Fifth Circuit Applies FBAR NonWillful Penalty Per Account and Not Per Form (11/30/21)

In United States v. Bittner, 19 F.4th 734 (5th Cir. 11/30/21), CA5 here, and GS here, the Court held that the FBAR nonwillful penalty in 31 USC § 5314 and the underlying regulations  31 CFR §§ 1010.306 and 1010.350 applies on a per account rather than a per form basis, so that, in this case where Bittner had a financial interest in well over 25 accounts per year for each of three years, the per account penalties aggregated $1.77 million.

The Bittner opinion, a unanimous opinion, conflicts with the panel majority opinion in United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021), but draws heavily on Judge Ikuta’s dissenting opinion in Boyd.  See CA9 Holds in Boyd that Nonwillful FBAR Civil Penalty Is Per Form Rather Than Per Account When Correct Delinquent FBA`R Is Filed (Federal Tax Crimes Blog 3/24/21; 3/31/21)), here

Bittner may petition for certiorari, but the Supreme Court may want the issue to bubble around a bit more in the Circuits to see if a consensus can be reached, with all courts then moving to the consensus view.  Alternatively, the Court might take certiorari to resolve the conflict, treating this as one of the few “tax” (or tax-related) cases it must take every year.  It does not appear to me that either of the two alternatives the Court takes would create that much mischief, an affliction the Court not uncommonly exhibits in tax cases.

The Bittner opinion also affirms the district court's rejection of the reasonable cause defense to the nonwillful penalty.  The court applied the reasonable cause definition for penalties in the IRC, requiring "ordinary-business-care-and-prudence definition of reasonable cause."  On the standard, the Court concluded that the reasonable cause exception as interpreted applies to the nonwillful penalty.  The Court rejected Bittner's argument that the defense was inherently factual, at least on the facts in his case, so that it should not be decided on summary judgment.  The Court held, in effect, that there were no contested facts relevant to the application of the penalty and the reasonable cause defense, so that summary judgment against Bittner was proper.

The Court held:

Turning to the merits of Bittner's defense, having considered all pertinent facts and circumstances, we conclude that Bittner did not exercise ordinary business care and prudence in failing to fulfill his reporting obligations. We have emphasized that when assessing reasonable cause, “[t]he most important factor is the extent of the taxpayer's effort to assess his proper liability.” Brinkley v. Comm'r, 808 F.3d 657, 669 (5th Cir. 2015) (quoting Klamath, 568 F.3d at 548). Bittner conceded he put no effort into ascertaining and fulfilling his reporting obligations. He testified he never even inquired about them, and when asked why, he answered, “Why should I?,” “I didn't feel like it,” and “Why? We're in Romania.” The onus was on Bittner to find out what he was supposed to do, and yet he admittedly did nothing. Cf. Boyle, 469 U.S. at 249 (noting “Congress intended to place upon the taxpayer an obligation to ascertain the statutory deadline and then to meet that deadline”).

As the district court observed, “Bittner was undoubtedly a sophisticated business professional.” Bittner, 469 F. Supp. 3d at 729. He held interests in dozens of companies, negotiated purchases of Romanian government assets, transferred his assets into holding companies, and concealed his earnings in “numbered accounts.” He even once inquired about tax obligations “as a Romanian citizen . . . own[ing] property in Brussels” before purchasing investment properties. Bittner's business savvy makes his failure to inquire about his reporting obligations even more unreasonable. See, e.g., Jarnagin, 134 Fed. Cl. at 378 (“A reasonable person, particularly one with the sophistication, investments, and wealth of the [plaintiff], . . . would have sought advice regarding [his] obligation to file [an FBAR].”).