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Tax filing – and penalties – for foreign accounts may soon be the subject of a major legal decision.
The U.S. Supreme Court plans this fall to hear Bittner v. U.S. This case presents a conflict over statutes under the Bank Secrecy Act (BSA). The question is whether a “violation” under the BSA is the failure to file an annual FBAR no matter the number of foreign accounts or whether there is a separate violation for each account that isn’t properly reported.
The 1970 BSA initially charged the U.S. Treasury Department with collecting information from U.S. persons who have financial interests in or signature authority over financial accounts maintained with financial institutions outside the U.S. In 2003, the Treasury delegated enforcement to the Internal Revenue Service. Although only willful violations were initially subject to penalty, Congress amended the act in 2004 to include penalties for non-willful violations.
Regulations require filing a single annual FBAR for anyone with an aggregate balance over $10,000 in foreign accounts. The penalty for non-willful violation is up to $10,000.
Despite the taxpayer’s persistent challenges, the Supreme Court has refused to review a Ninth Circuit Court of Appeals’ decision affirming a lower court’s decision in favor of the IRS, which assessed a giant $1.2 million penalty for failing to disclose financial interests in an overseas account.
The April 30th decision, which is now final, is noteworthy for two reasons. First, it shows the magnitude of penalty that can be reached, even with respect to an individual and a single foreign account and tax year (in this case, the relevant tax year was 2006). Second, it shows the type of taxpayer arguments that courts will likely reject when reviewing an FBAR penalty case.
One of the key pieces of legislation used by the U.S. government in its effort to combat tax evasion abroad is the Foreign Account Tax Compliance Act (FATCA). To the surprise of many, FATCA remained completely untouched by Trump’s sweeping tax reform passed late last year.
A recent decision by the Supreme Court further evidences that FATCA likely will not be repealed or amended any time soon. Last month, a legal challenge to FATCA was thwarted when the United States Supreme Court refused to review the Sixth Circuit Court’s decision affirming a lower court ruling which dismissed the case brought against FATCA.
Earlier this year we shared the U.S. Supreme Court would hear a case related to online sales tax: Wayfair v. South Dakota. This ruling could settle how online purchases are taxed, potentially overturning the 1992 Quill Corp v. North Dakota ruling currently preventing states from collecting sales tax from sellers without a physical presence (or nexus) in the state.
Why is it worth it for the Supreme Court to consider this case rather than fall back on the previous Quill ruling? The world has changed a lot since 1992. As The Wall Street Journal reports, “In 1992, the justices ‘did not and could not anticipate the development of modern e-commerce,’ Solicitor General Noel Francisco wrote in a friend-of the-court brief.” Read More
I was very glad to be a panelist for the Canadian Tax Foundation’s conference on the Supreme Court of Canada’s decisions in Fairmont and Jean Coutu.
During the discussion the panelists were asked about the ways taxpayers may correct tax mistakes after these two decisions of the Supreme Court. Read More
In its Graphic Packaging Corporation v. Hegar decision rendered December 22, 2017, the Texas Supreme Court fell in line with the rejection of the Multistate Tax Commission (MTC) optional three-factor apportionment provisions, citing the California Supreme Court Gillette decision,2 the Minnesota Supreme Court Kimberly Clark decision,3 and the Oregon Tax Court decision in Health Net. Read More
The minister’s housing allowance has been challenged in court. There have been several challenges in recent years, but last month, Judge Barbara Crabb once again ruled the housing allowance as unconstitutional, favoring a religious group. As of now, it is anticipated that the order will be stayed, meaning it will not be enforced, pending appeals. Once the appeals are exhausted, the order would take effect. Obviously, this would take at least a couple of years. Read More
With its ruling n. 27113/2016 issued on December 28, 2016, the Italian Supreme Court interpreted and applied the beneficial ownership provision of article 10 of the tax treaty between Italy and France, for the purpose of determining whether a French holding company, wholly owned by a U.S. corporation, was entitled to the imputed credit granted under that treaty in respect of dividends received from an Italian subsidiary.