US tax ruling offers reprieve to noncompliant Irish emigrants

Irish emigrants living in the US who retain bank accounts at home and fail to notify the US authorities run the risk of significant penalties. But a ruling in the US supreme court on Tuesday may reduce the financial pain.

Alongside generally mandatory tax returns, US citizens, those holding US passports and green card holders are required to notify the US treasury’s FinCEN, or the Financial Crimes Enforcement Network, of any bank accounts they hold outside the US if, between them, there is more than $10,000 in those accounts.

Failure to submit these forms – known as the FBAR filings, or Foreign Bank Account Reports – can lead to significant fines. At best, for anyone who was not deliberately trying to evade compliance, the fine for “non-wilful violation” is up to $10,000, and that is the figure the US tax office – the Internal Revenue Service (IRS) – generally imposes.

In this case, Bittner v United States, a Romanian who emigrated to the US in the 1980s and later became a citizen, made a delayed FBAR application in relation to 272 accounts even allowing for the fact that some were statute-barred from IRS pursuit.

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The IRS assessed a penalty of $2.72 million (€2.57 million) – $10,000 for each of the accounts. The businessman appealed, arguing that he should be fined only for each failure to file a FBAR over five years, rather than for each account involved. That would have lowered the penalty to $50,000.

After various lower courts ruled in favour of one or other side in the case, it came before the supreme court last November and, on Tuesday, the court ruled by a tight 5-4 majority that the penalty should be assessed per failed filing not per account or, in this case, $50,000.

Dublin-based American tax specialist Stephen Casey said the ruling was important for US taxpayers living in Ireland “who are not compliant with their reporting obligations under US law”.

“The effect of today’s decision will be to limit potential penalties that noncompliant US taxpayers face if the IRS finds out about their Irish bank accounts,” Mr Casey said. “The maximum penalty for non-reporting is $60,000 – and taxpayers who have already paid FBAR penalties may be able to file a claim for refunds, if done in time.”

Mr Casey, of USTax.cpa certified public accountants, noted that the Irish Government already worked with the IRS, providing details of bank and financial accounts held in Ireland by US taxpayers under an international agreement.

Following the supreme court judgment, he urged any US taxpayers based in Ireland, or Irish-born green card holders or citizens with foreign bank accounts here or elsewhere, to act quickly.

“The IRS may seek to have the law changed to support its position, and any refund claims filed late will be rejected,” he said. “Now is a good time for US taxpayers to catch up with their IRS filings.”