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

Travis Nix and Tyler Martinez:

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.