A businessman whose initial fine of $50,000 for violating an obscure tax-filing rule ballooned to $2.72 million at the insistence of the IRS urged the Supreme Court on Nov. 2 to reduce the fine.
The case came as the Biden administration’s attempts to beef up enforcement efforts by the IRS became an issue in the midterm congressional elections. The Biden-backed Inflation Reduction Act, which the president signed into law in August, allocated almost $80 billion to the IRS over the coming 10 years for increased enforcement. Democrats say the IRS has long been underfunded, but Republicans say the extra money will be used to harass taxpayers, and they promise to rescind the funding if they retake control in Congress.
Businessman Alexandru Bittner was born in communist Romania. He moved to the United States in his youth, working as a dishwasher and later as a plumber. Eventually, he was naturalized in the United States and has been a dual Romanian-U.S. citizen ever since.
Bittner returned to Romania after the collapse of Soviet bloc communism in 1990 and lived there for more than 20 years until late 2011.
He was a successful businessman and had several non-U.S. personal bank accounts and owned stock in a number of Romanian corporations that also had foreign bank accounts. While living abroad, Bittner had limited contact with the United States.
Bittner was also unaware of the existence of the Report of Foreign Bank and Financial Accounts (FBAR) form or Financial Crimes Enforcement Network (FinCEN) Form 114, or his duty to file such forms.
When he returned to the United States in 2011, Bittner realized he should have filed U.S. tax returns while living in Romania to report his worldwide income. He hired a professional accountant, who advised him on the requirement to file FBARs, and to prepare and file the needed documents.
The IRS found that Bittner had failed to timely file FBARs for five years: 2007 through 2011. In that period, because he had more than 25 foreign accounts, he wasn’t required to detail those accounts, but was permitted merely to state the total number of foreign accounts in which he had a financial interest. His corrected forms volunteered the full information. The financial penalty was initially set at $50,000.
But the IRS sought to impose the maximum penalty under the Bank Secrecy Act, even though Bittner’s delinquency was unintentional. Even though Bittner only failed to file five annual forms on time, the IRS took the position that he had violated the law a full 272 times—once for each account that wasn’t reported in each of those five years and fined him $10,000 for each unreported account.
The Biden administration favors the larger penalty in the case, Bittner v. U.S., court file 21-1195, an appeal from the U.S. Court of Appeals for the 5th Circuit.
Attorney Daniel L. Geyser of Dallas represented Bittner at the hearing.
Geyser’s opening remarks were interrupted by three women who separately rose to heckle the justices in the courtroom that reopened to the public after audience members were barred during the pandemic. The activists expressed opposition to the court’s ruling this summer in Dobbs v. Jackson Women’s Health Organization, which overturned the 49-year-old Roe v. Wade precedent that had recognized a constitutional right to abortion.
A court spokesperson told CNN the trio was taken into custody.
“Three individuals were arrested this morning and charged with violation of Title 40 USC [Section] 6134 (making ‘a harangue or oration, or utter[ing] loud, threatening, or abusive language in the Supreme Court Building’) and Regulation 5, and with violating 18 USC [Section] 1507 (demonstrating with the intent of interfering with the administration of justice or with the intent of influencing a judge in the discharge of his or her duty),” the spokesperson said.
Geyser said in his presentation it was clear that the Bank Secrecy Act’s “plain text, context, history, and purpose” show the statute “requires parties to file reports, not report individual accounts.”
“Any failure to file a report thus gives rise to a single statutory violation, no matter how many accounts a person has or how many mistakes a person might make on a single form. Because there is no independent duty to report each account, there is no independent violation every time an account is not reported,” the lawyer said.
Justice Elena Kagan pushed back, saying Geyser was arguing that the government has to treat “somebody who has a $10,000 account” the same as “your client,” who “has extreme wealth and many, many accounts and where he is depriving the government of much more information than” someone with a small checking account is doing.
“If Congress wanted to impose a separate penalty for each individual account, Congress would have said that,” Geyser said.
U.S. Justice Department attorney Matthew Guarnieri defended the increased fine.
“Each time a U.S. person maintains an account with a foreign bank, that relationship is a matter of distinct concern to the United States,” he said.
“When a U.S. person fails to report multiple qualifying accounts, the person violates [the law] multiple times.”
Justice Ketanji Brown Jackson suggested the law isn’t as clear as Guarnieri argues and that it “doesn’t compel the list that you say is required.”
“It doesn’t say give me an enumerated list of each account or transaction,” she said.
Guarnieri replied that “the text here is specific enough to convey that Congress was concerned about each one of these accounts.”
