This is the third article I’ve written on Bittner v United States, a case before the U.S. Supreme Court. In an article posted on June 22, 2022 titled “$73 million penalty? Or $18.25 million? Or $118.25 million? The US Supreme Court will doon decide“, I introduced the Bittner case. In a follow-up article posted July 4, 2022, “BSA, Bittner, and FBARs: the United States Supreme Court will soon decide, but does it have ALL the facts it needs?“, I provided a detailed description of Bittner v United States and its competing case, US v Boyd, and walked through the 52-year history of the requirement to report foreign bank accounts – and the penalties for failing to do so.
The issue before the Court relates to how civil penalties are assessed for failing to report interests in, or signing authority over, foreign accounts. The issue – described in great detail in the July 4th article – can be distilled down to this: the law requires a person to report all of their foreign bank accounts on a single annual form, and the maximum penalty for failing to report those accounts by failing to file the form is $10,000. Is that penalty imposed on a “per form” basis or on a “per account” basis.
On November 2, 2022 the Supreme Court heard oral arguments in Bittner. Daniel Geyser appeared for the petitioner Alexandru Bittner; Matthew Guarnieri appeared for the United States. All nine Justices asked questions, ranging from two questions from each of Justice Thomas and Chief Justice Roberts, to ten questions from Justice Alito. Based on the questions, I’m predicting that the Court will come down in favor of the Government’s “per account” approach. Justice Jackson appears to favor a “per form” result (not approach) as she was focused on the equities and her reading that the statute was focused on the taxpayer, not the taxpayer’s account(s). But she was the only one that clearly favors that result or approach. Justices Thomas, Kavanaugh, and Alito seemed aligned, particularly over Justice Thomas’s hypothetical of the government using a one-account-per-FBAR approach. Justices Gorsuch and Barrett seemed to be leaning towards a “per account” approach.
Justice Kagen, though, was pretty clear. At pages 29-30 of the transcript, she commented that “I think 5321 is very clear in its account-specific nature. I think 5314 is also pretty clear in its account-specific nature.”
“5314” is a reference to 31 U.S.C. §5314. That section, titled “Records and reports on foreign financial agency transactions”, provides:
(a) Considering the need to avoid impeding or controlling the export or import of monetary instruments and the need to avoid burdening unreasonably a person making a transaction with a foreign financial agency, the Secretary of the Treasury shall require a resident or citizen of the United States or a person in, and doing business in, the United States, to keep records, file reports, or keep records and file reports, when the resident, citizen, or person makes a transaction or maintains a relation for any person with a foreign financial agency. The records and reports shall contain the following information in the way and to the extent the Secretary prescribes:
(1) the identity and address of participants in a transaction or relationship.
(2) the legal capacity in which a participant is acting.
(3) the identity of real parties in interest.
(4) a description of the transaction.
“5321” is a reference to the civil penalties provision, 31 U.S.C. §5321(a)(5), titled “Foreign Financial Agency Transaction Violation”:
(A) Penalty authorized. – The Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314.
(B) Amount of penalty. –
(i) In general. – Except as provided in subparagraph (C), the amount of any civil penalty imposed under subparagraph (A) shall not exceed $10,000.
(ii) Reasonable cause exception. – No penalty shall be imposed under subparagraph (A) with respect to any violation if-
(I) such violation was due to reasonable cause, and
(II) the amount of the transaction or the balance in the account at the time of the transaction was properly reported.
(C) Willful violations. – In the case of any person willfully violating, or willfully causing any violation of, any provision of section 5314-
(i) the maximum penalty under subparagraph (B)(i) shall be increased to the greater of-
(I) $100,000, or
(II) 50 percent of the amount determined under subparagraph (D), and
(ii) subparagraph (B)(ii) shall not apply.
(D) Amount. – The amount determined under this subparagraph is-
(i) in the case of a violation involving a transaction, the amount of the transaction, or
(ii) in the case of a violation involving a failure to report the existence of an account or any identifying information required to be provided with respect to an account, the balance in the account at the time of the violation.
When the foreign account reporting requirement was introduced in the original Bank Secrecy Act in 1970, it came with only criminal penalties for willfully, knowingly failing to report. Civil penalties for willful violations were added in 1986 (see 5321(a)(5)(C)). Those penalties were originally $10,000 per violation. In 2004 those penalties were increased to the current amount: the greater of $100,000 or 50% of the balance in the account at the time of the violation. Also in 2004 Congress added civil penalties for non-willful violations (see 5321(a)(5)(B)). Those penalties were capped at $10,000, and Congress included an “escape clause”, or reasonable cause exception for people who failed to timely report their interests in foreign accounts “due to reasonable cause”.
The Justices asked a number of questions about section 5314 not including the term “account”, and the willful versus nonwillful subparagraphs of 5321. There were a number of hypotheticals posed. Based on my reading of the briefs that were filed, and reading the transcript of the oral argument, I am predicting that the Supreme Court will uphold the 5th Circuit’s “per account” approach in a 8-1 decision written by Justice Kagen, with Justice Jackson casting the only dissent.