U.S. Supreme Court justices questioned the legality of stiff penalties the federal government says it can impose on people who fail to file required reports listing their foreign bank accounts.
Hearing arguments in a case with special resonance for Americans living abroad, the justices tested the Biden administration's interpretation of a law the government says deters money laundering and tax evasion.
The 75-minute session, briefly
But several justices voiced concerns about unwitting taxpayers being hit with hefty penalties. Justice Samuel Alito pointed to contentions that "many, many people" with foreign bank accounts are unaware of the law and Treasury Department regulations.
"And if they're aware of it, they're pretty hard to parse," Alito said.
The court is hearing an appeal from Alexandru Bittner, a businessman assessed a $2.72 million penalty under the Bank Secrecy Act for not filing timely reports for five years when he was living in Romania. Bittner contends the maximum fine is $50,000.
The law, which applies to U.S. citizens and residents, authorizes penalties of as much as $10,000 for unintentional violations.
The Internal Revenue Service concluded that Bittner violated the law 272 times, once for each account that was not reported in each of those five years. Bittner says he violated the law at most five times, once for each annual report he failed to file.
Justice Ketanji Brown Jackson said the government's position penalized people for putting their their money in multiple accounts.
"You're extracting different penalties from them for this purpose, based on this totally lawful behavior," she told a Justice Department lawyer. "It seems to me to make more sense that Congress was talking about wanting to just know who was doing this kind of thing, for the purpose of this statute."
Bittner, who is a dual U.S.-Romanian citizen, was required to file a form known an FBAR during the 2007-2011 period at issue in the case.
The case is Bittner v. United States,
— With assistance from Laura Davison and Aysha Bagchi.
