By:  Coleman Jackson, Attorney & Certified Public Accountant

March 6, 2023

Upcoming Beneficial Owners Information Reporting Requirements

The Bank Secrecy Act (BSA) and its implementing regulations require certain individuals to file annual reports with the federal government about their foreign bank accounts. The statute imposes a maximum $10,000 penalty for nonwillful violations of the law. But recently a question has arisen in the U.S. Supreme Court. 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 different $10,000 penalties for each account not properly recorded within a single report? Because the Ninth Circuit read the law one way and the Fifth Circuit the other, the U.S. Supreme Court took the case and recently decided in favor of the taxpayers.

BSA simply requires those who possess foreign accounts with an aggregate balance of more than $10,000 to file an annual report on a form known as an “FBAR”—the Report of Foreign Bank and Financial Accounts. 31 U. S. C. §5314; 31 CFR §1010.306 (2021). These reports are designed to help the government “trace funds” that may be used for “illicit purposes” and identify “unreported income” that may be subject to taxation separately under the terms of the Internal Revenue Code.

9th Circuit case: Jane Boyd, an American citizen, held 13 relevant accounts in the United Kingdom. Because the aggregate amount in Ms. Boyd’s accounts exceeded $10,000 in 2009, she should have filed an FBAR in 2010. Neglecting to do so, she corrected the error in 2012, submitting a complete and accurate report at that time. The government acknowledged that Ms. Boyd’s violation of the law was “non-willful”, and imposed a $130,000 penalty—$10,000 for each of her 13 late-reported accounts. Ninth Circuit vindicated Ms. Boyd’s view, holding that the BSA authorizes “only one nonwillful penalty when an untimely, but accurate, FBAR is filed, no matter the number of accounts.” 991 F. 3d, at 1078.

5th Circuit case: Alexandru Bittner was born and raised in Romania, but immigrated to the United States at a young age in 1982 and became a naturalized citizen. After the fall of communism, Mr. Bittner returned to Romania in 1990 where he launched a successful business career. Like many dual citizens, he did not appreciate that U. S. law required him to keep the government apprised of his overseas financial accounts even while he lived abroad. Shortly after returning to the United States in 2011, Mr. Bittner learned of his reporting obligations and engaged an accountant to help him prepare the required reports—covering five years, from 2007 through 2011. Under governing regulations, filers with signatory authority over or a qualifying interest in fewer than 25 accounts must provide details about each account, but individuals with 25 or more accounts need only check a box and disclose the total number of accounts. 31 CFR §1010.350(g). Mr. Bittner and his new accountant volunteered details for each and every one of his accounts—61 accounts in 2007, 51 in 2008, 53 in 2009 and 2010, and 54 in 2011. 19 F. 4th, at 738.  Because the government took the view that nonwillful penalties apply to each account not accurately or timely reported, and because Mr. Bittner’s late-filed reports for 2007–2011 collectively involved 272 accounts, the government thought a fine of $2.72 million was in order. Mr. Bittner challenged his penalty in court, arguing that the BSA authorizes a maximum penalty for nonwillful violations of $10,000 per report, not $10,000 per account. The district court agreed with Mr. Bittner’s reading of the law, United States v. Bittner, 469 F. Supp. 3d 709, 724–726 (ED Tex. 2020), but the Fifth Circuit upheld the government’s assessment, 19 F. 4th, at 749.


U.S. Supreme Court decision: To resolve who has the better reading of the law, U.S. Supreme Court begins with the terms of the most immediately relevant statutory provisions, 31 U. S. C. §5314 and §5321. Section 5314 (Secretary of the Treasury “shall” require certain persons to “keep records, file reports, or keep records and file reports” when they “mak[e] a transaction or maintai[n] a relation” with a “foreign financial agency.”) does not speak of accounts or their number. The word “account” does not even appear. Instead, the relevant legal duty is the duty to file reports. Whether a report is filed late, whether a timely report contains one mistake about the “address of [the] participants in a transaction,” or whether a report includes multiple willful errors in its “description of . . . transaction[s],” the duty to supply a compliant report is violated. As a baseline, §5321(a)(5) authorizes the Secretary to impose a civil penalty of up to $10,000 for “any violation” of §5314. The law still does not speak of accounts or their number. Also, the law authorizes the Secretary to impose a maximum penalty of either $100,000 or 50% of “the balance in the account at the time of the violation”—whichever is greater. §§5321(a)(5)(C) and (D)(ii). So here, at last, the law does tailor penalties to accounts. But the statute does so only for a certain category of cases that involve willful violations, not for cases like ours that involve only nonwillful violations. When Congress includes particular language in one section of a statute but omits it from a neighbor, we normally understand that difference in language to convey a difference in meaning (expressio unius est exclusio alterius). The government’s interpretation defies this traditional rule of statutory construction. Therefore, the Supreme Court held that the BSA’s $10,000 maximum penalty for the non-willful failure to file a compliant FBAR should be calculated on a per report, rather than a per account, basis. The decision, which was issued on February 28, 2023, was a close vote, 5-4, with Justice Barrett writing in the dissent, “The most natural reading of the statute establishes that each failure to report a qualifying foreign account constitutes a separate reporting violation, so the Government can levy penalties on a per-account basis. Nevertheless, the Supreme Court reversed the Fifth Circuit and remanded the case back to district court.


What does the Supreme Court’s Decision in Bittner Mean to Foreign Bank Account Holders:

What is not clear is what this means for taxpayers who have paid civil fines for unintentional account violations in the past. The ruling also raises the question of whether the IRS will be more aggressive in characterizing violations as willful now that differences in penalty calculations will be more significant.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432 | Portuguese (214) 272-3100



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