Articles & Alerts

Supreme Court Rules on FBAR Penalties: Relief for Taxpayers Facing Excessive Fines

March 31, 2023

The United States Department of Treasury mandates that U.S. taxpayers file the Report of Foreign Bank and Financial Accounts (FBAR), which entails disclosing their foreign financial accounts to the Internal Revenue Service (IRS) annually with the Department’s Financial Crimes Enforcement Network (FinCEN). The purpose of the FBAR is to help prevent tax evasion and money laundering by U.S. persons who have foreign financial accounts. In order to comply with the FBAR requirement, individuals must report their foreign financial accounts to the IRS if the combined value of such accounts exceeds $10,000 at any point during the calendar year. Failure to file the FBAR can result in civil penalties, criminal penalties, or both.

On February 28, 2023, the United States Supreme Court, in the case of United States v. Bittner, ruled in favor of taxpayers regarding penalties related to FBAR. The Court held that the maximum penalty of $10,000 for the non-willful failure to file a compliant report should be calculated per report, not per bank account. This decision is significant as the FBAR penalty provisions have long been a contentious issue among taxpayers, who have often faced exorbitant fines for noncompliance. The new ruling provides that taxpayers who fail to file FBAR forms for their foreign bank accounts cannot be subject to excessive fines.

The decision is also expected to provide relief to taxpayers who have faced substantial penalties for FBAR noncompliance in the past and could impact the way the IRS enforces FBAR requirements in the future. With the FBAR filing deadline approaching on April 17th, contact Gwayne Lai, Partner, Anchin’s International Taxation group, or your Anchin Relationship Partner, for more information.