Michele Weiss, Principal at Holtz, Slavett & Drabkin, will participate in a Beverly Hills Bar Association panel exploring how to navigate the new landscape for Foreign Bank Account Report (FBAR) penalties in light of the U.S. Supreme Court decision in Bittner v. United States, No. 21-1195 (US Sup. Ct. Feb. 28, 2023).   The webinar is on April 4, 2023, from 12:30 – 1:30 p.m. Pacific time.  To register, click here.

Pursuant to 31 U.S.C. § 5314, U.S. taxpayers who hold financial accounts in foreign financial institutions are required to file annual FBARs disclosing their account information to the U.S. Treasury.  The due date for a taxpayer’s FBAR filing follows the due date for the taxpayer’s federal income tax return for the same tax year.  31 U.S.C. § 5321 imposes a penalty of $10,000 for a non-willful violation of the statute (penalties for a willful violation can be significantly higher).

The issue in Bittner was whether the “violation” for purposes of the penalty is based on the FBAR form (which could report multiple foreign accounts) or based on each foreign account.  If the violation is based on the FBAR form, then the non-willful failure to file penalty is capped at $10,000 per year.  However, if a violation is based on each foreign account, then the non-willful failure to file penalty is capped at a the number of foreign accounts that a taxpayer holds during the tax year multiplied by $10,000.  In Bittner, this was the difference between $50,000 in penalties (per FBAR) or $2,720,000 in penalties (per foreign account).  Prior to the Supreme Court’s decision, the Fifth Circuit and Ninth Circuit were split on this issue.  See U.S. v. Bittner, 19 F. 4th 734 (5th Cir. 2021) (per foreign account); U.S. v. Boyd, 991 F.3d 1077 (9th Cir. 2021) (per FBAR form).

Due to the split in the Circuits, the U.S. Supreme Court granted Bittner’s writ for certiorari.  In its landmark decision, the Supreme Court held that the non-willful penalty provision in 31 U.S.C. § 5321 imposes a penalty on a taxpayer’s failure to timely file a FBAR form, as a whole.  The non-willful penalty is not imposed on each of the foreign accounts that a taxpayer fails to report.  More specifically, the statute imposes a maximum annual penalty of $10,000 for a taxpayer’s failure to timely file an FBAR for a tax year.

The Supreme Court’s decision in Bittner leaves some questions.  Will the limitation on the penalty for a taxpayer’s non-willful failure to file an FBAR cause the IRS more vigorously pursue imposing penalties for a taxpayer’s willful failure to file FBARs?  What procedural route can a taxpayer take to claim a refund for excessive non-willful penalties in light of Bittner’s non-willful penalty cap?  The penalty is imposed pursuant to 31 USC which is not part of the tax code.  Do the refund provisions of the Internal Revenue Code govern refund claims or do other procedural statutes apply?

Michele focuses her practice on tax controversy and litigation.  She has extensive experience resolving tax disputes with federal, state and local taxing authorities including the IRS, FTB, EDD, CDTFA, and the Los Angeles City Finance Office.  She is a former IRS Counsel attorney and worked on criminal tax matters during part of her tenure at the IRS.  She was also a Director, Tax Controversy Services, at KPMG.  For eight years, Michele was on the adjunct faculty of Golden Gate University School of Taxation where she taught Tax Procedure and Tax Research and Writing.  Michele received her B.A. cum laude with honors in economics from Barnard College, Columbia University; she holds a J.D. and LL.M. in Taxation from New York University School of Law.

Michele is a fellow of the American College of Tax Counsel and the American Bar Foundation; Chair, Beverly Hills Bar Association Tax Section; Member, Beverly Hills Bar Association, Board of Governors; Tax Policy Chair, California Law Association, Tax Section, Women in Tax Committee; and Board Chair, Friendship Circle of Los Angeles.

Holtz, Slavett & Drabkin, APLC is a tax controversy and tax litigation law firm consisting of former IRS attorneys.  We represent taxpayers in all aspects of tax disputes with the IRS and state tax authorities, including FBAR examinations, FBAR litigation, IRS international information return penalties, and IRS offshore examinations.  To schedule a consultation, please contact us at (310) 550-6200.