Bloomberg Tax
Free Newsletter Sign Up
Bloomberg Tax
Advanced Search Go
Free Newsletter Sign Up

Settlement Calculus Shifts as SCOTUS Grants Foreign Account Case

July 12, 2022, 8:45 AM

The Supreme Court’s decision to review how the IRS assesses foreign bank account reporting penalties has shifted the decision-making for some account holders in settlement talks with the agency.

The high court agreed June 21 to take up United States v. Bittner, in which dual US-Romanian citizen Alexandru Bittner is arguing he only should have been assessed $10,000 for each year he didn’t submit an “FBAR” filing to report foreign bank and financial accounts. The government insists the $10,000 non-willful penalty applies to each account that isn’t reported, in each year of non-reporting.

The difference in penalty amounts can be huge. Bittner, for example, faces just $50,000 in penalties for his five years of non-reporting if he prevails, compared to $2.72 million if the Supreme Court sides with the government. The filing requirement applies to US citizens and residents who hold foreign financial accounts worth more than $10,000.

A Winning Hand?

Account holders who receive offers from the government to settle their disputes over the penalties must now decide whether to bet on Bittner winning the case and decline or accept a compromise that may not be on the table if Bittner ends up losing.

“It’s almost like a game of poker—how hard do you believe in your hand?” said Jim Dawson, a partner at Holland & Knight who focuses on tax issues.

The Supreme Court’s decision to hear the case comes after federal appeals courts split over how the IRS may assess the penalty. The US Court of Appeals for the Fifth Circuit sided with the government in Bittner’s case in November, reversing a decision from the US District Court for the Eastern District of Texas. The Ninth Circuit ruled in favor of Bittner’s interpretation in its March 2021 ruling in a separate case, United States v. Boyd.

Michael Karlin, partner at Karlin & Peebles LLP, said the issue is by nature short-term since the Supreme Court will decide on the case by the end of next June. Karlin suggested that, for many, it may be better to wait and see what happens.

“Why would you rush to settle the case unless you could get a really good deal?” Karlin said.

Client Differences

Zhanna Ziering, a member at Moore Tax Law Group LLC, said an account holder’s calculus about whether to accept a settlement may be influenced by a variety of factors, including how the penalties compare to the cost of challenging them, the account holders’ willingness to delay closing their cases, and whether their penalties already have been assessed by the IRS—which would trigger both interest and an additional penalty.

“My job right now is to explain the landscape of the law at the moment,” Ziering said.

Andrew Howlett, a member of Miller & Chevalier who practices in foreign account issues, agreed the ruling won’t be a one-size-fits-all answer since every account holder is different.

“Someone who has a lot of foreign bank accounts is trying to figure out what to do,” Howlett said. “Someone who has one or two foreign bank accounts is not really going to be affected by this circuit split.”

He advises nervous account holders following the case to examine their accounts, as it may make more sense to voluntarily disclose the information to the IRS because there could be additional issues aside from FBARs that need to be addressed. Howlett also urged account holders to crunch the numbers to see how much they would pay in penalties under both potential outcomes.

“If there’s a significant delta, that’s when it’s time to have a real sit-down with your lawyer and go through your options,” Howlett said.

To contact the reporters on this story: Aysha Bagchi in Washington at; Jeffery Leon in Washington at

To contact the editors responsible for this story: Patrick Ambrosio at; Alex Clearfield at