The Supreme Court ruled Tuesday against the IRS, limiting the agency’s ability to collect fines on certain foreign accounts when taxpayers unintentionally make reporting errors.
The decision helped an immigrant who challenged a nearly $3 million fine he was facing after returning to the United States from a stint abroad in his home country.
The high court held in its decision that the IRS can penalize someone who fails to properly report foreign accounts per each filing — but not levy a fine for each account that was omitted in a yearly report.
Justice Neil M. Gorsuch wrote the majority opinion, reasoning that the law at issue refers to taxpayers’ reports, not individual accounts.
“Section 5314 does not speak of accounts or their number. The word ‘account’ does not even appear. Instead, the relevant legal duty is the duty to file reports,” Justice Gorsuch wrote.
“The one thing Congress did not say is that the government may impose nonwillful penalties on a per-account basis,” he added.
Justice Gorsuch was joined in the ruling by Chief Justice John G. Roberts Jr. and Justices Ketanji Brown Jackson, Brett M. Kavanaugh and Samuel A. Alito Jr.
The case was brought by Alexandru Bittner, who immigrated to the United States in 1982 and eventually became a dual citizen. He challenged his roughly $2.7 million IRS fine.
According to court documents, he lived in Romania from 1990 to 2011 before returning to the U.S. While overseas, Mr. Bittner earned millions of dollars from real estate, restaurants, manufacturing, hotels, construction and aquaculture.
During his time outside the U.S., he filed tax returns for some of the years he was abroad but did not include information about his foreign accounts.
Upon returning to the U.S., Mr. Bittner hired an accountant to correct his tax filings. He stressed that his failure to disclose foreign accounts for years was not willful.
The IRS determined that Mr. Bittner’s updated filings were inaccurate and in 2017 fined him $10,000 for each violation. He was on the hook for a total of $2.72 million and the federal government took him to court.
Mr. Bittner’s attorneys said he should be fined only $50,000. They reasoned that federal law requires a fine of $10,000 per failure to file an annual report — not a fine of $10,000 per foreign account that was not initially disclosed.
Justice Amy Coney Barrett disagreed, writing a dissent arguing that the majority opinion conflated the word “report” in the statute at issue with “form,” referencing the Report of Foreign Bank and Financial Accounts, or FBAR, with which a taxpayer must disclose interests in foreign accounts.
“The Government was within its rights to assess a separate penalty against Bittner for each qualifying foreign account that he failed to report properly,” Justice Barrett wrote.
She was joined by Justices Clarence Thomas, Sonia Sotomayor and Elena Kagan.