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Analyzing the Bittner Case on FBAR Penalties for Non-Willful Tax Cases

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    The Bittner case involves an interpretation of the Bank Records and Foreign Transactions Act, commonly referred to as the Bank Secrecy Act (BSA). The BSA has set forth a $10,000 penalty for foreign account holders who commit reporting violations that are not willful, and which do not satisfy the reasonable cause exception.

    The question before the Court in the Bittner case regards whether the yearly non-willful penalty is applied per Foreign Bank Account Report (FBAR) not properly filed by a person, or per foreign account maintained by a person and not reported. Briefs have been filed by multiple parties in support of either position.

    If you have encountered an issue with the Internal Revenue Service (IRS) regarding FBAR reporting, our Dual-Licensed International Tax Lawyers & CPAs can help. Reach out to our experienced tax attorneys by calling the Tax Law Offices of David W. Klasing at (800) 681-1295. Our lawyers can provide a case assessment.

    Background on FBAR Reporting Requirements

    The requirement to file a Report of Foreign Bank and Financial Accounts (FBAR) was set forth in 1970 by the Bank Secrecy Act. It was established as part of a network of reporting requirements with the purpose of identifying monetary transactions that may evince money laundering, tax evasion, and other criminal activities.

    The FBAR filing requirement requires anyone with foreign bank accounts to report those relationships in a timely manner. The requirement was initially intended to serve as a tool for investigating criminal and terrorist activities. However, the FBAR filing requirement as evolved to become a helpful instrument of prosecutorial leverage with respect to tax evasion cases.

    An FBAR has to be filed by any U.S. citizen that has a financial interest or signature authority over one or more foreign bank accounts with aggregate values over $10,000 at any point throughout the calendar year. Furthermore, foreign account holders must maintain records pertaining to their accounts for at least five years.

    Noncompliance with FBAR reporting requirements can come with severe penalties, especially if the government determines that a violation was willful. There have been several developments regarding the definition of “willfulness” in the context of FBAR reporting. If you are facing penalties for failing to comply with FBAR reporting requirements, then you should contact our international tax attorneys as soon as possible. Our lawyers can help review your case and determine the proper course of action.

    Question Presented by the Bittner Case on Non-Willful FBAR Penalties

    In the Bittner Case, the Supreme Court questions whether the non-willful penalty for FBAR reporting violations will be applied on a per form or per account bases. Several briefs have been filed by multiple parties in support of either position.

    Those who hold multiple foreign bank accounts stand to pay greater penalties on a per account basis as opposed to per form. Therefore, parties who stand to benefit from further collection of the government’s collected proceeds generally prefer penalization on a per account basis. Meanwhile, parties who represent the interests of businesses and individuals with foreign accounts typically prefer per form penalization.

    Summary of the Argument Presented by The American College of Trust and Estate Counsel

    The American College of Trust and Estate Counsel (ATEC) is a nonprofit association of law professors and lawyers focused on providing trust, estate, and tax learning for professionals, families, and law students. The ATEC has presented a brief which they allege is not in support of either party to the Bittner case. Rather, the ATEC strives to simply educated the court and assist them in their decision. The ATEC’s brief examines “the evolution of the Banking Secrecy Act (BSA) to include non-willful violations of the BSA, the effect of the statute on fiduciary parties, the alternative statutory constructions, and the potential constitutional impact of the statute as construed.”

    While the ATEC states that they intended to file a brief in support of neither party, it appears their argument supports to the per form interpretation of the statute. For example, the ATEC states that the penalty for non-willful reporting under the BSA is similar to a civil forfeiture under other provisions of the act. Therefore, according to the ATEC, a per account interpretation of the statute could “result in penalties that are unrelated to the amounts involved, the revenues lost, or the actions being penalized.”

    Summary of the Argument Presented by The National Whistleblower Center in its Amicus Brief

    The National Whistleblower Center (NWC) is a nonprofit organization dedicated to working with whistleblowers around the world to fight corruption. Since 1988, the NWC and associated attorneys regularly work with tax whistleblowers who have submitted information to the Internal Revenue Service (IRS) Whistleblower Program. As part of its goal, the NWC files various briefs to help courts understand complicated issues raised in whistleblower cases.

    In Bittner, the NWC has presented a brief in support of penalization on a per account bases for non-willful violations of FBAR reporting requirements. In their brief, the NWC outlines several negative ramifications a ruling in favor of per form penalization would have on whistleblowers and, in turn, the effective enforcement of the Banking Secrecy Act (BSA). By opting to penalize FBAR reporting violations on a per account bases, the NWC suggests that the Court “will align the law with the congressional intent to effectively track all illegal tax activities with the support of whistleblower tips.”

    It should not come as a surprise that the NWC has filed a brief in support of the per account interpretation of the non-willful penalty under the BSA. The NWC seeks to maximize the amount of proceeds the government collects under the act. These proceeds serve as the base for whistleblower awards. By arguing for a per-account interpretation, the NWC is essentially arguing for further funding of awards for tax whistleblowers.

    If You Are Facing Penalties for FBAR Reporting Violations, Our Attorneys Can Help

    If you have encountered an issue with the Internal Revenue Service (IRS) regarding FBAR reporting, our Dual-Licensed Tax Lawyers & CPAs can help. Reach out to our experienced tax attorneys by calling the Tax Law Offices of David W. Klasing at (800) 681-1295 to review your case.

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    Public Contact: Dave Klasing Esq. M.S.-Tax CPA, [email protected]

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