U.S. taxpayers who own foreign assets and investments often face confusion about their requirements when filing taxes and reporting information to the IRS. In general, taxpayers must file a Foreign Bank and Financial Account Report (FBAR) on an annual basis, and they must include information about all accounts or other assets owned outside the United States. Failure to file FBARs can result in steep penalties. Until recently, there was some confusion about how penalties were applied in certain situations. However, a recent Supreme Court ruling has cleared up this issue and provided some understanding of the potential penalties in certain cases.
Bittner v. United States
In the case of Bittner v. United States, the defendant was charged with failing to report foreign accounts to the IRS between 2007 and 2011. The question was whether the penalties that would apply should be based on the number of reports that were not filed or the number of accounts that were not reported. A maximum $10,000 penalty may be applied for each violation, and initially, the IRS imposed a total penalty of $2.72 million based on the number of accounts that were not reported between 2007 and 2011. The defendant challenged this decision, and the fine was reduced to $50,000, or $10,000 for each year that he did not report his assets correctly. An appeals court reversed the ruling, and the defendant then appealed the case to the Supreme Court.
After review, the majority of the Supreme Court justices ruled that FBAR penalties should be issued on a per-report basis rather than a separate penalty being assessed for each account that was not reported. In the majority opinion, Justice Neil Gorsuch stated that the laws addressing this issue state that a person has a duty to file reports to the IRS, without discussing specific accounts or the number of accounts listed. While the law does allow for penalties to be assessed on a per-account basis for willful violations, the failure of the law to specify how penalties should apply for non-willful violations means that a single penalty will apply for the failure to file a report, regardless of the number of accounts that should have been reported.
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