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Individual Argues Non-Willful FBAR Penalty Applies Per Form

MAY 20, 2021

United States v. Alexandru Bittner

DATED MAY 20, 2021
DOCUMENT ATTRIBUTES
  • Case Name
    United States v. Alexandru Bittner
  • Court
    United States Court of Appeals for the Fifth Circuit
  • Docket
    No. 20-40597
  • Institutional Authors
    Clark Hill PLC
  • Cross-Reference

    Government brief.

  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2021-20851
  • Tax Analysts Electronic Citation
    2021 TNTI 99-13
    2021 TNTF 99-26
    2021 TNTG 99-21

United States v. Alexandru Bittner

United States of America,
Plaintiff-Appellee, Cross-Appellant
v.
Alexandru Bittner,
Defendant-Appellant, Cross-Appellee

IN THE
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

On Appeal from
United States District Court for the Eastern District of Texas
4:19-CV-415

RESPONSE AND REPLY BRIEF OF APPELLANT ALEXANDRU BITTNER

SUBMITTED BY:

Farley P. Katz
Rachael E. Rubenstein
Clark Hill PLC
2301 Broadway Street
San Antonio, TX 78215

Counsel for Appellant, Cross-Appellee Alexandru Bittner


TABLE OF CONTENTS

TABLE OF CONTENTS

TABLE OF AUTHORITIES

STATEMENT OF THE CASE

SUMMARY OF THE ARGUMENT

ARGUMENT

I. THE DISTRICT COURT CORRECTLY HELD THAT THE MAXIMUM PENALTY FOR NON-WILLFULLY FILING AN FBAR LATE FORM IS $10,000 PER FORM, NOT PER BANK ACCOUNT

A. Introduction

B. Statutory and Regulatory Framework

i. The Authorization Statute 31 U.S.C § 5314

ii. The Penalty Statute 31 U.S.C § 5321(a)(5)

C. The Government Wrongly Argues that § 5314 Imposes Reporting Requirements

D. The District Court Correctly Looked to the Appropriate Implementing Regulations and the Form Instructions for the FBAR Reporting Rules

E. The District Court Correctly Held that the Maximum Penalty for a Non-Willful Failure to Timely File an FBAR is $10,000 in Accordance with the Plain Language of § 5321

F. The Term “Account” in the Reasonable Cause Exception Does Not Support the Government's Position.

G. The Fact that the Amount of a Willful Violation is Calculated Based on the Balance in Accounts Not Reported Does Not Support the Government's Position

H. As Correctly Noted by the District Court, A “Per Account” Penalty Stands at Odds with the Actual Filing Threshold

I. The Legislative History of Section 5321 confirms that the Maximum Penalty is $10,000 per Form

J. The Ninth Circuit and Other District Courts Agree with the Decision Below

K. The Dissent in Boyd is Erroneous

L. Statutes Imposing Penalties Are Strictly Construed Against the Government and the Rule of Lenity Requires that any Ambiguity be Resolved in the Defendant's Favor

II. THE GOVERNMENT HAS FAILED TO SHOW THAT THERE IS NO GENUINE FACTUAL ISSUE WHETHER MR. BITTNER LACKED REASONABLE CAUSE FOR FILING FBARS LATE 

THE SUMMARY JUDGMENT STANDARD

A. The Government's Argument that Mr. Bittner Should be Penalized $2.72 million Cannot be Based on the Premise that he was on Constructive Notice

B. The Government Relies on Cases that are Factually Different; Mr. Bittner's Facts and Circumstances are Unique

C. United States v. Boyle Does Not Control

D. The Government Ignores its own Guidance Regarding FBAR Penalties and Similar Penalties

CONCLUSION

CERTIFICATE OF SERVICE

CERTIFICATE OF COMPLIANCE

TABLE OF AUTHORITIES

Cases

Atl. Cleaners & Dyers v. United States, 286 U.S. 427 (1932)

Autobahn Imports, L.P. v. Jaguar Land Rover North America, L.L.C., 896 F.3d 340 (5th Cir. 2018)

Avondale Shipyards, Inc. v. Insured Lloyd's, 786 F.2d 1265 (5th Cir. 1986)

California Bankers Assn. v. Shultz, 416 U.S. 21 (1974)

Chaplin v. NationsCredit Corp., 307 F.3d 368 (5th Cir. 2002)

Commissioner v. Acker, 361 U.S. 87 (1959)

Crandon v. United States, 494 U.S. 152 (1990)

Dep't of Homeland Sec. v. MacLean, 574 U.S. 383 (2015)

Impossible Elec. Techniques, Inc. v. Wackenhut Protective Sys., Inc., 669 F.2d 1026 (5th Cir. 1982)

Jarnagin v. United States, 134 Fed. Cl. 368 (2017)

Knowles v. Commissioner, TC Memo 2011-23

Koerner v. CMR Constr. & Roofing, 910 F.3d 221 (5th Cir. 2018)

Leocal v. Ashcroft, 543 U.S. 1 (2004)

Lorillard v. Pons, 434 U.S. 575 (1978)

McManaway v. KBR, Inc., 852 F.3d 444 (5th Cir. 2017)

Moore v. United States, C13-2063RAJ, 2015 WL 1510007 (W.D. Wash. 2015)

Rand v. Commissioner, 141 T.C. 376 (2013)

Rogers v. Bromac Title Services, L.L.C., 755 F.3d 347 (5th Cir. 2014)

Russello v. United States, 464 U.S. 16 (1983)

United States v. Agrawal, 18-C-0504, 2019 WL 6702114 (E.D. Wis. 2019)

United States v. Bittner, 469 F.Supp.3d 709 (E.D. Tex. 2020)

United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021)

United States v. Boyle, 469 U.S. 241 (1985)

United States v. Crittenden, 971 F.3d 499 (5th Cir. 2020)

United States v. Giraldi, 20-2830 (SDW) (LDW), 2021 WL 1016215 (D.N.J. Mar. 16, 2021)

United States v. Hidy, 471 F.Supp.3d 927 (D. Neb. 2020)

United States v. Kahn, 17-CV-7258 (KAM) (VMS), 2019 WL 8587295 (E.D.N.Y. Sept. 23, 2019)

United States v. Kaufman, 3:18-CV-00787 (KAD), 2021 WL 83478 (D. Conn. Jan. 11, 2021)

United States v. Ott,  18-cv-12174, 2019 WL 3714491 (E.D. Mich. Aug. 7, 2019)

United States v. Thompson/Center Arms Co., 504 U.S. 505 (1992)

United States v. Vogel FertilizerCo., 455 U.S. 16 (1982)

Statutes

26 U.S.C.

§ 6038A(d)

§ 6038D(d)

§ 6651(a)(1)

31 U.S.C.

§ 5314

§ 5314(a)

§ 5314(b)(3)

§ 5314(b)(4)

§ 5321(a)(5)

§ 5321(a)(5)(A)

§ 5321(a)(5)(B)

§ 5321(a)(5)(B)(i)

§ 5321(a)(5)(B)(ii)

§ 5321(a)(5)(C)

§ 5321(a)(5)(D)

§ 5321(a)(5)(D)(ii)

American Jobs Creation Act of 2004, Pub. L. No. 108-357, § 821(a) 118 Stat. 1418 (2004)

Bank Secrecy Act, Pub. L. No. 91-508, 84 Stat. 1114 (1970)

Money Laundering Control Act of 1986, Pub. L. No. 99-570, Subtit. H, 100 Stat. 3207 (Oct. 27, 1986)

Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Pub. L. 114-41, § 2006(b)(11), 129 Stat. 443 (2015)

Regulations

26 C.F.R.

§ 1.6038A–4

§ 1.6038D–8

§ 1.6664–4

§ 301.6651-1(c)

§ 301.6724–1

31 C.F.R.

§ 1010.306(c)

§ 1010.350(a)

§ 1010.350(e)(ii)

§ 1010.350(g)(1)

37 Fed. Reg. 6912 (Apr. 5, 1972)

Rules

Fed. R. Civ. P. 56(a)

Other Authorities

BLACK'S LAW DICTIONARY (8th ed. 2004)

H.R. REP. 108-548(I) (2004)

H.R. CONF. REP. NO. 108-755 (2004)

Internal Revenue Manual (IRM)

20.1.1.1, Program Scope and Objectives (11-21-2017)

4.19.25.7(8), Request for Reasonable Cause (7-31-2019)

20.1.1.3.2.2.6(2.A-E), Ignorance of the Law (11-25-2011)

I.R.S. Fact Sheet 2011-1361

Whalter Wheeler Cook, “Substance” and “Procedure” in the Conflict of Laws, 42 YALE L.J. 333 (1933)


STATEMENT OF THE CASE

The government's Statement of the Case is 24 pages long. See Govt Br. 4-28. Mr. Bittner disagrees with that and relies on his Statement of the Case in his opening brief, pages 3-17.

SUMMARY OF THE ARGUMENT

Title 31 U.S.C. § 5314 and the regulations issued thereunder require United States citizens who have more than $10,000 in the aggregate on deposit in one or more foreign banks to file an annual form with the Treasury Department. The reporting form, known as an “FBAR” asks for specific information on all foreign bank accounts owned by the individual as well as any foreign accounts owned by any foreign corporations of which the individual owns more than 50 percent of the corporation's stock. If, however, an individual has 25 or more reportable accounts, he is required only to file the FBAR, state thereon the number of such accounts, but not provide any information on the individual accounts unless specifically requested by the government.

Title 31 U.S.C. § 5321(a)(5)(A) is entitled “Foreign Financial Agency Transaction Violation” and authorizes the Treasury Secretary to “impose a civil monetary penalty on any person who violates, or causes any violation of, any provision of section 5314.” Subparagraph (B) is entitled “Amount of Penalty.” It provides that the maximum penalty is $10,000 for non-willful violations, “Except as provided in subparagraph (C), the amount of any civil penalty imposed under subparagraph (A) shall not exceed $10,000.” Subparagraph (C) provides that the maximum penalty for willful violations is the greater of $100,000 or 50 percent of the balance in the reportable account(s) (as determined under subparagraph (D)), with no cap.

Mr. Bittner, a dual Romanian/US citizen, lived in Romania for over 20 years from 1990 to late 2011. He was a successful businessman and had personal bank accounts and interests in a number of corporations that owned foreign bank accounts. While living abroad, like many other dual citizens, he was unaware that he was required to file US income tax returns reporting his foreign income. In addition, he was entirely unaware of the existence of FBARs or that he was required to file them. Shortly after returning to the United States in late 2011, he discovered that he should have filed tax returns and promptly engaged a CPA to file them. The CPA informed Mr. Bittner of the requirement of FBARs, which he filed.

Mr. Bittner failed to timely file FBAR forms for the five years 2007-2011 on which he should have identified the number of foreign accounts. The IRS determined that his delinquency was non-willful, but instead of imposing a maximum penalty of $10,000 per form or $50,000 in total, it assessed $2.72 million, representing $10,000 times the number of accounts he untimely reported on corrected FBARs.

The court below correctly held that the statutory language expressly limits the non-willful penalty amount to a maximum of $10,000 per form and not per bank account. The Ninth Circuit and two other district courts have agreed; the only decision to the contrary was reversed by the Ninth Circuit.

The government argues that the court's decision was wrong. First, it recognizes, as it must, that the regulations require only the filing of a single form each year. But it argues that section 5314 itself, independent of any regulations, imposes a requirement to report bank accounts and that the failure to report each “bank account” is a separate violation under the statute, subject to a $10,000 penalty.

There is no support for this reading in the text of the reporting statute. Section 5314 itself imposes no obligations on individuals; that is done by the regulations. As the Supreme Court stated in California Bankers Assn. v. Shultz, 416 U.S. 21 (1974), “the Act's civil and criminal penalties attach only upon violation of regulations promulgated by the Secretary; if the Secretary were to do nothing, the Act itself would impose no penalties on anyone.”

The government also points to the statutory safe-harbor provision in § 5321(a)(5)(B)(ii), which provides there is no penalty at all if an individual has reasonable cause and later reports the amount in “the account.” It argues that the use of the word “account” in that provision means that the penalty is imposed separately on all bank accounts. Again, this is wrong, as it ignores the clear language of the statutory provision that actually authorizes the non-willful penalty (§ 5321(a)(5)(A)), which does not contain the word “account,” and is irrelevant in any event, since the safe harbor would have no application unless one had reasonable cause for every account.

The government then looks to subparagraph (C), which calculates the amount of the willful penalty based on the balance in the unreported accounts and argues that it somehow implies that the non-willful penalty under subparagraph (B) must be construed to impose a separate penalty on each account. Again, there is no textual support for this strained argument.

Finally, the district court's holding is supported by the statute's legislative history. From the inception of the Bank Secrecy Act, reporting of foreign bank accounts has always been done on a single form. Prior to 1986, there was no civil penalty for violating the FBAR reporting rules. In that year, Congress imposed a civil penalty for willfully violating those rules. There was, however, still no penalty at all for non-willful violations. In 2004, Congress increased the willful penalty amount significantly and also imposed “a new civil penalty that applies without regard to willfulness [which] will improve compliance with this reporting requirement.” H.R. REP. 108-548(I), at 275 (2004) (emphasis added). This history and the $10,000 statutory maximum in subparagraph (B) of § 5321(a)(5) make clear that Congress intended to impose a modest, but not draconian, penalty for non-willfully failing to file an FBAR form, which previously was not subject to any penalty. The government's position that Congress authorized it to impose fines totaling millions of dollars for innocent or negligent conduct flies in the face of the plain language of the statute, its legislative history, and common sense.

ARGUMENT

I. THE DISTRICT COURT CORRECTLY HELD THAT THE MAXIMUM PENALTY FOR NON-WILLFULLY FILING AN FBAR LATE FORM IS $10,000 PER FORM, NOT PER BANK ACCOUNT

A. Introduction

Mr. Bittner, a dual United States/Romanian citizen, lived in Romania for over twenty years from 1990 to late 2011. ROA.115, ROA.255, ROA.441. Because Mr. Bittner had a “financial interest” in more than 25 non U.S. bank accounts — mostly Romanian bank accounts owned by corporations he held stock in and some personal accounts — he was required to file a single annual form (the “FBAR”) with the Treasury Department simply reporting the number of such accounts for each year 2007-2011. Mr. Bittner was unaware of the existence of FBARs until shortly after he moved back to the United States in 2011 and, after learning about the requirement, took immediate steps to file the late forms. ROA.116, ROA.256, ROA.442.

The court below correctly held that the maximum penalty the government can impose on Mr. Bittner under 31 U.S.C. § 5321(a)(5)(A) for his non-willful failure to timely file five FBAR forms, is $10,000 per form for a total maximum of $50,000, rejecting the government's argument that it could penalize Mr. Bittner $10,000 for each account that should have been included on his FBARs, as much as $2,720,000.

B. Statutory and Regulatory Framework

The Bank Secrecy Act (“the BSA”) was enacted by Congress in 1970. Pub. L. 91-508, 84 Stat. 1114 and amendments (31 U.S.C. §§ 5311–5325). The BSA and its regulations promulgated by the Treasury Department requires individuals to report certain foreign bank accounts on a single annual Report of Foreign Bank and Financial Accounts — commonly known as an “FBAR.” See 31 C.F.R. § 1010.350(a). From the inception of the BSA and its implementing regulations, foreign bank accounts have always been reported on a single reporting form. See 37 Fed. Reg. 6912, 6913 (Apr. 5, 1972) (codified as amended at 31 C.F.R. § 103.24) (“[e]ach person having a financial interest in, or signature authority over a foreign financial account . . . shall provide such information about each such account as shall be specified in a special tax form to be filed by such persons.”) (emphasis added).

In the years at issue, the FBAR reporting form was designated TD F 90-22.1. Copies of Forms TD F 90-22.1 are found in the record at ROA.265-268 (Rev. July 2000), ROA.269-276 (Rev. October 2008), and ROA.277-284 (Rev. January 2012). In general, the applicable FBAR rules require citizens and residents who have a financial interest in, or signature or other authority over, one or more bank accounts in a foreign country with an aggregate balance exceeding $10,000 (at any point in the year) to file an annual FBAR form, identifying specific information for each account or, if the person has 25 or more such accounts they are required to simply state the number of accounts, provide no information regarding the individual accounts but to retain the account-related information.1 Prior to the 2016 reporting year, FBARs were due on June 30th of the following year.2

i. The Authorization Statute 31 U.S.C § 5314

31 U.S.C. Section 5314 does not itself impose any requirement to report foreign bank accounts. Instead, it directs the Secretary of the Treasury to promulgate regulations imposing reporting certain recordkeeping and reporting requirements:

(a) Considering the need to avoid impeding or controlling the export or import of monetary instruments and the need to avoid burdening unreasonably a person making a transaction with a foreign financial agency, the Secretary of the Treasury shall require a resident or citizen of the United States or a person in, and doing business in, the United States, to keep records, file reports, or keep records and file reports, when the resident, citizen, or person makes a transaction or maintains a relation for any person with a foreign financial agency. The records and reports shall contain the following information in the way and to the extent the Secretary prescribes:

(1) the identity and address of participants in a transaction or relationship.

(2) the legal capacity in which a participant is acting.

(3) the identity of real parties in interest.

(4) a description of the transaction.

(b) The Secretary may prescribe —  

(1) a reasonable classification of persons subject to or exempt from a requirement under this section or a regulation under this section;

(2) a foreign country to which a requirement or a regulation under this section applies if the Secretary decides applying the requirement or regulation to all foreign countries is unnecessary or undesirable;

(3) the magnitude of transactions subject to a requirement or a regulation under this section;

(4) the kind of transaction subject to or exempt from a requirement or a regulation under this section; and

(5) other matters the Secretary considers necessary to carry out this section or a regulation under this section.

31 U.S.C. § 5314 (emphasis added).

ii. The Penalty Statute 31 U.S.C § 5321(a)(5)

Before 2004 only willful failures to timely file an FBAR were penalized under 31 U.S.C. § 5321(a)(5), and the statutory penalty amount was the greater of $25,000 or half the amount in the account, but not more than $100,000. 31 U.S.C. § 5321(a)(5), amended by Pub. L. No. 108-357 (2004). Thus, no penalty at all was imposed for non-willful failures to file, whether innocent or negligent. In 2004, Congress increased the willful penalty to the greater of $100,000 or 50 percent of the balance in the reportable account(s) at the time of the violation, with no cap. See American Jobs Creation Act of 2004, Pub. L. No. 108-357, § 821(a), 118 Stat. 1418 (2004). In addition, Congress added a new penalty for non-willful violations, providing that “the amount of any civil penalty imposed . . . [for non-willful violations] shall not exceed $10,000.” 31 U.S.C. § 5321(a)(5)(B)(i) (emphasis added). That express limitation, along with the fact that Congress distinguished willful violations, demonstrates that its intent was to add a modest non-willful penalty for conduct that previously was not punishable at all in order to promote FBAR compliance and deter unintentional mistakes, but not to impose a draconian punishment on persons who unintentionally make such mistakes.

C. The Government Wrongly Argues that § 5314 Imposes Reporting Requirements

Section 5314 broadly identifies certain categories of information that may be sought by the Secretary from persons who transact with or maintain a relation with a foreign bank by implementing recordkeeping and reporting requirements “in the way and to the extent the Secretary prescribes.” 31 U.S.C. § 5314(a). Notably, the text does not require a private person to do anything at all, and the word “account” is wholly absent. Moreover, the text specifically provides that the Secretary may also exempt certain countries, types of transactions, and transactions of certain magnitudes. 31 U.S.C. §§ 5314(b)(3) and (4). Thus, the government's argument that § 5314 itself creates a reporting requirement that extends to each foreign account is simply not accurate. See United States v. Kahn, Case No. 17-CV-7258 (KAM) (VMS), 2019 WL 8587295, at *4 (E.D.N.Y. Sept. 23, 2019) (“Congress did not specify the form and substance of the report to be made” under 5314 “it vested the Secretary of the Treasury . . . with the authority to prescribe these specifics.”).

The district court relied on the Supreme Court's opinion in California Bankers Assn. v. Shultz, 416 U.S. 21 (1974), which stated “the [BSA's] civil and criminal penalties attach only upon violation of regulations promulgated by the Secretary; if the Secretary were to do nothing, the Act itself would impose no penalties on anyone.” United States v. Bittner, 469 F.Supp.3d 709, 718 (E.D. Tex. 2020) (quoting Shultz, 416 U.S. at 26); see also United States v. Boyd, 991 F.3d 1077, 1087 (9th Cir. 2021); United States v. Giraldi, 20-2830 (SDW) (LDW), 2021 WL 1016215, at *8 (D.N.J. Mar. 16, 2021); United States v. Kaufman, 3:18-CV-00787 (KAD), 2021 WL 83478, at *8 (D. Conn. Jan. 11, 2021). According to the government, the court's reliance on Shultz was mistaken because the penalties therein were dependent on the issuance of regulatory reporting regulations. See Govt Br. 56-57. It asserts that § 5314(a) requires that any reports required by the Treasury “must contain” certain information, including “the identity and address of participants in a 'relationship.'” Govt Br. 58-59. The government further contends that this case is distinguishable because § 5314 itself supposedly creates requirements that can be independently violated without reference to any regulations. See id.

This position directly contradicts Shultz and every court addressing this issue. Shultz involved a group of banks challenging the BSA as allegedly imposing an unreasonable burden on them and their customers in violation of the Fourth Amendment. The plaintiffs sought an injunction against the enforcement of the BSA. The Supreme Court described in detail the various sections and provisions of the BSA that were challenged, including section 5314, and stated:

Because it has a bearing on our treatment of some of the issues raised by the parties, we think it important to note that the Act's civil and criminal penalties attach only upon violation of regulations promulgated by the Secretary; if the Secretary were to do nothing, the Act itself would impose no penalties on anyone.

Shultz, 416 U.S. at 27.

The statement that § 5321(a)(5) penalties apply only to the extent that the Secretary issues regulations thereunder clearly applies to § 5314. In discussing Section 241 (31 U.S.C. section 5314), the Court stated that the FBAR regulations “implemented” the statute and penalties can be imposed only because those regulations exist: “Violations of the reporting requirement of [section 5314] as implemented by the regulations are . . . subject to civil and criminal penalties:” Shultz, 416 U.S. at 37 (emphasis added).

D. The District Court Correctly Looked to the Appropriate Implementing Regulations and the Form Instructions for the FBAR Reporting Rules

Under its § 5314 authority, the Treasury Secretary issued regulations imposing the requirement to report foreign bank accounts on a single reporting form to be filed annually:

Each United States person having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country shall report such relationship to the Commissioner of Internal Revenue for each year in which such relationship exists and shall provide such information as shall be specified in a reporting form prescribed under 31 U.S.C. 5314 to be filed by such persons. The form prescribed under section 5314 is the Report of Foreign Bank and Financial Accounts (TD-F 90-22.1), or any successor form.

31 C.F.R. § 1010.350(a) (emphasis added).

Reports required to be filed by § 1010.350 shall be filed with FinCEN on or before June 30 of each calendar year with respect to foreign financial accounts exceeding $10,000 maintained during the previous calendar year.

31 C.F.R. § 1010.306(c).

Although § 1010.306(c) refers to “foreign financial accounts exceeding $10,000,” the FBAR form instructions provide that a single form is to be filed and that this $10,000 or more threshold is not determined on a per account basis, but, rather, on an aggregate value basis, considering all foreign accounts in which a person has a “financial interest” in, or signature or other authority over. ROA.265-268, ROA.269-276, ROA.277-284. An individual is treated as having a “financial interest” in accounts he owns any part of and also bank accounts owned by a corporation, if he owns more than 50 percent of the corporation's stock, regardless of whether he has signatory control over such corporate account. ROA.277-284. Whether an individual has multiple foreign bank accounts with a total balance over $10,000 or only one account with such a balance, a single annual FBAR form is filed for all accounts. See id.; see also 31 C.F.R. §§ 1010.350(a); 1010.306(c).

The FBAR regulations and Form instructions generally require that the filer include specific information about each reportable foreign account, including the name and address of the financial institution; the account number; and the highest balance expressed in US dollars during the year. ROA.265-268, ROA.269-276, ROA.277-284. However, a special rule applies where a person has “a financial interest in 25 or more accounts.” 31 C.F.R. § 1010.350(g)(1). In that event, the filer is only required to identify himself and state the number of accounts, without any additional details regarding the bank accounts, which information is to be provided only if and when specifically requested by the Secretary. Id. ROA.269.

E. The District Court Correctly Held that the Maximum Penalty for a Non-Willful Failure to Timely File an FBAR is $10,000 in Accordance with the Plain Language of § 5321

Section 5321(a)(5)(A) is entitled “Foreign Financial Agency Transaction Violation,” and authorizes the Secretary to “impose a civil monetary penalty on any person who violates, or causes any violation of, any provision of section 5314.” 31 U.S.C. § 5321(a)(5)(A) (emphasis added). Subparagraphs (B) and (C) prescribe differing penalty amounts depending on whether the violation is non-willful or willful. In the case of non-willful violations, “the amount of any civil penalty imposed under subparagraph (A) shall not exceed $10,000.” 31 U.S.C. § 5321(a)(5)(B)(i). For willful violations, the penalty is increased to the greater of $100,000 or 50 percent of the balance in the reportable account(s) (as determined under subparagraph (D)), with no cap. 31 U.S.C. § 5321(a)(5)(C) and (D).

The district court correctly determined “that non-willful FBAR reporting deficiencies constitute a single violation within the meaning of § 5321(a)(5)(A) and (B)(i) and carry a maximum annual $10,000 civil money penalty, irrespective of the number of foreign financial accounts maintained.” Bittner, 469 F.Supp.3d at 722. Mr. Bittner was required to file a single FBAR each year for the 2007-2011 reporting years, simply identifying the number of foreign bank accounts he had a financial interest in.3 The IRS determined that he non-willfully failed to timely file those forms. ROA.1117, ROA.1092:5-7. As the district court properly reasoned, each failure to timely file an annual FBAR was a single “non-willful” violation for which Mr. Bittner was subject to a single penalty of up to $10,000 a year, with a maximum aggregate penalty for all five years totaling $50,000. Bittner, 469 F.Supp.3d at 722; accord Boyd, 991 F.3d at 1081; Giraldi, 2021 WL 1016215, at *5; Kaufman, 2021 WL 83478, at *9.

Subsection (i) of § 5321(a)(5)(B) plainly states that “Except as provided in subparagraph (C) [willful violations], the amount of any civil penalty imposed under subparagraph (A) shall not exceed $10,000.” (emphasis added). Subsection (ii) provides a reasonable cause exception where a person who non-willfully violates 5314 may avoid the penalty altogether, “No penalty shall be imposed under subparagraph (A) with respect to any violation if such violation was due to reasonable cause, and the amount of the transaction or the balance in the account at the time of the transaction was properly reported.” 31 U.S.C. § 5321(a)(5)(B)(ii). Thus, in the context of FBAR reporting, if an individual innocently or negligently fails to timely file an FBAR form, he can avoid any penalty if he had reasonable cause and subsequently reports the account(s), as Mr. Bittner did here. ROA.256-257.

F. The Term “Account” in the Reasonable Cause Exception Does Not Support the Government's Position.

The Government argues that the use of the phrase “balance in the account” in the reasonable-cause safe harbor, § 5321(a)(5)(B)(ii), supports its position. See Govt Brief, at 63-69. According to the government, Congress chose to use the term “account” in the singular because it intended to penalize non-willful violations $10,000 for each account that was unreported.

However, as the district court explained, the government looks to the wrong provision. Bittner, 469 F.Supp.3d at 720-21. Instead, the focus should be on the statutory provisions that actually authorize the penalty (§ 5321(a)(5)(A)) and calculate the amount for non-willful violations (§ 5321(a)(5)(B)(i)) — neither which mention the word “account.” See id.; see also Dep't of Homeland Sec. v. MacLean, 574 U.S. 383, 391 (2015) (“Congress generally acts intentionally when it uses particular language in one section of a statute but omits it in another.”) (citing Russello v. United States, 464 U.S. 16, 23 (1983)). Indeed, the statutorily permissible excuse for noncompliance is completely independent from the violation itself. As the district court correctly reasoned:

It does not follow that the penalty is calculated on an account-by-account basis just because Congress provided that a taxpayer's accurate reporting of the balance in her account(s) is a possible ground for excusing that penalty. Congress can forgive non-willful FBAR violations any way it likes — even in ways that have nothing to do with the underlying violation. And why Congress elected to forgive non-willful FBAR violations in the particular way it did is not the issue before this Court; any attempt by this Court to comment on why the reasonable cause exception mentions “balance in the account” while the penalty provision does not would be pure conjecture.

Bittner, 469 F.Supp.3d at 720.

The district court in United States v. Kaufman rejected the same argument, stating:

[T]he Government posits that if an individual has a reasonable cause defense with respect to some accounts but not others, then that defense — in a form centric world — would be sufficient to alleviate the defendant of all liability, ostensibly because the defense would cover all accounts reported incorrectly on a single form. Again, the Court disagrees. Even if this hypothetical individual had reasonable cause not to disclose one or more accounts, absent reasonable cause for failing to report ALL accounts, the individual would still have violated Section 5314. In that case, the individual would be liable for civil monetary penalties because he does not have a complete reasonable cause defense as to every account that needed to be reported on the single form.

Kaufman, 2021 WL 83478, at *10 (cleaned up).

G. The Fact that the Amount of a Willful Violation is Calculated Based on the Balance in Accounts Not Reported Does Not Support the Government's Position

The government confuses what constitutes a “violation” under the statute with the calculation of the penalty. It refers to penalty computation found in § 5321(a)(5)(D) — expressly applicable to only subparagraph (C) willful violations — which states “in the case of a violation involving a failure to report the existence of an account or any identifying information required to be provided with respect to an account, the balance in the account at the time of the violation[.]” The government calls this a “definitional clue” or “textual clue” to be used as the meaning of “violation” for the entirety of § 5321(a)(5), and it claims that “the surrounding context” establishes that “the referenced violation is account-based.” See Govt Br. 66. Thus, according to the government, because a “willful violation” for failing to report an account is penalized based on the amount in the account, the non-willful penalty also must somehow be per account based. But the “willful” penalty amount imposed by subparagraph (C) is not computed by multiplying a fixed amount by the number of accounts a person willfully fails to report:

(C) Willful violations. — In the case of any person willfully violating, or willfully causing any violation of, any provision of section 5314 —  

(i) the maximum penalty under subparagraph (B)(i) shall be increased to the greater of —  

(I) $100,000, or

(II) 50 percent of the amount determined under subparagraph (D) . . .

(D) Amount. — The amount determined under this subparagraph is . . .

(ii) in the case of a violation involving a failure to report the existence of an account or any identifying information required to be provided with respect to an account, the balance in the account at the time of the violation.

31 USC § 5321(a)(5)(C) and (D) (emphasis added).

Instead, it is computed under subparagraph (D) by looking to the balance(s) in the non-compliant account(s). Thus, the number of foreign accounts an individual willfully fails to report is irrelevant; the penalty is based on the total balances in those accounts regardless of the number. For instance, if a person willfully failed to report 10 accounts on an FBAR with balances totaling $500,000, he is subject to a willful penalty amount capped at $250,000 not 10 times $100,000. Id.

Moreover, the foreign bank reporting “violations” imposed by the regulations pursuant to § 5314 are: (1) failing to timely file a timely FBAR under 31 C.F.R. § 1010.306(c); and (2) failing to file an accurate FBAR under 31 C.F.R. § 1010.350(a). Whether the conduct of an individual was willful or non-willful, the underlying violation is the same. The only difference is the way in which the amount of the penalty is calculated. Compare 31 U.S.C. § 5321(a)(5)(B) with 31 U.S.C. § 5321(a)(5)(C) and (D). The government incorrectly conflates the calculation of the penalty with what conduct constitutes a violation. Failing to file an FBAR or filing an inaccurate or incomplete FBAR is a violation of the statute and regulations. The penalty amount will depend on whether the violation is willful or non-willful. If it is willful, the penalty will be calculated based on the balances in the unreported account(s), irrespective of the number of accounts; if it is non-willful, the penalty is capped at $10,000 and has nothing to do with the number of accounts or their balances. The penalty for violating the statute thus is a “unitary” penalty, not a separate penalty for each individual account. See Kaufman, 2021 WL 83478, at *10 (“Concluding that the manner of calculating the statutory cap for a willful violation is different than for a non-willful violation does not mean that the conduct underlying the violation differs.”).

Basing the penalty for willful violations on account balances, which, if they are substantial, could result in huge penalty amounts, but limiting the maximum penalty for non-willful violations to $10,000 is consistent with basic legal policy. See Bittner, 469 F.Supp.3d at 721 (“[W]illful violators pose a fundamentally different obstacle to the Government's ability to monitor foreign financial transactions than non-willful violator's do, and perhaps Congress drafted the provisions with the different language to reflect those differences.”).

H. As Correctly Noted by the District Court, A “Per Account” Penalty Stands at Odds with the Actual Filing Threshold

A “per account” penalty is especially absurd in Mr. Bittner's case, since he was required only to file a single FBAR annually, checking a box on line 14 of the form and stating the number of accounts in which he had a “financial interest.” The form required him only to enter that number and specifically instructed that he not report any account information or balances. ROA.265-268, ROA.269-276, ROA.277-284.

As explained above, the number of foreign bank accounts held by a person is irrelevant for purposes of determining whether that person is required to file an FBAR. An individual could have financial interests in any number of foreign bank accounts in a given year, but if the aggregate value of those accounts never exceeded $10,000, that person is not required to file an FBAR. An FBAR is required to be filed only if the aggregate value of the foreign accounts exceeds $10,000 — the filing requirement is not dependent on the number of accounts the individual holds. See 31 C.F.R. §1010.306(c); ROA.265-268, ROA.269-276, ROA.277-284. As the district court correctly reasoned: “It would make little sense to read § 5321(a)(5)(A) and (B)(i) to impose per-account penalties for non-willful FBAR violations when the number of foreign financial accounts an individual maintains has no bearing whatsoever on that individual's obligation to file an FBAR in the first place.” Bittner, 469 F.Supp.3d at 720.

I. The Legislative History of Section 5321 confirms that the Maximum Penalty is $10,000 per Form

The legislative history confirms the district court's textual interpretation. As noted above, prior to 2004, no penalty was imposed for non-willful failures to file an FBAR. A civil penalty for 5314 violations was first authorized under the Money Laundering Control Act of 1986, Pub. L. No. 99-570, Subtit. H, 100 Stat. 3207 (Oct. 27, 1986) (codified at 31 U.S.C. § 5321(a)(5)) (“MCLA”). That statute authorized civil penalties only on willful violations, allowing the government to impose “a civil money penalty on any person who willfully violates” the reporting requirement, equal to the greater of “an amount (not to exceed $100,000) equal to the balance in the account at the time of the violation; or $25,000.” Id. at § 1357(a)(5). The individual could also be criminally charged for such willful conduct. Id. at § 1357(f) and (g).

Thus, before the 2004 Act, an individual who willfully violated the FBAR reporting requirements, whether by willfully filing a false report or willfully failing to file a report, could be subject to a single penalty of $25,000 to $100,000. The violation was expressly defined as “involving a failure to report the existence of an account or any identifying information required to be provided with respect to such account.” MCLA § 1357(a)(5)(B)(ii) (now included in § 5321(a)(5)(D)(ii)). Non-willful failures to file, however, were not subject to any civil penalty.

The House Committee in 2004, after discussing the proliferation of various abusive tax schemes, including “taxpayers with offshore bank accounts attempting to conceal income from the IRS,” stated:

Adding a new civil penalty that applies without regard to willfulness will improve compliance with this reporting requirement.

Explanation of Provision

The provision adds an additional civil penalty that may be imposed on any person who violates this reporting requirement (without regard to willfulness). This new civil penalty is up to $5,000 . . . 

H.R. REP. 108-548(I), at 275 (2004) (emphasis added). Ultimately, the Conference Committee increased the maximum civil penalty for a non-willful act to $10,000. H.R. CONF. REP. NO. 108-755, at 1668 (2004).

When Congress enacted this non-willful penalty in 2004, it did so with the understanding that the reporting requirement was accomplished through the BSA regulations, which have always required a single form. See Lorillard v. Pons, 434 U.S. 575, 581 (1978) ([W]here . . . Congress adopts a new law incorporating sections of a prior law, Congress normally can be presumed to have had knowledge of the interpretation given to the incorporated law, at least insofar as it affects the new statute.”); U.S. v. Vogel Fertilizer Co., 455 U.S. 16, 31 (1982) (“Of course, it is Congress' understanding of what it was enacting that ultimately controls.”); see also 37 Fed. Reg. 6912, 6913 (Apr. 5, 1972) (codified as amended at 31 C.F.R. § 103.24). As the district court recognized, the regulatory requirement of a single form is grounded in the statutory language that the reporting shall “avoid burdening unreasonably a person making a transaction with a foreign financial agency.” Bittner, 469 F.Supp.3d at 719 (quoting 31 U.S.C § 5314(a)).

J. The Ninth Circuit and Other District Courts Agree with the Decision Below

While this appeal was pending, the Ninth Circuit addressed the same issue involved here. United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021). Boyd was a United States citizen who in 2010 had financial interests in or signatory authority over 14 accounts in the U.K. Id. at 1078-79. She failed to file an FBAR reporting those accounts. Id. The IRS determined that her failure to file was non-willful and found that she had committed thirteen separate violations. Id. Unlike Mr. Bittner's case where the IRS imposed a maximum $10,000 penalty for each account, the IRS applied internal “mitigation” provisions to reduce Boyd's per-account penalties. Id. Nevertheless, the IRS imposed a total penalty of $47,279 for Boyd's failure to file a single FBAR. Id. Boyd argued that the maximum penalty that could be imposed under the statute was $10,000. Id. The district court, however, upheld the government's position that it could impose a penalty for each non-reported account. Id. On appeal the Ninth Circuit reversed. Boyd, 991 F.3d at 1078.

The Ninth Circuit determined that § 5314(a), through its implementing regulations, contained “two separate and relevant provisions: (1) filing a report when maintaining a relationship with a foreign financial agency; and (2) ensuring the filed report contains specified information as prescribed by the Secretary.” Id. at 1081. Relying on Shultz (as the district court below did), the court began its analysis by turning to the regulations underlying § 5314, 31 C.F.R. §§ 1010.350(a); 1010.306(c). Id. at 1081-82. In doing so, the court held that only two violations of the statute could be committed: (1) failing to file an accurate FBAR as required in § 1010.350(a); and (2) failing to file a timely FBAR as required in § 1010.306(c). Id. at 1082.

The government argued, as it does here, that the fact that the willful penalty is calculated on the total balance in all accounts “is evidence that the non-willful violation penalty provision also must base the penalty amount on the number of accounts misreported or non-reported . . .” Id. at 1083. The Ninth Circuit soundly rejected this argument, noting that if Congress wanted the non-willful provision to be computed in an identical manner, it could and should have included the same language in both provisions. Id. at 1084. Additionally, the government advanced the same arguments there as here regarding the use of the word “account” in the reasonable cause provision. Id.; see Govt Br. 62-64. The Ninth Circuit similarly dispelled this argument, stating that “the inclusion of the per-account language in the reasonable case exception supports [the conclusion] that Congress intentionally omitted per-account language from the non-willful penalty provision.” Boyd, 991 F.3d at 1084 (emphasis in the original). As a result, the Ninth Circuit reversed the district court's decision and held that Boyd had committed only one violation for the year at issue for which the maximum penalty was $10,000. Id. at 1085-86.

In addition to the Ninth Circuit, two district courts have also found that the non-willful penalty is not subject to a per-account computation relying heavily on the district court's decision below. See Giraldi, 2021 WL 1016215, at *4-9 (holding the non-willful penalty is not applied per account and rejecting substantially similar arguments advanced by the government in this case); Kaufman, 2021 WL 83478, at *8-11 (rejecting the government's arguments that the non-willful penalty is computed on a per account basis and relying heavily on the lower court's opinion here).

The government seeks to distinguish Boyd because Boyd delinquently filed correct FBARs but alleges that “Bittner's first set of delinquent FBARs reported only one account, rather than the dozens of accounts he actually maintained” and therefore Boyd “is factually distinguishable.” Govt Br. 73-74. In fact, the cases are indistinguishable. Shortly after returning to the United States and discovering he should have filed income tax returns, Mr. Bittner hired CPA Beckley to file them. ROA.256. When Beckley informed Mr. Bittner that he also should have filed FBAR forms, Mr. Bittner provided him with detailed information on his foreign bank accounts, and Beckley prepared and filed FBAR forms, albeit with various mistakes. ROA.256, ROA.442. Beckley prepared and filed Forms 1040 for Mr. Bittner and, although he simultaneously prepared and filed FBARs for him, Beckley incorrectly reported only the single account with the highest balance each year. ROA.256. Before the government began any FBAR examination, Mr. Bittner filed corrected FBARs in 2013, reporting all foreign bank accounts. ROA.1687, ROA.1072, ROA.1076, ROA.1376-1414. Indeed, the government below focused solely on the corrected FBARs prepared by CPA Booker, which were the basis of the penalty assessments. ROA.301-303, ROA.1077:17-24.

K. The Dissent in Boyd is Erroneous

The government relies on the dissent in Boyd to support its argument that non-willful violations are imposed on a per-account basis. Govt Br. 69-74. With all due respect, the dissent in Boyd is logically flawed and difficult to follow.4

Specifically, the dissent asserts that the majority conflated the statutory obligation to report each account with the regulatory procedure for doing so. Boyd, 991 F.3d at 1090 (Ikuta, J., dissenting); Govt Br. 71. According to Judge Ikuta, “there is no language in the relevant statutes or regulations providing that it is the failure to file an annual FBAR that is the violation contemplated and that triggers the civil penalty provisions of § 5321.” Boyd, 991 F.3d at 1090 (Ikuta, J., dissenting) (citations omitted); Govt Br. 71. Instead, it is the failure to report an account that constitutes a violation — not the failure to file an FBAR. Govt Br. 71; see also Boyd, 991 F.3d at 1090 (Ikuta, J., dissenting).

But the FBAR is the mechanism on which foreign accounts are reported; it makes no sense to distinguish between the obligation to report and the form created for that purpose, nor is there any basis to do so. As the district court below and as every other court that has addressed this issue has held, it is the failure to file the form on which the accounts are reported that constitutes the violation of § 5314 — not each failure to report each individual account. See Bittner, 469 F.Supp. 3d at 719-20; see also Boyd, 991 F.3d at 1085; Giraldi, 2021 WL 1016215, at *8; Kaufman, 2021 WL 83478, at *8. In fact, Mr. Bittner was penalized by the government for failing to timely file FBARs for the years 2007-2011. ROA.34-35.

L. Statutes Imposing Penalties Are Strictly Construed Against the Government and the Rule of Lenity Requires that any Ambiguity be Resolved in the Defendant's Favor

The statute unambiguously imposes a maximum penalty of $10,000 for a non-willful failure to file an FBAR form, and not a $10,000 penalty per account or per item of information. Assuming, arguendo, that there is any ambiguity in the statute not resolved by ordinary rules of statutory construction, the Court should resolve the issue in Mr. Bittner's favor by applying the rule of lenity. Although this rule is a well-established canon of construction for resolving ambiguities in criminal statutes, it has also been extended in circumstances like the present to statutes imposing civil penalties.

For instance, in Commissioner v. Acker, 361 U.S. 87 (1959), the Court stated, “[t]he law is settled that penal statutes are to be construed strictly . . . and that one is not to be subjected to a penalty unless the words of the statute plainly impose it.” Id. at 91 (1959) (internal quotations and citations omitted). Acker involved a tax-related penalty. The taxpayer failed to file form declarations of estimated income tax for multiple years. Id. at 90. The IRS imposed civil penalties for not filing those forms. Id. In addition, the IRS imposed separate civil penalties for the same years under another statute for “substantial underestimate” of tax, arguing that the failure to file the declarations constituted an implicit representation that Acker owed not taxes. Id. The Court found that there was nothing “expressed or necessarily implied” in the relevant statute that “a taxpayer's failure to file a declaration of estimated tax [was] the equivalent of, a declaration estimating his tax to be zero.” Id. The Court, accordingly, held that the statute should be interpreted in the taxpayer's favor and the penalty consequently did not apply. See also Leocal v. Ashcroft, 543 U.S. 1, 11 n.8 (2004) (“Because we must interpret the statute consistently, whether we encounter its application in a criminal or noncriminal context, the rule of lenity applies.”); United States v. Thompson/Center Arms Co., 504 U.S. 505, 518 (1992) (noting that the rule of lenity can be properly invoked in a civil case when dealing with a criminal statute); Crandon v. United States, 494 U.S. 152, 158 (1990) (“[B]ecause the governing standard is set forth in a criminal statute, it is appropriate to apply the rule of lenity in resolving any ambiguity in the ambit of the statute's coverage.”).

Here, as in Acker, there is nothing “express or necessarily implied” in the statute to support the government's position that the non-willful failure to file penalty is based on the number of accounts or that Mr. Bittner's non-willful failure to file 5 FBAR forms consequently constitutes 272 separate violations.

Similarly, in Rand v. Commissioner, 141 T.C. 376 (2013), the Tax Court rejected the IRS's position that accuracy-based penalties in IRS Code Section 6662 should be imposed on improperly claimed tax credits, finding that “the words of the relevant statutes do not plainly impose [such] a penalty . . .” Rand, 141 T.C. at 393 (emphasis added). As the court stated:

The rule of lenity is an “ancient maxim” that “is perhaps not much less old than construction itself. It is founded on the tenderness of the law for the rights of individuals; and on the plain principle that the power of punishment is vested in the legislative, not in the judicial department. It is the legislature, not the Court, which is to define a crime, and ordain its punishment.” United States v. Wiltberger, 18 U.S. 76, 95 (1820). Thus, under the rule of lenity statutes that impose a penalty are to be construed in favor of the more lenient punishment. Black's Law Dictionary 1449 (9th ed. 2009). And although often considered in the criminal context, the rule of lenity has been applied in the civil context and specifically with regard to civil tax penalties.

Id.

Here, the case turns on the interpretation of a penalty statute and thus must be strictly construed. The government is attempting to collect a penalty of $10,000 for each account, in the absence of any statutory language supporting that computation. Accordingly, application of the rule of lenity requires that the maximum penalty for a non-willful failure to file an FBAR is limited to $10,000 for each year.

In addition, as the district court observed, application of the government's per form calculation for non-willful penalties would lead to a number of absurd results. Bittner, 469 F.Supp.3d at 721-22. Regardless of the government's parsing of the hypotheticals, this case exemplifies the extreme harshness and absurdities that its position leads to.

II. THE GOVERNMENT HAS FAILED TO SHOW THAT THERE IS NO GENUINE FACTUAL ISSUE WHETHER MR. BITTNER LACKED REASONABLE CAUSE FOR FILING FBARS LATE

The government agrees with the district court that whether an individual had reasonable cause for filing an FBAR late “is based on all the facts and circumstances in each situation.” Govt Br. 41, quoting ROA.1583. For purposes of the government's motion, it must assume that Mr. Bittner had no knowledge that U.S. citizens living abroad were required to report their bank accounts abroad and in fact had never even heard of an FBAR form until after he returned to the United States after a 20-year absence. Yet the district court held that because of one fact — that Mr. Bittner did not ask anyone during the time he lived in Romania whether there was a regime requiring him to report those bank accounts — as a matter of law, he did not exercise “ordinary business care and prudence” and did not have reasonable cause. Bittner, 469 F.Supp.3d at 728-29. Because of Mr. Bittner's failure to ask that question — a question he did not even know to ask — the government claims that it can penalize Mr. Bittner as much as $2,720,000 without allowing him to have a jury determine the facts and circumstances, including his mental state and understanding of his situation. This is wrong. The government bases its argument on (1) selectively interpreting the summary judgment facts and the inferences drawn therefrom in its favor (2) cases involving significantly different facts and circumstances, including different forms, and (3) ignoring its own guidance regarding FBARs and regulations regarding closely similar penalties. As a result, because reasonable minds could disagree about the factual inferences that should be drawn from the facts of this case as explained below, the government has failed to meet its burden of demonstrating that there is no actual dispute as to any material fact.

THE SUMMARY JUDGMENT STANDARD

As the moving party, the government “bears the exacting burden of demonstrating that there is no actual dispute as to any material fact in the case.” Impossible Elec. Techniques, Inc. v. Wackenhut Protective Sys., Inc., 669 F.2d 1026, 1031 (5th Cir. 1982); see also Chaplin v. NationsCredit Corp., 307 F.3d 368, 372 (5th Cir. 2002) (noting that when a plaintiff moves for summary judgment, it must establish all the elements of its claims so conclusively that a reasonable factfinder could not return a verdict for the defendant). “It is not the role of the court to make credibility determinations, or to weigh evidence when ruling on a motion for summary judgment.” McManaway v. KBR, Inc., 852 F.3d 444, 449 (5th Cir. 2017). Instead, because the government moved for summary judgment on this issue, the “court construes all facts and inferences in the light most favorable to the nonmoving party.” Rogers v. Bromac Title Services, L.L.C., 755 F.3d 347, 350 (5th Cir. 2014) (citing Fed. R. Civ. P. 56(a)). Indeed, “[s]ummary judgment may be inappropriate even where the parties agree on the basic facts, but disagree about the factual inferences that should be drawn from these facts.” Wackenhut, 669 F.2d at 1031. “If reasonable minds might differ on the inferences arising from undisputed facts, then the court should deny summary judgment.” Id.

In the lower court, Mr. Bittner put forth evidence of numerous facts and circumstances relevant to his reasonable cause defense, summarized as in his sur-reply as follows:

  • Bittner was born in Romania in 1957 where he lived until 1982 during the communist era.

  • Bittner attended a high school in Romania that emphasized technical education, and after his second year he opted into mathematics for his curriculum track. At the Politehnica University of Bucharest, Bittner studied mechanical and chemical engineering. He also served in the army, as required. he had little to no instruction in the area of accounting, tax law, or finances Bittner obtained a master's degree in chemical engineering in 1981.

  • In 1982, he immigrated to the United States with the assistance of the Hebrew National Aid Society. Bittner did not speak English growing up in Romania and learned it as his third language. He became a naturalized citizen in 1987 and resided in the United States until 1990.

  • His first job in the U.S. was a dishwasher. After a year or so in the U.S., he became a plumber's apprentice. Later, he obtained a master plumbing certificate. Bittner then worked as a plumber with various employers until he moved back to Romania. He also fixed up a few houses on the side.

  • Bittner has never taken any educational courses in accounting, law, or taxation.

  • Bittner returned to Romania in 1990. His family joined him to relocate back to Romania in 1991, where Bittner and his wife resided until late 2011. He moved back to Romania following the revolution and fall of communism because he believed there would be opportunity for a better life in his home county. He registered with the United States embassy in Romania and updated the embassy when his address changed.

  • During those two decades he resided in Romania, he returned to the United States only 3–4 times for short visits.

  • During the long period Bittner lived in Romania, he had no awareness that FBAR forms existed or that, as a naturalized US citizen who resided in Romania, he was obligated to file such forms.

  • While in Romania, Bittner did file some Form 1040 tax returns reporting U.S. sourced income from his minority interest in a California restaurant operated by his sister and brother-in-law. They prepared those returns on his behalf.

  • After returning to the United States and discovering he had been required to file tax returns (reporting worldwide income), Bittner hired CPA Beckley with the goal of getting into compliance with U.S. law. CPA Beckley advertised on his website that he had the expertise to advise U.S. citizens who earned money from outside the country.

  • As part of the return preparation process, Bittner informed CPA Beckley that he had foreign income; bank accounts; and business interests, and he supplied CPA Beckley with information requested of him about those items.

  • In 2012, Beckley informed Mr. Bittner about the obligation to file FBARs, which is the first time he learned about this duty.

  • On Mr. Bittner's behalf, CPA Beckley prepared Forms 1040 for the years 1990 to 2011 and FBARs for the years 1996 through 2011.

  • After discovering that Beckley had made a number of errors in preparing the tax returns and [FBAR] forms, Bittner engaged tax counsel and a new CPA. On September 25, 2013, Bittner filed corrected FBARs, disclosing all bank accounts and balances.5

ROA.1305.

But the government argues that “in his mind” Mr. Bittner believed he had no duty to undertake any steps to determine his reporting obligations, and thus summary judgement was proper. Govt Br. 37. This argument is not appropriate in the context of a summary judgment ruling, and its very presence implies that there are genuine issues of material fact that precluded a summary judgement ruling on the issue of reasonable cause. See Autobahn Imports, L.P. v. Jaguar Land Rover North America, L.L.C., 896 F.3d 340, 350 n. 23 (5th Cir. 2018) (“A party's state of mind is inherently a question of fact which turns on credibility, and credibility determinations are within the province of the fact-finder.”) (quoting Int'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1265 (5th Cir. 1991) (cleaned up); United States v. Crittenden, 971 F.3d 499, 510 (5th Cir. 2020) (Costa, J., dissenting) (“summary judgment on state of mind questions is discouraged because intent is a question of fact quintessentially within the province of the factfinder.”) (quoting Thompson v. Syntroleum Corp., 108 F. App'x 900, 902 (5th Cir. 2004) (cleaned up).

Moreover, to advance its argument, the government misconstrues evidence, derives unfavorable factual conclusions and inferences from its misinterpretation of evidence, and ignores facts put forth by Mr. Bittner for which it has no contrary evidence. For example, Mr. Bittner testified repeatedly that he had never heard of FBARs until after he returned to the United States in 2011 (ROA.255-256, ROA.441-442, ROA.732, ROA.741), which must be assumed to be true as no contradictory evidence has ever been advanced by the government. Koerner v. CMR Constr. & Roofing, 910 F.3d 221, 227 (5th Cir. 2018). Yet the government dismisses that as a mere “allegation,” not a summary judgment fact. Govt Br. 9.

Significantly, the government selectively quotes Mr. Bittner's testimony to imply falsely that he was “indifferent” or “cavalier” about his tax and filing obligations and had no interest in finding out about that. Govt Br. 37-38. It goes so far as to claim that the undisputed evidence and inferences arising from that evidence conclusively shows that “in his mind, he had no duty to undertake any steps to determine” his tax and reporting obligations. Govt Br. 37. This is wrong. Like many dual citizens living abroad, Mr. Bittner understood — incorrectly — that he was taxable by the United States only on US-source income. ROA. 255, ROA.441-442, ROA.1050-1052. He was repeatedly asked in the deposition why he did not ask anyone in Romania whether he was required to report his bank accounts to the U.S. government, and he explained since he was unaware of any such reporting requirements, the question would not have come to him. He was frustrated with those repeated deposition questions and responded “Why? We're in Romania . . .” ROA.684 (211:13-16). Instead of recognizing that this statement raises more than one plausible inference (e.g., upon discovery of his error, Mr. Bittner took immediate steps to prepare and file all delinquent returns and FBARs), the government interprets and misconstrues his statements as disavowing any obligation to the IRS and goes so far as to challenge his patriotism: “The fact that he was an American citizen was apparently of no moment to Bittner once he left the United States.” Govt Br. 40. Plainly, this is baseless and, because reasonable minds could differ on the inferences arising from the facts of this case, summary judgment is inappropriate. Wackenhut, 669 F.2d at 1031. Indeed, one could as well argue that the fact that Mr. Bittner, before the IRS had ever heard of him, came forward, filed returns and FBARs, thereby disclosing assets and income that the IRS would never have known of, shows that he was honest, patriotic and acting in good faith. ROA.1076-1077, ROA.1376-1414, ROA.1683-1687, ROA.1687:16-18. Irrespective, his state of mind is not susceptible to summary judgment on the government's evidence.

The government similarly misdescribes the evidence regarding Mr. Bittner's voluntary disclosure to falsely suggest that Mr. Bittner was not forthcoming. It states that after Mr. Bittner filed amended FBARs reporting the number of foreign accounts in which he had a financial interest and then states that “further investigation revealed” “high balances of those accounts[.]” Govt Br.10-11. There was in fact no “further investigation” revealing “high balances of those accounts[,]” as that information was provided by Mr. Bittner in in the charts attached to his corrected FBARs, which he submitted before any FBAR examination began. ROA.1687, ROA.1072, ROA.1076, ROA.1376-1414. The IRS examining agent testified that she used the same numbers and relied on all the numbers [from those charts] to prepare the FBAR penalty assessments. ROA.1076-1077.

Further, the government overstates the extent of Mr. Bittner's personal wealth, business operations, sophistication, and the number of bank accounts to suggest that he acted with bad intent, again a state of mind issue not favored for summary judgment. Govt Br. 8-10. For example, it states “to manage his growing wealth, Bittner maintained dozens of bank accounts in Romania, Switzerland, and Liechtenstein.” Govt Br. 8, emphasis supplied. In fact, in the years at issue, Mr. Bittner had a total of 9 personal bank accounts (and subaccounts) at 6 banks. The rest of the accounts disclosed on the corrected FBARs and accompanying charts were company accounts for which he had no signatory authority. ROA.257, ROA.1380-1414. Mr. Bittner did not manage the operations of any of the companies in which he invested in. ROA.737 (257:4-258:18). For FBAR purposes he is treated as having a “financial interest” in them due to his ownership interests in the companies. 31 C.F.R. § 1010.350(e)(ii). Of Mr. Bittner's 9 accounts, 3 were essentially inactive and had less than $11,000 for the years at issue, and another account existed only in the last year. ROA.1379. He had one Swiss account, and its highest balance for the years at issue was $878,955 in 2010 (ROA.1379) — most of those funds were transferred to the United States in 2010 and 2011, before Mr. Bittner returned that same year. Govt Br. 9; ROA.368, ROA.405-406. The government suggests that the only inference possible is that those transfers were sinister. Govt Br. 9. However, a reasonable mind could certainly interpret the transfers to the U.S. as honest transactions, made in connection with his return to the United States. Wackenhut, 669 F.2d at 1031.The following chart, adapted from ROA.1379, summarizes his personal bank accounts in the years at issue:

ALEXANDRU BITTNER

 

 

 

 

 

MAXIMUM AMOUNT FOR A DAY IN ROMANIAN BANKS (USDOLLARS)

BANK — BRANCH

 

BANK ADRESS

 

ACCONT NO./IBAN

2007

2008

2009

2010

2011

A. UNICREDIT TIRIAC BANK (EX HVB BANK) — CHARLES DU GAULLE BRANCH

CHARLES DU GAULLE SQUARE,NR.15,SECTOR 1,BUCURESTI,ROMANIA

 

0310

495,373

227,365

362,508

665,021

1,013,382

 

0020

36,100

30,725

42,462

105,775

990,150

 

0320

405,940

293,144

74,935

656,044

257,284

B. PIRAEUS BANK — DOCTOR FELIX BRANCH

NICOLAE TITULESCU STREET,NR.29-31,SECTOR 1,BUCURESTI,ROMANIA

 

8-050 & sub accounts

 

 

 

 

835,111

 

8-052 & sub accounts

 

 

 

 

1,112,400

C. RAIFFEISEN BANK — BUCURESTI BRANCH

VICTORIEI AVENUE,NR.155,BLOCK D1,SECTOR 1,BUCURESTI,ROMANIA

 

7874 & subaccounts

10,270

10,900

6,785

10,945

4,980

D.CREDIT EUROPE BANK (EX FINANSBANK) — DOAMNEI BRANCH

DOAMNEI STR.,NR.17-19,SECTOR 3,BUCURESTI,ROMANIA

 

2784.USD

7,450

7,327

7,243

7,212

 

E. BANQUE SCS ALLIANCE

P.O. BOX 1211, GENEVA 8, SWITZERLAND

     

0001USD

 

 

 

 

 

F. LIETCHTENSTEINISCHE LANDESBANK

STADTLE 44, PO BOX 384, 9490 VADUZ, LIECHTENSTEIN

LESS THAN

LESS THAN

LESS THAN

LESS THAN

 

53.60-IBAN L155

10,000

10,000

10,000

10,000

10,000

 

53.71-IBAN L155

 

 

 

 

 

G. ROYAL BANK OF CANADA SUISSE

PO BOX 5696, GENEVA 11, SWITZERLAND

 

4264 and sub accounts

516,148

474,179

411,825

878,955

93,987

Aggregate Balances

1,481,281

1,053,640

915,758

2,333,952

4,317,294

The government also suggests that Mr. Bittner's transfer of assets to “holding companies” was nefarious (Govt Br. 9), but completely ignores his explanation that that was done for legitimate business purposes since he was well known in Romania and it was disadvantageous if others knew who was seeking to purchase assets from them. Govt Br. 35 n.10; ROA.1024-1026, ROA.1030.

Nor does the fact that Mr. Bittner had an attorney in Romania assist him with a purchase of an asset (Govt Br. 8) show anything about his knowledge about law in general, let alone US laws regarding bank reporting. Indeed, if Mr. Bittner hadn't used an attorney, the government could just as well argue that the fact that he didn't need an attorney shows that he was sophisticated.

The government also spins evidence to suggest that Mr. Bittner was sophisticated in tax matters and “took pains to apprise himself of U.S. banking and currency laws” [only] when it suited him.” Govt Br. 39. Certainly, Mr. Bittner was a successful businessman in Romania and made and lost large amounts of money. Govt Br. 38-39. But that does not mean that he had any knowledge whatsoever about US bank account reporting. Nor does the fact that at some point, Mr. Bittner learned of FDIC deposit insurance. Govt Br. 9, 39. As Mr. Bittner explained:

You see at every bank when you stand in line, you see this bank it's FF — federal something. At one point I — FSLC insured. You see at every bank right there next to the cashier. So I asked “What's insured?” And they said that the federal government guarantees $250,000 per account.

ROA.723 (153:25-154:5).

His testimony about that shows nothing about his knowledge when living in Romania about the scope of US taxation or foreign bank reporting requirements. And the government's assertion that when Mr. Bittner went to Las Vegas on a birthday trip, he carried only $10,000 in cash “to avoid having to declare the currency” (Govt Br. 39) is false. What Mr. Bittner actually said was that he did not bring in more than $10,000 “[b]ecause that was illegal and I don't do illegal things.” ROA.738 (261:3-6). Mr. Bittner was mistaken; it is not “illegal” to carry more than $10,000 in cash into the country from abroad. Thus, the evidence in fact shows that Mr. Bittner was not sophisticated in US “banking and currency laws” and moreover, that he desired to obey the law. Because it is clear that “reasonable minds might differ on the inferences arising from” the facts of this case, summary judgment was improper. Wackenhut, 669 F.2d at 1031.

A. The Government's Argument that Mr. Bittner Should be Penalized $2.72 million Cannot be Based on the Premise that he was on Constructive Notice

The government does not directly address the critical question how Mr. Bittner could reasonably have known what steps to take while living in Romania to learn about financial account reporting obligations to the United States Treasury. Tacitly recognizing this to be a problem, the government claims that he was put on constructive notice about his FBARs obligations because he allegedly filed or perhaps should have filed Schedules B with his 1040 returns in 1988 and 1989 while he was still living in the U.S., and because Schedule B contains a “yes” or “no” question about financial interests in foreign bank accounts with a note to refer to separate instructions for those who answer “yes”. Govt Br. 42-45. The government relies on IRS transcripts for 1987-1989 which show that Mr. Bittner received interest income in 1988 of $486 and in 1989 of $531. ROA.1238, ROA.126.

Based on this, the government argues, that as a matter of law, Mr. Bittner should be deemed to have known that he had to file FBARs while living in Romania. Govt Br. 44-46. But, there is no evidence that Mr. Bittner, in fact, ever saw or filed a Schedule B until after he returned to the United States and engaged a CPA. The government does not have copies of Mr. Bittner's 1988 and 1989 tax returns, no doubt because it destroyed those returns. See Knowles v. Commissioner, TC Memo 2011-23, n. 4 (“IRS' policy is to destroy returns after 7 years . . .”). In fact, the IRS transcripts imply that Schedule Bs were not filed as part of Mr. Bittner returns as they indicate other schedules were filed by Mr. Bittner such as a Schedule C (self-owned business) in 1987, and a Schedule D (capital gains) in 1988 but contain no reference to Schedule B. Accordingly, there is no evidentiary support for the government's constructive notice argument. Govt Br. 44-46; ROA. 1236-1241.

But even if, arguendo, a Schedule B had been included, it would not have put Mr. Bittner on constructive notice about FBARs. At the bottom of Schedule B the filer is asked to check “Yes” or “No” to the following question:

At any time during the tax year, did you have an interest in or signature or other authority over a financial account in a foreign country (such as a bank account, securities account, or other financial account)? (See page 27 of the instructions for exceptions and filing requirements for form TD F90-22.1).

ROA.1247.

Prior to 1991, Mr. Bittner lived in the United States and did not have a financial interest in any foreign bank accounts. ROA.709 (37:19-39:9), so if he had filed a Schedule B to report interest income in 1988 and 1989, Mr. Bittner would have checked the “No” box and had no reason to refer to or consult the Form 1040 instructions for Part III, or the separate FBAR form instructions that had no application to him at that time.

The government goes on to advance an even more strained constructive notice argument, stacking assumption upon assumption. It argues that Mr. Bittner should have filed tax returns “during his time in Romania and, as part of those filings, should have included the form (Schedule B) that would have alerted him to his foreign bank account reporting obligations.” Govt Br. 49 (emphasis added). But the fact is that Mr. Bittner did not file returns in most of the years he lived in Romania because he mistakenly believed he was taxable only on US-source income (ROA.255-256), and for the few years that he did have U.S. source income and filed returns reporting that, there is no evidence that a Schedule B was included. ROA.1236-1241. Although there is nothing demonstrating that Mr. Bittner had actual or constructive knowledge of his obligation to file FBARs, the government contends “should have” is enough to justify imposing $2,720,000 in penalties against him.

Finally, even if Mr. Bittner had somehow been on constructive notice of FBARs, it goes too far to hold that that this type of notice would automatically prevent him from having reasonable cause. The IRS has recognized that taxpayers living abroad, especially dual citizens like Mr. Bittner, may be unaware they are required to file various returns and forms, including FBARs, in the United States. ROA.1108. It has established programs under which such taxpayers may establish they had reasonable cause for not filing those forms and avoid any penalties. ROA.294-295, ROA.1108-1113.

B. The Government Relies on Cases that are Factually Different; Mr. Bittner's Facts and Circumstances are Unique

The government cites some cases where courts held that a US citizen did not have reasonable cause for filing tax returns or FBARs late and claims that Mr. Bittner's circumstances are not distinguishable. Govt Br. 46-49. In fact, as discussed in Mr. Bittner's opening brief, pages 32-34, the facts in those cases are entirely distinguishable. There is simply no case where the totality of facts and circumstances even comes close to Mr. Bittner's.

The government cites cases involving whether a taxpayer who failed to timely file income tax returns had acted with “ordinary business care and prudence.” Govt Br. 34-35. Although the “ordinary business care and prudence” test could, perhaps, be extended to apply to information reporting obligations in addition to tax reporting and payment obligations, whether one meets that test still depends on all the facts and circumstances, and a critical fact is the type of form involved. Cf. 26 C.F.R. § 301-6651-1(c) (“In determining if the taxpayer exercised ordinary business care and prudence in providing for the payment of his tax liability [for the failure to pay penalty], consideration will be given to the nature of the tax which the taxpayer has failed to pay.”); 26 C.F.R. § 1.6664–4 (“The determination of whether a taxpayer acted with reasonable cause and in good faith [for the accuracy related penalty] is made on a case-by-case basis, taking into account all pertinent facts and circumstances.”).

Specialized information forms like FBARs are not the same as income tax returns and the ordinary business care and prudence one might exercise as to those forms is not the same. Virtually every person knows about income tax returns, although as the IRS has recognized some, especially dual citizens living abroad, may not be aware of their obligations to report foreign income. ROA.1108. FBARs are something entirely different and not everyone can be expected to know about them. Only US persons with foreign bank accounts are required to file them and there was no reason for Mr. Bittner to know about them before he moved to Romania or for him to inquire whether such forms existed while living in Romania for decades.

The government accordingly is mistaken when it argues (Govt Br. 46) that because the “same standard” applies to income tax and FBAR information return penalties, the fact that Mr. Bittner agreed to the imposition of a late filing penalty in his Tax Court case necessarily implies that “he also had no reasonable cause for failing to timely and accurately report his foreign accounts during those years.” If the “business care and prudence” test applies, it must necessarily take into consideration the nature of the form involved,6 and doing so a fact finder could reasonably conclude that he had reasonable cause for filing his FBAR forms late.

Here, given all the facts and circumstances, there is a genuine factual dispute whether Mr. Bittner had reasonable cause for filing his FBAR forms late.

C. United States v. Boyle Does Not Control

United States v. Boyle, 469 U.S. 241 (1985) is not controlling as to the reasonable cause standard for information reporting forms under Title 31 (or under multiple Internal Revenue Code regulations dealing with information reporting).7 As acknowledged by the government and the district courts that have ruled that Boyle governs when considering the safe harbor provision for non-willful FBAR penalties in a summary judgement, “reasonable cause” is not defined in § 5321(a)(5) or anywhere in Title 31 nor its various implementing regulations. See Govt Br. 15; see also Moore v. United States, Case No. C13-2063RAJ, 2015 WL 1510007, at *4 (W.D. Wash. 2015); Jarnagin v. United States, 134 Fed. Cl. 368, 376 (2017); United States v. Ott, Case No. 18-cv-12174, 2019 WL 3714491, at *2 (E.D. Mich. Aug. 7, 2019); United States v. Agrawal, Case No. 18-C-0504, 2019 WL 6702114, at *4 (E.D. Wis. 2019); United States v. Hidy, 471 F.Supp.3d 927, 932 (D. Neb. 2020).

Nevertheless, in the absence of legal or factual support thereof, it has been assumed that Boyle's interpretation of “ordinary business care and prudence” must control as the only “proper” definition of reasonable cause. Govt Br. 51-53. Boyle dealt with traditional delinquency penalties under 26 U.S.C. § 6651(a)(1), which are imposed for not timely filing a tax return such as a Form 706 estate tax return or a Form 1040 income tax return. Boyle, 469 U.S. at 243. A penalty under § 6651(a)(1) is calculated at a 5% monthly rate (capped at 25%) based on the amount of tax required to be shown on return. 26 U.S.C. § 6651(a)(1). That statute's corresponding regulation provides that “to demonstrate 'reasonable cause,' a taxpayer filing a late return must show that he 'exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time.”' 26 C.F.R. § 301.6651-1(c). Id.; Boyle, 469 U.S. at 246. A return reporting tax owed or the penalty imposed for not timely filing such return are wholly different than information reporting forms under Title 31 and under the Internal Revenue Code, and it is wrong to treat them as identical — inferring meaning to the § 5321(a)(5)(B)(ii) “reasonable cause exception” beyond its ordinary meaning. See Atl. Cleaners & Dyers v. United States, 286 U.S. 427, 433 (1932):

[W]ords have different shades of meaning, and consequently may be variously construed, not only when they occur in different statutes, but when used more than once in the same statute or even in the same section. . . . Where the subject-matter to which the words refer is not the same in the several places where they are used, or the conditions are different, or the scope of the legislative power exercised in one case is broader than that exercised in another, the meaning well may vary to meet the purposes of the law, to be arrived at by a consideration of the language in which those purposes are expressed, and of the circumstances under which the language was employed.8

The ordinary meaning of “reasonable” is “fair, proper, or moderate under the circumstances[.]” Reasonable, BLACK'S LAW DICTIONARY (8th ed. 2004). The ordinary meaning of cause is “something that produces an effect or result[.]” Cause BLACK'S LAW DICTIONARY (8th ed. 2004). Whether Mr. Bittner had “reasonable cause” under the safe harbor provision in the statute for his failure to timely file FBARs should depend on all the facts and circumstances.

D. The Government Ignores its own Guidance Regarding FBAR Penalties and Similar Penalties

Although the government strains to find cases with similar factual circumstances to this case, it ignores its own regulations, programs and guidance on FBARs and similar penalties, as discussed in Mr. Bittner's opening brief, pages 24-31, 35-37. As shown therein, these factors as applied to Mr. Bittner show that there is a factual issue whether he had reasonable cause for filing his FBARs late. ROA.1111-1112. Importantly, although not legally binding, the IRS' public and internal penalty guidance for FBARs and other reporting forms are instructive, and they specifically recognize that individuals who are unaware of their particular filing duties due to ignorance of the law may nevertheless qualify for the reasonable cause exception, which depends on all the facts and circumstances, no single factor being determinative. See I.R.S. Fact Sheet 2011-13 at 2-5 (ROA.1109-1112); I.R.S. Internal Revenue Manual (IRM) 20.1.1.3.2.2.6(2.A-E), Ignorance of the Law (11-25-2011)9 (“Reasonable cause may be established if the taxpayer shows ignorance of the law in conjunction with other facts and circumstances. For example, consider the following: The taxpayer's education. If the taxpayer has previously been subject to the tax. If the taxpayer has been penalized before. If there were recent changes in the tax forms or law which a taxpayer could not reasonably be expected to know. The level of complexity of a tax or compliance issue.”); Id. at 4.A and B (“The taxpayer may have reasonable cause for noncompliance due to ignorance of the law if the following are true: A reasonable and good faith effort was made to comply with the law, or The taxpayer was unaware of a requirement and could not reasonably be expected to know of the requirement.) (emphasis added); IRM 4.19.25.7(8), Request for Reasonable Cause (7-31-2019)10 (“A waiver should not be automatically granted where the taxpayer claims ignorance of the filing requirements. However, ignorance of the law may be considered as one factor which may indicate the taxpayer acted in a responsible manner if all the other facts support this contention.”).

All of that is rendered meaningless if an individual is required to inquire about a particular filing requirement, which he did not know about and, because of his particular fact circumstances, could not reasonably be expected to know about. The government, however, evades its own guidance and argues that since Mr. Bittner did not ask anyone in Romania about US bank reporting, he must be severely punished.

CONCLUSION

For the reasons stated in Mr. Bittner's opening brief and here, the Court should reverse the district court on the reasonable cause issue and affirm its holding that the penalty cannot exceed $10,000 per form.

In the event the Court reverses either or both holdings, the case should be remanded for further proceedings.

Respectfully submitted,

CLARK HILL PLC

FARLEY P. KATZ
Texas Bar No. 11108790
FarleyPKatz@gmail.com

RACHAEL E. RUBENSTEIN
Texas Bar No. 24073919
RRubenstein@ClarkHill.com

2301 Broadway Street
San Antonio, TX 78215
Telephone:(210) 250-6006
Facsimile:(210) 258-2714

Counsel for Appellant, Cross-Appellee Alexandru Bittner

May 20, 2021

FOOTNOTES

1ROA.269-276, ROA.277-284.

231 C.F.R. § 1010.306(c), amended by Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Pub. L. 114-41, § 2006(b)(11), 129 Stat. 443 (2015) (changing the FBAR due date to April 15th of each year with a sixth month extension allowed).

3On the corrected FBARs prepared by CPA Lynn Booker, Mr. Bittner listed a total of 272 accounts for the years 2007-2011. ROA.335-339. Included with each FBAR were 36 pages of attached charts detailing account-related information although he was not required to provide that. ROA.1376-1414. Included therein were personal accounts at 9 banks, some with sub-accounts in different currencies. ROA.1379. The remaining accounts listed were held by corporations in which he invested. ROA.1380-1414. It was later discovered that Mr. Booker had over-reported a number of accounts held by corporations of which Mr. Bittner owned 50 percent or less of the stock, and consequently he did not have a “financial interest” in those accounts. ROA.523-524. The total number of accounts Mr. Bittner concedes he had a financial interest in is 177. ROA.17-34, ROA 107-112. For purposes of its motion for partial summary judgment, the government limited its request to $10,000 times the 177 accounts. ROA.297-298.

4The Boyd dissent, although incorrect, specifically cited the regulations underlying Section 5314 when determining the meaning of the term “violation,” which undercuts the government's position that the district court should not have turned to the underlying regulations. Boyd, 991 F.3d at 1088-90 (Ikuta, J., dissenting).

5Notably, in September of 25, 2013, Mr. Bittner filed corrected FBARs (prior to the commencement of the IRS FBAR examination reporting bank names, addresses, accounts numbers, and maximum annual balances for all years at issue. ROA.1687, ROA.1072, ROA.1076, ROA.1376-1414. Because he had a financial interest in more than 25 accounts each year, that information was not required to be supplied on his FBARs. ROA.269. Nevertheless, he provided it voluntarily in 36 pages of charts attached to each of his corrected FBARs. ROA.257, ROA.1376-1417. The IRS examiner relied entirely on that information to prepare the penalty assessments, using the same accounts and numbers. ROA.1076-1077. The IRS obtained no information relevant to the FBAR penalty assessments from any third parties, only from Mr. Bittner's voluntary disclosure. ROA.1068:8-16.

6The government does not assert that Appellant is “collaterally estopped” on this issue, nor could it as the Tax Court case was resolved by settlement. ROA.1105-1107, ROA.1122-1126; see Avondale Shipyards, Inc. v. Insured Lloyd's, 786 F.2d 1265, 1272 (5th Cir. 1986) (noting that a consent judgment approving a settlement does not ordinarily give rise to issue preclusion or collateral estoppel).

7See, e.g., 26 C.F.R. § 1.6038A–4 (Form 5472 information reporting concerning nonresident ownership in U.S. entities under 26 U.S.C. § 6038A(d), “The determination of whether a taxpayer acted with reasonable cause and in good faith is made on a case-by-case basis, taking into account all pertinent facts and circumstances. Circumstances that may indicate reasonable cause and good faith include an honest misunderstanding of fact or law that is reasonable in light of the experience and knowledge of the taxpayer.”); 26 C.F.R. § 1.6038D–8 (Form 8938 information reporting concerning specified foreign financial assets of US citizens and residents under 26 U.S.C. § 6038D(d), “The determination of whether a failure to disclose . . . was due to reasonable cause and not due to willful neglect is made on a case-by-case basis, taking into account all pertinent facts and circumstances.”); C.F.R. 26 § 301.6724–1 (Forms W-2 and 1099s, “Reasonable cause defined. The penalty is waived for reasonable cause only if the filer establishes that either — (i) There are significant mitigating factors with respect to the failure . . . or (ii) The failure arose from events beyond the filer's control[.]”).

8See also Cook, “Substance” and “Procedure” in the Conflict of Laws, 42 Yale L.J. 333, 337 (1933) (“The tendency to assume that a word which appears in two or more legal rules, and so in connection with more than one purpose, has and should have precisely the same scope in all of them . . . has all the tenacity of original sin and must constantly be guarded against.”).

9The IRM Penalty Handbook where this subsection is found provides, “This IRM section discusses the purpose of civil penalties and provides the legal authorities, criteria for relief, and other general information about civil penalties.” IRM 20.1.1.1, Program Scope and Objectives (11-21-2017).

10This IRM subsection is found in Part 4 Examining Process, Chapter 19 Liability Determination, Section 25 Information Return Penalty Procedures.

END FOOTNOTES

DOCUMENT ATTRIBUTES
  • Case Name
    United States v. Alexandru Bittner
  • Court
    United States Court of Appeals for the Fifth Circuit
  • Docket
    No. 20-40597
  • Institutional Authors
    Clark Hill PLC
  • Cross-Reference

    Government brief.

  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2021-20851
  • Tax Analysts Electronic Citation
    2021 TNTI 99-13
    2021 TNTF 99-26
    2021 TNTG 99-21
Copy RID