United States v. Bittner

19 F.4th 734

UNITED STATES of America, Plaintiff—Appellee/Cross-Appellant,

v.Alexandru BITTNER, Defendant—Appellant/Cross-Appellee.

No. 20-40597

United States Court of Appeals, Fifth Circuit.

FILED November 30, 2021

Paul Andrew Allulis, Attorney, Arthur Thomas Catterall, U.S. Department of Justice, Tax Division, Appellate Section, Washington, DC, for Plaintiff-Appellee/Cross-Appellant.

Farley P. Katz, Rachael E. Rubenstein, Clark Hill, P.L.C., San Antonio, TX, for Defendant-Appellant/Cross-Appellee.

Before Owen, Chief Judge, and Clement and Duncan, Circuit Judges.

Stuart Kyle Duncan, Circuit Judge

Alexandru Bittner non-willfully failed to report his interests in foreign bank accounts on annual FBAR forms, as required by the Bank Secrecy Act of 1970 (BSA) and regulations thereunder. See 31 U.S.C. § 5314 ; 31 C.F.R. §§ 1010.306, 1010.350. The government assessed $2.72 million in civil penalties against him—$10,000 for each unreported account each year from 2007 to 2011. The district court found Bittner liable and denied his reasonable-cause defense. But it reduced the assessment to $50,000, holding that the $10,000 maximum penalty attaches to each failure to file an annual FBAR, not to each failure to report an account.

We affirm the denial of Bittner's reasonable-cause defense but reverse with respect to application of the $10,000 penalty. We hold that each failure to report a qualifying foreign account constitutes a separate reporting violation subject to penalty. The penalty therefore applies on a per-account, not a per-form, basis. On this point, we part ways with a recent Ninth Circuit panel, which split on this issue. See United States v. Boyd , 991 F.3d 1077, 1080–86 (9th Cir. 2021) (adopting per-form interpretation). But see id. at 1086–91 (Ikuta, J., dissenting) (taking per-account view).¹ Accordingly, we affirm in part, reverse in part, vacate, and remand.

I.

A.

In 1970, Congress enacted the BSA "to require certain reports or records where such reports or records have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings." Currency and Foreign Transactions Reporting Act of 1970, Pub. L. No. 91-508, § 202, 84 Stat. 1114 (codified as amended at 31 U.S.C. § 5311 ). A primary purpose of the BSA was to curb the "serious and widespread use" of foreign financial accounts to evade taxes. Cal. Bankers Ass'n v. Shultz , 416 U.S. 21, 27, 94 S.Ct. 1494, 39 L.Ed.2d 812 (1974).

The BSA, as amended, provides in relevant part, "the Secretary of the Treasury shall require a resident or citizen of the United States ... to keep records, file reports, or keep records and file reports, when the ... person makes a transaction or maintains a relation for any person with a foreign financial agency." 31 U.S.C. § 5314(a). The BSA requires that the records and reports contain specific information "in the way and to the extent the Secretary prescribes." Ibid. It directs the Secretary to consider "the need to avoid burdening unreasonably a person making a transaction with a foreign financial agency" when prescribing reporting and record-keeping procedures. Ibid.

As directed, the Secretary promulgated several regulations. Two are relevant here. The first provides that each person with a "financial interest in ... [a] 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." 31 C.F.R. § 1010.350(a). A person is treated as having a "financial interest" in any foreign account that the person owns or that is owned by a corporation in which the person has an ownership interest greater than fifty percent. Id. § 1010.350(e)(1), (2)(ii). The prescribed reporting form is a Report of Foreign Bank and Financial Accounts, or "FBAR." Id. § 1010.350(a). The second regulation provides: "Reports required to be filed by § 1010.350 shall be filed ... on or before June 30 of each calendar year with respect to foreign financial accounts exceeding $10,000 maintained during the previous calendar year." Id. § 1010.306(c).

A person generally is required to disclose on an FBAR specific information about each qualifying foreign account. But when a person has a financial interest in twenty-five or more qualifying accounts, the person need only disclose the number of accounts. Id. § 1010.350(g)(1). Those who fall within this exception, however, are "required to provide detailed information concerning each account when so requested by the Secretary." Ibid.

The BSA authorizes the Secretary to "impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314." 31 U.S.C. § 5321(a)(5)(A). Initially, only willful violations were subject to penalty. See § 207, 84 Stat. 1114. Congress added penalties for non-willful violations in 2004. See American Jobs Creation Act of 2004, Pub. L. No. 108-357, § 821(a), 118 Stat. 1418 (codified at 31 U.S.C. § 5321(a)(5) ).

Different penalties attach to non-willful and willful violations. For a non-willful violation, "the amount of any civil penalty imposed ... shall not exceed $10,000." 31 U.S.C. § 5321(a)(5)(B)(i). But no penalty attaches if the "violation was due to reasonable cause" and "the balance in the account ... was properly reported." Id. § 5321(a)(5)(B)(ii). For a willful violation, the maximum penalty increases to the greater of $100,000 or fifty percent of "the amount of the transaction" (when a violation involves a transaction) or "the balance in the account at the time of the violation" (when a violation involves "a failure to report the existence of an account"). Id. § 5321(a)(5)(C)(i), (D). Willful violations are excluded from the reasonable-cause exception. Id. § 5321(a)(5)(C)(ii).

B.

Bittner was born in Romania in 1957. After serving in the Romanian army and earning a master's degree in chemical engineering, he immigrated to the United States in 1982. He was naturalized in 1987.

In 1990, Bittner returned to Romania, where he became a successful businessman and investor. He earned millions of dollars and acquired interests in a diverse array of companies, including real estate, hotels, restaurants, construction, aquaculture, logging, and manufacturing. He negotiated purchases of Romanian government assets and transferred his business assets, including title to several investment properties, to holding companies in London and Geneva.

To manage his growing wealth, Bittner maintained dozens of bank accounts in Romania, Switzerland, and Liechtenstein, using "numbered accounts" "[t]o hide [his] name." He used accountants to maintain financial records and ensure compliance with Romanian tax laws. But Bittner was unaware that as a United States citizen he had to report his interests in certain foreign accounts. Consequently, Bittner never filed FBARs while living in Romania.

Bittner returned to the United States in 2011. Upon learning of his reporting obligations, he hired a CPA, who in May 2012 prepared and filed his outstanding FBARs. But those FBARs were deficient: they listed only his largest account and incorrectly stated he did not have an interest in twenty-five or more qualifying accounts. Bittner hired a new CPA, who in September 2013 filed corrected FBARs for the years 2007 to 2011, as penalties for prior years were time-barred. See 31 U.S.C. § 5321(b)(1). Although not required, Bittner disclosed with his corrected FBARs all foreign bank account information and balances. In June 2017, the IRS assessed $2.72 million in penalties against Bittner for non-willful violations of section 5314 —$10,000 for each unreported account from 2007 to 2011, specifically 61 accounts in 2007, 51 in 2008, 53 in 2009, 53 in 2010, and 54 in 2011.

In June 2019, the government sued to reduce these penalty assessments to judgment. Bittner pleaded in defense that his violations were due to reasonable cause and therefore could not be penalized under 31 U.S.C. § 5321(a)(5)(B)(ii), that the maximum penalty allowed for a non-willful reporting violation under 31 U.S.C. § 5321(a)(5)(B)(i) is $10,000 per annual FBAR form, and that the penalties as assessed violated the excessive fines clause of the Eighth Amendment. During discovery, Bittner admitted he was obligated to report 51 accounts in 2007, 43 in 2008, 42 in 2009, 41 in 2010, and 43 in 2011.

The parties cross-moved for summary judgment on application of the $10,000 maximum penalty, with Bittner arguing for a per-form basis and the government arguing for a per-account basis. The government also moved for summary judgment on Bittner's liability for $1.77 million in penalties—$10,000 for each admitted qualifying account from 2007 to 2010—arguing that Bittner did not qualify for the reasonable-cause exception for these years.

The district court held that the $10,000 maximum penalty for a non-willful violation applies on a per-form basis. United States v. Bittner , 469 F. Supp. 3d 709, 717–26 (E.D. Tex. 2020). Having thus interpreted the statute, it deemed Bittner's Eighth Amendment defense moot. Id. at 726–27. The court also granted summary judgment on Bittner's liability for the years 2007 to 2010, rejecting his reasonable-cause defense. Id. at 727–29. Bittner withdrew that defense as to the 2011 assessment, and the court entered judgment of $50,000—$10,000 for each year from 2007 to 2011. Both parties timely appealed.

II.

We review a summary judgment de novo. Ledford v. Keen , 9 F.4th 335, 337 (5th Cir. 2021) (citation omitted). Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). We view the evidence in the light most favorable to the nonmovant and draw all reasonable inferences in its favor. Adams v. Alcolac, Inc. , 974 F.3d 540, 543 (5th Cir. ...