The U.S. Supreme Court held Tuesday in a 5-4 decision that the $10,000 penalty for a nonwillful failure to file a Report of Foreign Bank and Financial Accounts (FBAR) for foreign accounts accrues per report, not per account (Bittner, No. 21-1195 (U.S. 2/28/23)).

The decision resolves a split between the Fifth and Ninth circuits. The Fifth Circuit had held that the penalty can be imposed per unreported account (Bittner, 19 F.4th 734 (5th Cir. 2021)); the Ninth Circuit has held it can only be applied per unfiled FBAR covering all foreign accounts each year (Boyd, 991 F.3d 1077 (9th Cir. 2021)).

FBARs (Financial Crimes Enforcement Network (FinCEN) Forms 114, Report of Foreign Bank and Financial Accounts) are required to be filed annually by the Bank Secrecy Act of 1970 (BSA), P.L. 91-508. U.S. persons must report on an FBAR all financial interests in, or signature or other authority over, financial accounts located outside the United States (with certain exceptions) if the aggregate value of those financial accounts exceeded $10,000 at any time during the calendar year covered by the FBAR.

The statute (31 U.S.C. §5321(a)(5)(B)) prescribes a civil penalty of up to $10,000 for a nonwillful violation of any provision of the FBAR filing requirement (unless due to reasonable cause).

The decision arises from an appeal brought by Romanian-American businessperson Alexandru Bittner. The IRS, ruling that the FBAR penalty applies to each foreign account not timely or accurately reported, assessed FBAR penalties for 2007 through 2011 totaling $2.72 million for Bittner’s nonwillful violations of the FBAR reporting requirements for 272 accounts.

Bittner contested the penalties in district court, arguing that the FBAR penalty applies on a per-report, not per-account, basis, and that he owed only $50,000 in penalties. The district court agreed with Bittner, holding that the penalty applies per report (Bittner, 469 F. Supp. 3d 709 (E.D. Tex. 2020)). The government appealed, and the Fifth Circuit reversed the district court in Bittner, 19 F.4th 734 (5th Cir. 2021). However, a split in the circuits was created when the Ninth Circuit held that the fine applies on a per-report basis.

In its opinion, the Supreme Court agreed with the Ninth Circuit’s interpretation, concluding that, “[b]est 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” (slip op. at 16).