The U.S. Supreme Court will not take up a case where it would have needed to determine if foreign bank account reporting penalties are subject to the excessive-fines clause under the Eighth Amendment.
On January 23, the high court denied a petition for certiorari filed last September by Monica Toth, a grandmother against whom the IRS assessed a penalty of $2,173,703 for willfully failing to file an FBAR on her 2007 return. Toth had asked the Court to overturn the decisions of the First Circuit and the U.S. District Court for the District of Massachusetts, which both held that the civil penalties the government applied under 31 U.S.C. § 5321(a)(5)(C)-(D) did not qualify for constitutional excessive-fine protections.
At issue was Toth’s Swiss bank account granted to her by her father, a successful businessman. Toth’s family fled Germany in the 1930s and she was born in Argentina, later immigrating to the United States in 1962, where she married and had four children. Toth in 2011 retroactively filed FBARs for previous years, as she allegedly was unaware of the U.S. foreign account reporting rules established by the Bank Secrecy Act.
For 2007, the IRS determined that the account information was purposefully not disclosed, prompting the more severe penalty equal to half of the account balance. The Court was recently asked to address the differences between willful and unwilful failures to file FBARs in a separate case.
In her cert petition, Toth’s counsel challenged the circuit court’s application of a standard toward the excessive-fines clause that it argued conflicted with precedent at the circuit level, writing that FBAR penalties should count as “fines” within the clause’s meaning.
“Under the First Circuit’s standard … the Clause has no application at all,” read the petition. “The basic contours of a Bill of Rights protection should not vary wildly based on geography. And this case spotlights not only how far afield the First Circuit has strayed, but also why the Excessive Fines Clause is so ‘fundamental to our scheme of ordered liberty.'”
The government in their brief filed in the Court in November countered that not only was the First Circuit’s ruling “entirely faithful” to prior Supreme Court decisions involving Eighth Amendment issues, a favorable outcome for Toth “would make no difference.”
“As the district court found, the civil penalty imposed on petitioner was not ‘excessive’ even if analyzed as a fine under the Eighth Amendment,” the government’s response said. The petitioner’s later replied that how civil penalties fit within the clause is “mature” and “dates back decades.”
Justice Neil Gorsuch penned a dissent attached to Monday’s order list featuring the cert denial. He wrote that the “decision is difficult to reconcile with our precedents,” nor “is a statutory penalty beneath constitutional notice because it serves a ‘remedial’ purpose.”
For more information about FBAR penalties, see Checkpoint’s Federal Tax Coordinator ¶ V-1813.4.
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