The Grassroots Corner October 10, 2022

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  • Source: FAIRtax
  • 10/07/2022

MEET ALEXANDRU BITTNER


Alexandru Bittner is not a FAIRtax advocate – yet. But he is someone you should know.

  Alexandru was born in Romania and came to the United States as a child. He grew up here and became a naturalized U.S. citizen. When communism fell in the 1980s, Alexandru decided to return to Romania and seek his fortune. And he made good there for over twenty years.

  But Alexandru came to regret his ignorance of U.S. tax law. Like many U.S. expatriates, he was unaware of two obligations that expatriate U.S. citizens uniquely share with only one other country in the world: Eritrea. He was unaware of his obligation to file a U.S. federal income tax return, even though he did not live in the U.S. or maintain a residence here. He was also unaware of the obligation to report his bank accounts to the U.S. Treasury, even though some of these accounts were with Romanian banks and handled his personal transactions.

  Alexandru moved back to the U.S. and settled in Texas. Sometime later, he became aware of the obligations he was supposed to have met while living in Romania.  Wanting to do the right thing, he engaged an accountant, came forward, and filed all the returns and reports for his time in Romania – albeit late.

The delinquencies amounted to five years’ worth of reports for 272 bank accounts over the years, averaging 54.4 bank accounts each year. Some of the accounts were personal accounts, and some accounts belonged to corporations or other legal entities that Alexandru controlled. 

  The civil penalty for failing to report foreign bank accounts in a timely manner is UP TO $10,000. Do you think the IRS would give Alexandru a break for coming forward on his own and filing the report?  Not a chance. The IRS wanted its full pound of flesh. It assessed Alexandru the entire $10,000 for each account for each year that he failed to file on time. The assessment added up to $2.72 million, even though both parties agreed that Alexandru's failure to report on time was not willful. 

  The IRS filed suit on its $2.72 million assessment in the U.S. District Court for the Eastern District of Texas so that it could use the court's power to collect from Alexandru. The IRS moved for summary judgment, i.e., it asked the court to decide the suit without holding a trial because there was no dispute about the facts. Alexandru cross-moved, i.e., he asked the court to declare that, under the applicable statutes, his liability is capped at $50,000, calculated on a per-report basis instead of a per-account basis each year.

  The district court agreed with Alexandru and determined that the IRS’s penalty assessment was unlawful. Alexandru’s liability was capped at $50,000, a $10,000 maximum penalty for each annual report.  The IRS appealed to the U.S. Circuit Court for the Fifth Circuit in New Orleans. The Fifth Circuit reversed the district court’s decision and held Alexandru liable for the original $2.72 million. 

In April this year, Alexandru petitioned the U.S. Supreme Court for what lawyers call a writ of certiorari. This petition means that, since the Supreme Court can decide, for the most part, which cases it chooses to hear, the Supreme Court should decide to hear his case. 

  Alexandru noted in his petition that the United States Circuit Court in the Ninth Circuit in San Francisco, hearing a California case, decided the same issue the other way. In other words, the IRS’s civil penalty in California is per report without regard to how many accounts were reported late. In Texas, the penalty is per bank account/per year. Alexandru noted the result should not depend on whether one lives in Texas or California.

  The Supreme Court granted Alexandru's petition in June this year, and the Supreme Court will hear the case on November 2, 2022.  However, the Court’s decision won’t be announced for several months after that.  Please remind me to check in.

  Alexandru should be a FAIRtax fan!  Under the FAIRtax, none of this would have happened.  With the FAIRtax, there are no income tax returns to file, or Treasury reports to submit. Please note that this case does not affect only Americans living abroad. Any U.S. resident with a bank account outside the U.S. should also be scared. The FAIRtax would help these people, too.

  I want to thank U.S. Attorney John Richardson of Citizenship Solutions and his colleague Joe Howard for putting me onto this case. John is based in Toronto, Ontario, Canada, and he is an expert in the tax problems that Americans who live outside the U.S. face. John is a huge supporter of the U.S. FAIRtax.

I would love to hear from you about any problems you know of with friends who are U.S. Citizens with bank accounts outside our borders.
 
Jim Bennett
AFFT Grassroots Coordinator & Secretary

 

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