, a law designed to combat tax evasion and money laundering by requiring US citizens and residents to report on their foreign holdings. For unintentional violations, the law authorizes penalties of as much as $10,000.
The Internal Revenue Service concluded that Bittner violated the law 272 times, once for each account that was not reported in each of those five years. Bittner said he violated the law at most five times, once for each annual report he failed to file.
Writing for the court, Justice Neil Gorsuch backed Bittner’s reading of the law.
“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,” he wrote.
The court divided along unusual lines. Justices Amy Coney Barrett, Clarence Thomas, Sonia Sotomayor and Elena Kagan dissented.
Bittner, who is a dual US-Romanian citizen, was required to file a form known an FBAR during the 2007-2011 period at issue in the case. Bittner and his allies said the government’s interpretation left taxpayers vulnerable to draconian fines for obligations many people don’t know they have.
The Biden administration defended the larger fines, arguing that each foreign account is a matter of distinct concern for the government. The administration pointed to a provision that shields people from fines if a violation was due to “reasonable cause” and said the law gives the Treasury Department discretion impose a penalty below the maximum when warranted.
Tax compliance issues for Americans living abroad have increased in the past decade, pushing many Americans to give up their passports. Congress added another set of paperwork starting in 2014 with the Foreign Account Tax Compliance Act.
The U.S. and Eritrea are the only two countries in the world that tax people based on citizenship, rather than where they live. The result of all the compliance hurdles has meant that many Americans living abroad have trouble accessing bank accounts, mortgages and other financial services because institutions don’t want the hassle of dealing with the US bureaucracy.
Thousands of people now give up their US citizenship each year, up from the couple hundred that used to do so a decade ago before the FATCA law went into effect.
The case is Bittner v. United States, 21-1195.
(Updates with excerpt from opinion in sixth paragraph.)
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