IRS Seeks Court Judgment for Multiple Non-Willful FBAR Penalties

IRS Seeks Court Judgment for Multiple Non-Willful FBAR Penalties

IRS Seeks Court Judgment for Multiple FBAR Non-Willful Penalties: The IRS Seeks Court Judgment for Multiple FBAR Non-Willful Penalties in the case of U.S. vs. Bittner. Why? Because during the Foreign Bank Account Reporting period at issue, Taxpayer had 50+ accounts and suspect facts surrounding the non-reporting. The analysis of the case is complex and is being misused by other attorneys to scare taxpayers. And, with the Internal Revenue Service taking an aggressive position on matters involving foreign accounts compliance and unreported offshore income – an understanding of FBAR penalties, and the difference between willful vs. non-willful is crucial and how non-willful FBAR penalties are investigated and assessed.

IRS Seeks Court Judgment for Multiple Non-Willful FBAR Penalties

In Bittner, the IRS Seeks Court Judgment for Multiple FBAR Non-Willful Penalties. By way of background, non willful FBAR penalties may be as low as a “warning letter in lieu of penalty,” all the way up to a $10,000 per occurrence, per year penalty (the penalty amount varies based on inflation).

As you can see, the penalty spectrum can range from a nuisance, all the way to financial devastation.

U.S. v Bittner and Online Fear Mongers & Non Willful FBAR Penalties

This is a case we get asked about primarily because unethical attorneys online have used this case to try to scare taxpayers into believing that every person with unreported foreign accounts will be subject to these types of offshore penalties.

This is absolutely false.

Bittner is a very specific case, in which there is a successful business person with significant amounts of money and suspect facts about nondisclosure. Nevertheless, even with facts that could possibly lead a person to believe there may be reckless disregard, the IRS did not seek willful penalties against the taxpayer.

In Bittner, Taxpayer is facing significant non-willful FBAR penalties. And, if the IRS gets their way, Bittner will be subject to a multi-million dollar FBAR Penalty.

Excerpts are lifted from the U.S. Government’s complaint:

 

 Who Is Mr. Bittner?

“In 1990, Mr. Bittner and his family moved to Romania, where he became a successful businessman owning and investing in numerous businesses. Mr. Bittner and his family resided in Romania until 2011 when they returned to the United States.”

“However, at all times from the 2007 through 2011 years at issue, Mr. Bittner was a U.S. citizen. Thus, Mr. Bittner was a United States person as defined in 31 C.F.R. § 1010.350 for the years 2007 through 2011.

 

How Many Foreign Accounts Did Taxpayer Have?

He had a lot.

In fact, Mr. Bittner has between 51 and 61 accounts in any given year, between 2007 and 2011.

 

Total Number of Accounts

YearAccounts`
200761
200851
200953
201053
201155

 

Taxpayer did not Disclose his Foreign Accounts – Was He Non-Willful?

“Mr. Bittner also failed to disclose on his 2007 through 2011 federal income tax returns that he had foreign bank accounts.

Bittner included a Schedule B as part of his income tax return for every year from 2007 through 2011. Yet, Bittner answered “no” to the question on Schedule B regarding whether he had a financial interest in, or signature authority over, a financial account located in a foreign country.”

 

Schedule B, Foreign Accounts & the Non-Willful FBAR Penalty Scheme

The majority of individuals in the United States who file schedule B is because they have an excess of $1500 in U.S. interest and dividends.  The form is tricky, because even if a person does not have foreign dividends and interest, but does have ownership or signature authority over foreign accounts – then they still need to file the form.

This is not necessarily clear from the title of the form which makes no reference to foreign accounts.

*Despite any nonsense to the contrary, the mere non-filing of Schedule B does not automatically connote willfulness.

 

When Taxpayer Did File the FBAR, it was Inaccurate

 “On May 21, 2012, Mr. Bittner timely filed an FBAR for 2011, reporting a single foreign bank account at Piraeus Bank in Romania with a maximum account balance of $996,000.

The IRS did not assess an FBAR penalty on the Piraeus account.

From 2007 through 2011, Mr. Bittner’s foreign bank accounts contained more than $10,000 in aggregate. Consequently, Mr. Bittner was required to timely file FBARs reporting every bank, securities, or other financial account in a foreign country in which he had a financial interest, or over which he had signature authority.”

 

The U.S. Seeks $3M in Non-Willful FBAR Penalties

“Due to Mr. Bittner’s non-willful failure to timely file FBARs reporting his financial interest in, or signature authority over, the foreign bank accounts listed in paragraphs 12, 15, 18, 21 and 24, a delegate of the Treasury Secretary assessed a $10,000 penalty per account violation against him on June 8, 2017, pursuant to 31 U.S.C. § 5321(a)(5) as follows:”

 

Tax Year FBAR Account Violations Aggregate Amount of Assessments

 

YearAccounts`
2007$610,000
2008$510,000
2009$530,000
2010$530,000
2011$550,000
TOTAL$2,720,000

 

“A delegate of the Treasury Secretary gave Mr. Bittner notice and demand of the FBAR penalty assessments for the years 2007 through 2011. Despite the notice and demand for payment, Mr. Bittner has failed to pay the FBAR penalties assessed against him. Therefore, interest and other statutory additions continue to accrue on the unpaid assessments.

As of October 22, 2018, Mr. Bittner owed the United States $2,981,343.56 in penalties assessed under 31 U.S.C. § 5321, including interest and other statutory additions that have accrued, and will continue to accrue, as provided by law.”

 

*As of February 2020, the case is still currently in litigation on issues involving mediation and waiver requests.

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