The Supreme Court agreed on June 21 to hear an appeal from a Romanian-American businessman who was fined $50,000 for failing to file tax forms on time, but whose penalty ballooned to $2.72 million when an appeals court ruled the fine should be imposed based on the number of bank accounts he held, instead of on the number of forms he failed to file.
The Biden administration, which wants to beef up enforcement efforts by the IRS, favors the larger penalty and had asked the high court to refuse to take the case.
The case is Bittner v. United States of America (court file 21-1195) an appeal from the U.S. Court of Appeals for the 5th Circuit.
The justices did not explain in their unsigned order why they agreed to hear the case, as is their usual practice when deciding the granting of petitions for certiorari, or review.
Alexandru Bittner was born in communist Romania. He moved to the United States in his youth, working as a dishwasher and later as a plumber. Eventually, he was naturalized in the United States and has been a dual Romanian-U.S. citizen ever since.
Bittner returned to Romania after the collapse of Soviet bloc communism in 1990 and lived there for more than 20 years until late 2011.
He was a successful businessman and had several non-U.S. personal bank accounts and owned stock in a number of Romanian corporations that also had foreign bank accounts.
While living abroad, Bittner had limited contact with the United States.
“Like many dual citizens, he was unaware that he was required to file U.S. income tax returns reporting his foreign income,” according to the petition (pdf) Bittner filed with the high court.
Bittner was also not aware of the existence of the FBAR form, that is, Report of Foreign Bank and Financial Accounts (FBAR) on Financial Crimes Enforcement Network (FinCEN) Form 114, or his duty to file such forms.
Soon after coming back to the U.S. in 2011 he realized he should have filed U.S. tax returns while living in Romania to report his worldwide income.
Bittner retained a professional accountant, who advised him on the requirement to file FBARs, to prepare and file the needed documents.
But the IRS found Bittner had failed to timely file FBARs for five years, 2007 through 2011. In that period, because he had more than 25 foreign accounts, he was not required to detail those accounts, but was permitted merely to state the total number of foreign accounts in which he had a financial interest.
His corrected forms nevertheless volunteered the full information.
The IRS sought to impose the maximum penalty under the Bank Secrecy Act, even though Bittner’s delinquency was non-willful.
Despite failing to file five annual forms on time, the IRS took the position that Bittner had violated the Act a full 272 times—once for each account that was not reported in each of those five years.
The IRS assessed a $2.72 million penalty, representing a $10,000 fine for each account Bittner disclosed on his untimely FBARs. The IRS sued Bittner in federal district court in Texas, which determined the tax collection agency erred.
The court ruled the total fine should be capped at $50,000, or $10,000 maximum for each annual FBAR.
The U.S. Court of Appeals for the 5th Circuit reversed the decision, finding fines should apply “on a per-account, not a per-form, basis,” and restoring the $2.72 million penalty figure.
The decision conflicts with precedent in the U.S. Court of Appeals for 9th Circuit, Bittner argued in his petition, and needs to be resolved by the Supreme Court.
“[T]here is no reason to think the conflict will disappear on its own: the IRS is applying one rule in the Ninth Circuit and a different rule everywhere else, leaving the conflict entrenched—and ensuring that tax penalties vary greatly based entirely on the happenstance of where a taxpayer is located.”
“That disparate treatment of identically situated parties undermines the proper administration of the tax system and interferes with sound tax policy,” he stated in the petition.
The filing added: “This critical issue arises all the time, and the act’s penalties for identically situated parties will now turn on whether the taxpayer is from California or Texas.”
U.S. Solicitor General Elizabeth Prelogar had urged the Supreme Court to throw out Bittner’s appeal, according to a brief (pdf) filed May 17.
When Bittner filed the untimely FBARs the forms were inaccurate and incomplete. The IRS, she stated, had accused Bittner of concealing cash and of not cooperating with the agency.
The IRS also claimed that when the man filed U.S. income tax returns for six of the taxable years in which he was living in Romania, he did provide accurate answers to the question “regarding whether he had foreign financial accounts and whether he had a requirement to file an FBAR.”
Bittner’s attorney, Daniel Geyser of Haynes and Boone in Dallas, was pleased the Supreme Court will hear the case.
“This case presents exceptionally important questions for taxpayers nationwide,” Geyser told The Epoch Times by email.
“The IRS is profoundly misreading the act to impose breathtaking penalties for non-willful conduct. We’re grateful for the grant, and we look forward to litigating the case on the merits.”