The Supreme Court takes up a case of a $2.72 million fine for a taxpayer’s error.

Navigating the labyrinth that is the U.S. tax code can already feel like punishment for ordinary taxpayers. But the real punishment comes when Americans face oppressive penalties from the Internal Revenue Service for innocent filing mistakes. That may be about to change. The Supreme Court hears oral arguments Wednesday in Bittner v. U.S., a case that could ease excessive punitive measures from the IRS.

Alexandru Bittner, a Romanian-American dual citizen, nonwillfully failed to file five foreign bank account reports, or FBARs, with the IRS while living in Romania between 2007 and 2011. Taxpayers fill out annual FBAR forms if they have “foreign financial accounts exceeding $10,000.” When Mr. Bittner moved back to the U.S., he discovered this responsibility and had his certified public accountant file these forms to the IRS. The IRS responded by imposing a $2.72 million penalty even though there were no allegations of tax fraud or any additional taxes owed.

In Bittner, the court will have to determine how much in penalties Mr. Bittner must pay. The tax code imposes a $10,000 penalty per nonwillful violation of this statute. Mr. Bittner argues he had five violations—one for each missed FBAR—bringing him to $50,000 in fines. The government wants more, arguing he had 272 violations, one for each unreported account during the five-year period.

The consequence of ruling in favor of the government would be severe. Roughly nine million U.S. citizens live abroad and another 45 million are foreign-born. Any of these Americans could hold foreign bank accounts for a variety of reasons: to send money back to their family, to give themselves easier access to funds when visiting or to hold the inheritance of a deceased family member. The IRS’s standard $10,000 penalty has the potential to ruin these Americans’ financial lives.


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But Mr. Bittner’s case has a good chance at changing the standard. The Eighth Amendment prohibits the government from imposing “excessive fines.” A $2.72 million fine for a nonwillful mistake is the definition of excessive. Any vagueness on the penalty standard should be decided in favor of the taxpayer and against the government since the government wrote the law.

Not every foreign bank account is a vehicle for tax evasion, and the IRS shouldn’t be able to impose huge fines for honest mistakes. Instead, the agency should collect the tax, plus interest, and move on. The Supreme Court can bring some sanity to an already-bewildering tax code.

Mr. Nix is a law clerk and Mr. Martinez a senior attorney for the National Taxpayers Union Foundation.

WSJ Opinion: The Middle Class Will Be Targeted in IRS Audit Crackdown



WSJ Opinion: The Middle Class Will Be Targeted in IRS Audit Crackdown
Review & Outlook: Analysis from the Congressional Budget Office, Syracuse University and the National Taxpayer Advocate suggest Democratic Party claims that only high earners will be squeezed in the IRS audit expansion are false. Images: Getty Images Composite: Mark Kelly
Appeared in the November 2, 2022, print edition as 'The IRS and the Eighth Amendment'.

LINK: https://www.wsj.com/articles/i...y-nonwillful-filing-

quote:

WSJ Opinion: The Middle Class Will Be Targeted in IRS Audit Crackdown

Ya think?
I would bet on it.

quote:

Originally posted by smschulz:

quote:

WSJ Opinion: The Middle Class Will Be Targeted in IRS Audit Crackdown

Ya think?
I would bet on it.

If you don't do itemized deductions, they won't have much to work with while they're cracking down on you.

quote:

If you don't do itemized deductions, they won't have much to work with while they're cracking down on you.

This. ^^^^^^^

Given the higher standard deduction, I don't believe many Americans itemize anymore. That makes taxes relatively simple and less of a target for the IRS.

Now, maybe those with all sorts of tax credits...who knows.

quote:

Given the higher standard deduction, I don't believe many Americans itemize anymore. That makes taxes relatively simple and less of a target for the IRS.

^^^^^^^^^^^^^
Not an option for me being self employed with lots of business expenses. I was assessed a 16 thousand dollar penalty for failure to file a one page form on time. I was living in a Federal Disaster area and EVERYONE got more time to file taxes. That took a year to sort out. I ended up not having to pay, but you can guess how I felt. I sure hope that the Supreme Court agrees that these penalties are draconian.

When the rebellion begins, the IRS should be near the top of the list of targets

Yep. Still waiting on my 2020 refund.

Yes, 2020.

Only reason for the refund is because my CPA told me the wrong amount to write the check for by $2k, but that’s a different aggravation.

quote:

Originally posted by ZSMICHAEL:

quote:

Given the higher standard deduction, I don't believe many Americans itemize anymore. That makes taxes relatively simple and less of a target for the IRS.

^^^^^^^^^^^^^
Not an option for me being self employed with lots of business expenses. I was assessed a 16 thousand dollar penalty for failure to file a one page form on time. I was living in a Federal Disaster area and EVERYONE got more time to file taxes. That took a year to sort out. I ended up not having to pay, but you can guess how I felt. I sure hope that the Supreme Court agrees that these penalties are draconian.

Business expenses go on Schedule C; itemized deductions go on Schedule A. Two different things.

quote:

Originally posted by Flash-LB:


If you don't do itemized deductions, they won't have much to work with while they're cracking down on you.

If you qualify for itemized deductions and you follow the rules, why not? It's like leaving money on the table for the government to take.

The story in the OP is about FBARs which is a separate requirement and not part of the income tax return process.
A non-willful failure to file is (I'll take the article's quote) $10,000. If the penalty the IRS is trying to impose $2.72 million, even at $50,000 for each year, that must have been a lot of accounts he's had. Willful violations carry the greater of $129,000 or 50% of the account balances along with criminal penalties.

What's not covered in the article is whether the person also filed Form 8938 which IS a part of the income tax process. If he did, that would surely mitigate his noncompliance on the FBARs but there is still the question of how many accounts did he have.

I know these issues because I was planning to be an expat for a while. Maybe it's just me, but I think you'd want to have just about everything planned out before living overseas with regards to finances, health, etc.

quote:

Business expenses go on Schedule C; itemized deductions go on Schedule A. Two different things.

^^^^^^^^^^^
Yes. You are correct. As you can tell a CPA does my taxes.

quote:

Originally posted by Rey HRH:
If the penalty the IRS is trying to impose $2.72 million, even at $50,000 for each year, that must have been a lot of accounts he's had.
...
but there is still the question of how many accounts did he have.

According to the article:

quote:

The government wants more, arguing he had 272 violations, one for each unreported account during the five-year period.

If you read it one way, it could be that he had 54-55 accounts per year for each of the five years. (272 divided by 5 years = 54.4)

If you read it another way, he had a total of 272 different bank accounts over a 5 year span.

Either way, that sure is a whole lot of bank accounts...

^^^^^^^^^^^
Yep it is. Most folks though do not know about the HUGE penalties that can be levied by the IRS. For example, not correctly calculating the Required Minimum distribution from a retirement plan is 50 PERCENT. These penalties are not intentional maneuvers, but simple mistakes etc.

Fuck the IRS. These idiots just sent me back my 2021 return that I e-filed because they say I didn't sign the form. They were kind enough to send me three other tax payers returns in the same envelope. I called the other three people to explain the IRS error and sent them their corrections letters. The IRS is corrupt and incompetent.