Justices' Questions Hint at Government Win in Upcoming Court Case

Some observers who read the Justices questions think the Court will rule for the government based on the questions asked.

Concept image for filing federal income taxes online and being audited. Computer keyboard, ... [+] calculator and pen are placed on income tax form 1040. The 'word' AUDIT is stamped on the form 1040. getty
The 'word' AUDIT is stamped on the form 1040. As a result of the coronavirus pandemic, the IRS has announced that it will be extending the deadline for filing federal income taxes. However, even with this extension, many taxpayers may still find themselves being audited. While no one likes the idea of being audited, it's important to remember that the IRS is just doing its job.

The Supreme Court's decision in Bittner v. United States could have a major impact on how IRS penalties are calculated in the future. While most people in America may not be aware of this case, it could have major implications for tax compliance and enforcement. The tax community has been closely watching this case, and we will be closely monitoring the Supreme Court's decision.

The Supreme Court's announcement that it will hear Bittner v. United States has tax lawyers abuzz. At issue in the case is whether non-willful foreign bank account reporting violations apply per form or per account. In 2021, the Fifth Circuit held in United States v. Bittner that a Romanian-born businessman and investor with foreign bank accounts was liable for penalties based on each of the dozens of accounts he failed to report each year rather than on the single FBAR form he failed to file each year ($2.72 million in FBAR penalties for his five years of violations instead of $50,000). The Supreme Court's decision in this case could have a significant impact on the penalties imposed for foreign bank account reporting violations.

The Ninth Circuit's ruling in United States v. Boyd is a victory for those who have been penalized for failing to file Foreign Bank and Financial Accounts Reports (FBARs). The ruling held that non-willful FBAR penalties should be applied per form, rather than per account. This means that penalties will be lower for those with multiple accounts. In the Supreme Court, Justice Elena Kagan asked Bittner's attorney whether this was fair, noting that it could result in the same penalty for someone with a $10,000 account as for someone with extreme wealth and many accounts. Bittner's attorney argued that the government should be forced to treat everyone equally. This ruling is a step in the right direction for those who have been unfairly penalized for failing to file FBARs.

The IRS and the Justice Department have long had a focus on offshore accounts and disclosure. As an American citizen or green card holder (and in some other cases, such as persons filing U.S. tax returns based on a substantial presence in the U.S.), you must report your worldwide income, and that includes interest income from bank accounts overseas. Penalties for failing to comply with these requirements can be significant, so it is important to understand the rules and make sure you are in compliance. If you have any questions or concerns, you should speak with a qualified tax professional.

The penalties for failing to file a bank account reporting form known as an FBAR can be quite severe. If you don't file your FBAR, you can be subject to taxes, interest, and penalties. The penalties for failing to file an FBAR can carry a civil penalty of $10,000 for each non-willful violation. Non-willful means you didn't intend any harm, you were just ignorant. And that $10,000 is each year, and the statute of limitations on FBAR violations is six years. So if you don't want to get hit with a big fine, make sure you file your FBAR on time!

The potential penalties for failing to file an FBAR can be significant, especially if the violation is found to be willful. Non-willful violators can be fined up to $14,489 per violation, while willful violators can be fined up to $100,000 or 50 percent of the amount in the account per violation. Criminal penalties for FBAR violations can include a fine of up to $250,000 and up to five years in prison.

The FBAR violation penalties are extremely harsh, especially when compared to other crimes. Many people who are convicted of violent felonies are punished less harshly than those who violate FBAR. This is unfair and needs to be changed.

If you've ever been in a dispute with the IRS, you know that the burden of proof is on you to prove you qualify for a deduction or shouldn't face a penalty. Penalty fights can be particularly brutal, and when penalties are on the table, you have usually already lost some or all of your tax case. What is a reasonable penalty under the circumstances can be debated, but one thing is for sure: the IRS is not known for being lenient.

Taxpayers should not be penalized for acting with reasonable cause, according to many who claim such penalties are not warranted. The burden of substantiating that reasonable cause was used rests on the taxpayer, who must exercise ordinary business care and prudence in reporting their proper tax liability. All tax returns are signed under penalties of perjury, and the IRS uses a facts-and-circumstances test to determine whether a taxpayer had reasonable cause.

It can be difficult to win against foreign account penalties, especially when other concepts like the absence of willful neglect are involved. Taxpayers often have to prove a negative in these cases, which can be difficult to do. In the end, it is usually the IRS that comes out on top in these situations.