This Report summarizes opinions issued on June 21, 2022 (Part I); and cases granted review on that date (Part II).
Case Granted Review: Bittner v. United States, 21-1195
Bittner v. United States, 21-1195. The question presented is whether a violation under the Bank Secrecy Act, 31 U.S.C. 5311 et seq., is the failure to file a single annual report no matter the number of foreign accounts, or whether there is a separate violation for each account that is not properly reported. Section 5314 directs the Secretary of the Treasury to require citizens to keep records and file reports “when the . . . person makes a transaction or maintains a relation for any person with a foreign financial agency.” Under that same section reports shall include certain information “in the way and to the extent the Secretary prescribes.” Section 5321 allows the Secretary to impose a civil penalty up to a maximum of $10,000 on “any person who violates, or causes any violation of, any provision of section 5314.” Regulations require those with foreign bank accounts to file an annual form, commonly called an “FBAR,” listing their accounts with an aggregate balance over $10,000.
Alexandru Bittner is a dual citizen of the United States and Romania, but he was unaware that United States law required him to report many of his foreign bank accounts while he lived in Romania. When he returned to the United States, Bittner learned of his reporting obligations. He filed incomplete and inaccurate FBARs, then filed corrected FBARs for 2007 to 2011. The IRS found Bittner’s violations serious but non-willful, and it assessed a $10,000 civil fine (the maximum for a non-willful violation) per unreported account per year, for a total of $2.72 million. The district court found that the only “violation” contemplated by the Secretary’s regulations is the failure to file a complete and accurate FBAR every year. The court concluded that Bittner could only be fined $10,000 for each erroneous FBAR, and the court entered judgment for $50,000 ($10,000 for each year from 2007 to 2011). The Fifth Circuit reversed. 19 F.4th 734.
The Fifth Circuit held that by authorizing a penalty for “any violation of any provision of section 5314,” the term “violation” “most naturally reads as referring to the statutory requirement to report each account―not the regulatory requirement to file FBARs in a particular manner.” A violation refers to the substantive statutory obligation to disclose each account, not the procedural regulatory obligation to use the appropriate form. The court also found that other sections of the Act support this reading. For example, the penalty for willful violations and the exception from liability for “reasonable cause” use the term “violation” in an account-specific manner, and the court presumed that Congress intended the term to have the same meaning throughout these provisions. The court was unpersuaded by the Supreme Court’s observation in California Bankers Ass’n v. Shultz, 416 U.S. 21 (1974), that “penalties attach only upon violation of regulations promulgated by the Secretary; if the Secretary were to do nothing, the Act itself would impose no penalties on anyone.” The Fifth Circuit noted that this “snippet” was made in a different context, and Congress amended the statute 30 years after Shultz. The court also found that, because the statute is not ambiguous, it had no need to apply the rule of lenity or the rule to strictly construe tax statutes against the government. The legislative history on which Bittner relied was “unilluminating.” In reaching its decision, the Fifth Circuit expressly disagreed with the majority opinion in United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021).
Bittner relies on Boyd, where the Ninth Circuit concluded that the Act “authorizes the IRS to impose only one non-willful penalty when an untimely, but accurate, FBAR is filed, no matter the number of accounts.” Bittner and the Ninth Circuit took the Supreme Court’s observation in Shultz to mean that a violation occurs only when a regulation is not followed, and a taxpayer violates the regulations only by failing to submit a full and accurate report, regardless of the number of accounts at issue. Bittner and the Ninth Circuit surmised that because other statutory provisions are expressly account-specific, the absence of a similar provision for non-willful violations appears to be an intentional decision not to penalize the failure to report each account. Under this view, the statute uses the same concept of a “violation”―the failure to fully report all accounts―but simply provides different punishments for willful and non-willful violations. To the extent the statute is unclear, any ambiguity must be strictly construed in favor of the taxpayer.
The government responds that the Fifth Circuit and the dissenting judge in Boyd correctly interpreted the Act to find a violation for each account that is omitted from the annual FBAR. The statutory phrase “violating any provision of 5314” refers to each violation of the statutory duty to report each foreign account, not the regulatory duty to include those accounts on a particular form. In the government’s view, each foreign account is a distinct and separate matter of concern. The statute itself does not specify whether multiple accounts should be reported on a single form or multiple forms, and the number of violations should not depend on whether the Secretary requires a single form or multiple forms. The government argues that the Fifth Circuit correctly read the term “violation” consistently with the neighboring provisions in Section 5321. Finally, the government argues that the Fifth Circuit’s reading of the Act is consistent with the statute’s legislative history and purpose of deterring financial misconduct and providing complete tax information to the government.