FBAR Willfulness After Bittner

Willfulness for FBAR Penalties and the Application of Bittner’s Per-Report Rule

Every court of appeals to address the question has held that the willfulness required for the enhanced FBAR penalty under 31 U.S.C. § 5321 includes recklessness as well as knowledge. The Third Circuit in Bedrosian v. United States, 912 F.3d 144 (3d Cir. 2018) held that "to prove a ‘willful’ FBAR violation, the Government must satisfy the civil willfulness standard, which includes both knowing and reckless conduct," drawing on the Supreme Court’s statement in Safeco Insurance Co. of America v. Burr that where willfulness is a condition of civil liability it covers reckless violations, and defined the standard objectively: a person commits a reckless FBAR violation by engaging in conduct that violates "an objective standard: action entailing ‘an unjustifiably high risk of harm that is either known or so obvious that it should be known.’" The Federal Circuit in Norman v. United States, 942 F.3d 1111 (Fed. Cir. 2019) likewise held that "willfulness in the context of § 5321(a)(5)(C) includes recklessness," and the Second Circuit adopted the same construction in United States v. Reyes, 164 F.4th 78 (2d Cir. 2026), holding, "in line with the uniform decisions of the circuit courts that have addressed the issue, that ‘willfully’ as used in 31 U.S.C. § 5321(a)(5)(C) encompasses both intentional and reckless conduct," so that "a person who recklessly fails to report a foreign account as required is liable for the heightened civil penalties for ‘willful’ violations of the statute."

The objective character of the standard determines what evidence suffices. United States v. Horowitz, 978 F.3d 80 (4th Cir. 2020) held that "for the purpose of applying § 5321(a)(5)’s civil penalty, a ‘willful violation’ of the FBAR reporting requirement includes both knowing and reckless violations, even though more is required to sustain a criminal conviction for a willful violation of the same requirement under § 5322," and that recklessness is established if the defendant "(1) clearly ought to have known that (2) there was a grave risk that an accurate FBAR was not being filed and if (3) he was in a position to find out for certain very easily." The court observed that "civil recklessness contrasts with criminal recklessness and willful blindness, as both of those concepts incorporate a subjective standard," and concluded that the taxpayers’ having "repeatedly failed to review the returns with the care sufficient at least to discover their misrepresentation of foreign bank accounts, while nonetheless stating that the returns were accurate, was again an aspect of their recklessness." Norman reasoned in the same way, explaining that "[a] taxpayer who signs a tax return will not be heard to claim innocence for not having actually read the return, as he or she is charged with constructive knowledge of its contents." In Reyes, the Second Circuit affirmed summary judgment on the same footing: the account holders’ asserted good-faith belief that no report was due went only to their subjective state of mind, "rather than to whether a reasonable person in their position should have been aware of the high risk that they had an obligation to report the account."

For non-willful violations, the Supreme Court in Bittner v. United States, 598 U.S. 85 (2023) held that "[t]he BSA’s $10,000 maximum penalty for the nonwillful failure to file a compliant report accrues on a per-report, not a per-account, basis." The Court reasoned that the reporting duty imposed by 31 U.S.C. § 5314 "does not speak of accounts or their number but rather the legal duty to file reports," and that the government’s per-account reading "defies a traditional rule of statutory construction: When Congress includes particular language in one section of a statute and omits it from a neighbor, the Court normally understands that difference in language to convey a difference in meaning." The willful-penalty provisions supplied the contrast: those provisions tie the penalty ceiling to specific accounts, while the non-willful provision contains no account-specific language. The Court did not decide how willful penalties are calculated; it resolved only the accrual rule for the non-willful penalty under 31 U.S.C. § 5321(a)(5)(A) and (B)(i).

Courts applying Bittner to penalties assessed before the decision have required the government to recompute stacked per-account assessments on a per-report basis. In United States v. Fridman, No. 3:21-cv-12090 (D.N.J. Oct. 31, 2023), the IRS had assessed non-willful penalties per account for the 2004 through 2007 reporting years; after Bittner issued, "the Government withdrew its 2021 Motion for Default Judgment and filed a Renewed Motion for Default Judgment on April 13, 2023, alleging the same basic facts but requesting a damages amount calculated on a per-report basis," reducing the amount sought from $240,000 to $40,000, and the court entered judgment on the recalculated figure. The willful question Bittner reserved has been answered in the government’s favor. United States v. Hughes, No. 3:18-cv-05931 (N.D. Cal. Mar. 6, 2023) read the decision as "distinguishing penalties for willful violations (which apply to each account that should have been reported) from penalties for non-willful violations (which the Court held apply per report, rather than per account)," and sustained willful penalties computed per account and per year. The Eleventh Circuit reached the same conclusion in United States v. Schwarzbaum, 114 F.4th 1319 (11th Cir. 2024), explaining that "we must proceed carefully on an account-by-account basis precisely because the statutory regime characterizes each failure to report a bank account as a violation in and of itself," that 31 U.S.C. § 5321 authorizes penalties "in the case of a violation involving a failure to report the existence of an account" rather than a single aggregated violation per form, and that Bittner itself noted that § 5321 "does tailor penalties to accounts" in "cases that involve willful violations." Under § 5321(a)(5)(C) and (D)(ii), the willful ceiling for each unreported account is the greater of $100,000 or fifty percent of "the balance in the account at the time of the violation." Schwarzbaum added a constitutional limit: the court held "that the FBAR penalty is a fine subject to the Eighth Amendment’s Excessive Fines Clause" and vacated $100,000 penalties imposed on an account that never held more than roughly $16,000 as "grossly disproportional" to the culpability at issue.

These decisions leave the penalty framework in a settled operational state. The willfulness determination is objective: an account holder who signed returns denying foreign accounts, whose Schedule B directed attention to the FBAR requirement, and who could have ascertained the filing obligation easily may be found willful without proof of actual knowledge, and a subjective belief that no report was due does not defeat summary judgment. The non-willful penalty is capped at $10,000 for each unfiled or deficient annual report regardless of the number of accounts omitted, and that cap governs assessments made before February 2023: in pending collection and default proceedings the government has recalculated per-account assessments on a per-report basis, and judgments issue in the reduced amounts. The willful penalty remains account-specific — up to the greater of $100,000 or fifty percent of the balance in each unreported account for each year — subject, in the Eleventh Circuit, to an account-by-account proportionality review under the Excessive Fines Clause that can invalidate maximum penalties imposed on small-balance accounts.