Financial Planning Quotes Niles Elber on Upcoming Decision in Bittner v. United States

For Alexandru Bittner, a U.S. and Romanian dual citizen who lived abroad for years, a looming decision by the U.S. Supreme Court will mean the difference between owing the IRS $50,000 and owing it $2.7 million.

As momentous as the decision will be for Bittner, it could also have far-reaching implications for financial planners whose clients have overseas bank and investment accounts. At the heart of Alexandru Bittner v. United States is a question of how regulators should treat failures to annually report the existence of foreign assets, including offshore bank accounts. Should there be a separate violation arising from each distinct failure to report individual accounts? Or should there instead be only a single violation for failing to fill out the FBAR form the IRS requires for reporting foreign assets every year?

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Niles Elber, a tax attorney at Caplin & Drysdale in Washington, D.C., cautioned that a decision in Bittner's favor could give tax collectors a perverse incentive to go out of their way to make sure violations are labeled as willful violations. Willful violations carry penalties equal to 50% of the money in unreported accounts, or $100,000, whichever is greater. With multiple violations, a taxpayer can end up owing more in penalties and interest than he has in his accounts.

"It's partly just human nature," he said. "You're not going to want to waste your time with insignificant adjustments. You are going to be looking at where's the opportunity to best apply tax or apply the penalties."

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