The Grassroots Corner April 17, 2023

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  • Source: FAIRtax
  • 04/17/2023


The Supreme Court’s Bittner decision, published February 28, 2023, fundamentally affects FBARs (Reports of Foreign Bank and Financial Account) under the Banking Secrecy Act.  This reporting requirement saddles every American citizen who maintains a foreign bank account, regardless of where they live. And the decision matters.

We reported this case in the October 10, 2022, Grassroots Corner. To recap, Alexandru Bittner was born in Romania and came to the United States as a child. He became a naturalized American citizen, which may have been a mistake, as you will soon see. When Communism fell in Eastern Europe, Bittner returned to his native Romania and became a successful businessman. While there, Bittner had fifty-some foreign bank accounts, or at least had signature authority over them.

Bitter came back to the United States and settled in Texas. Only then was he made aware of his obligation as a US citizen to report his foreign bank accounts.  Wanting to do the right thing, he hired an accountant and filed his reports, albeit late. Upon looking at his first report, the IRS told him that there were additional accounts that should also be reported.  Bittner then fired his first accountant and had a new accountant amend his reports.

The IRS agreed that Bittner's late reporting was an oversight and not a deliberate attempt to circumvent the law.  Still, they hit him with the maximum fine of $10,000 per account per year for each of the five years he was late.  In total, the fine amounted to $2.7 million.

When the IRS applied to register its fine with the U.S. District Court for the Eastern District of Texas, Bitter opposed the application.

Bittner did not dispute that he owed a fine, but questioned the amount.  He argued that he should be fined no more than $10,000 for each report that was late regardless of how many accounts were included on each report.  By his calculation, the fine should be no more than $50,000.

The District Court sided with Bittner, but the IRS appealed to the Fourth Circuit Court of Appeals in New Orleans.  The Circuit Court sided with the IRS and reversed the District Court ruling.  As a result, the $2.7 million fine was reinstated.

Bittner’s argument had a precedent in the Ninth Circuit in San Francisco. There, Mrs. Boyd, an American schoolteacher in the U.K., had argued the same point.  In that case, the Ninth Circuit agreed that the fine was per annual report, not per account. Thus, there were conflicting decisions among the Circuit Courts of the United States on the same issue, and the Supreme Court decided to take Bittner's case.

At the Supreme Court, Bittner prevailed. Justice Gorsuch, writing for the majority, agreed with Bittner for several reasons. First, the statute requiring the FBAR expressly provided a per account fine if the failure to report was intentional. Bittner’s failure was not intentional. If Congress had intended fines for unintentional failures to be on a per account basis, it should have said so expressly.

Justice Gorsuch also looked to context clues that cut against the IRS's theory. First, the Court considered what the Government itself had told the public about the Banking Secrecy Act, under which FBARs are filed. Several statements in publications by the IRS indicate that the fine should be on a per report basis, not a per account basis. Justice Gorsuch pointed out that these statements do not control the analysis of the Court, but the Court could consider them.

Third, lenity should apply to a statute imposing a fine, i.e., a statute imposing a fine should be strictly interpreted against the Government. Where there is doubt, the decision should come down in favor of a respondent like Bittner.

Notably, this decision was not made along traditional ideological lines.  Justice Ketanji Brown Jackson, often regarded as a liberal, sided with conservatives Gorsuch, Roberts, Alito and Kavanaugh in the majority.  Roberts, Alito, and Kavanaugh, agreed with only the first part of Gorsuch's opinion but, therefore, with the result.  Conservatives Amy Coney Barrett and Clarence Thomas joined liberals Sonia Sotomayor and Elena Kagan in the dissent.

So, what would have happened to Mr. Bittner if the FAIRtax had been in place? The FAIRtax Act would not have repealed the FBAR statutes because those statutes are not part of the Internal Revenue Code. However, the agency that enforces the FBAR reports, the IRS, goes away under the FAIRtax, making failure to file an FBAR report a crime without a cop.

Of course, with the FAIRtax, there would be no need for the Federal Government to continue the FBAR requirement because there would be no income tax to potentially evade. As a result, Mr. Bittner and Americans, both here and abroad, who maintain foreign bank accounts would have an enormous weight taken off their shoulders.

Why is it important to help Americans abroad, particularly those who maintain bank accounts where they live? Many Americans abroad help American exports, or they help foreign investment in the United States. In this role, they keep America competitive. If we chase them home with our tax code or pressure them to renounce their citizenship, we lose that edge. With the FAIRtax, citizenship-based taxation unique to the United States goes away.

I would love to know what you think about this decision.

Jim Bennett
AFFT Grassroots Coordinator & Secretary


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