2023 Supreme Court penalty clarification
Historically it’s not been clear what’s meant by ‘per violation’ when considering the civil penalties. The IRS preferred to argue that it should be per account unreported rather than per form, and this is what has recently been clarified by the Supreme Court as part of the ruling in the case of Bittner v. United States.
The Supreme Court confirmed that penalties should be assessed per form, rather than per account, regardless of the number of accounts held, which served to reduce the penalties in that case from $2.72million to $50,000. This will come as a relief for taxpayers who find themselves having failed to file their FBAR through non-wilful error, particularly where multiple non-US accounts are held.
While the decision initially sounds like good news, there are some concerns. With the IRS being unable to gather the same level of penalty revenue per taxpayer it seems plausible that it will pursue these penalties more regularly going forwards in an attempt to recover the deemed lost revenue. The IRS has already made certain moves to support this, announcing an initiative in September 2023 that will provide an increased focus on FBAR violations. As part of this, the IRS has confirmed the use of Artificial Intelligence (AI) technology to cross-check banking data with FBAR submissions and information reported on Federal Income Tax returns.