From the Tax Law Offices of David W. Klasing - Supreme Court Declines to Decide if FBAR Penalties Violate the 8th Amendment Prohibition on Excessive Fines

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Tax Law Offices of David W. Klasing, PC

Feb 23, 2023, 06:37 ET

IRVINE, Calif., Feb. 23, 2023 /PRNewswire/ -- Monica Toth was granted a Swiss bank account by her father, a successful businessman. When it was found that she willfully failed to comply with FBAR reporting requirements, the Internal Revenue Service assessed a penalty of $2,173,703.

Foreign-income-and-information-reporting-compliance

In her defense, Toth argued that the large fine imposed against her violated 8th Amendment protections against excessive fines. The District Court found that the penalty was not excessive, even if analyzed as a fine under the 8th Amendment. Furthermore, upon review, the Supreme Court declined to decide whether FBAR penalties are subject to protections set forth by the excessive-fines clause.

If you have encountered an issue regarding your FBAR reporting requirements, get help reducing or removing the penalty you may face. Connect with our experienced Dual Licensed International Tax Attorneys and CPAs today by dialing (800) 681-1295 or clicking here to schedule a reduce rate initial consultation. Our team at the Tax Law Offices of David W. Klasing is prepared to help.

Are FBAR Penalties Subject to 8th Amendment Protections Against Excessive Fines?

The U.S. Supreme Court has declined to answer whether FBAR penalties are subject to 8th Amendment protections against excessive fines. The question arose from a case involving Monica Toth, a citizen facing a $2,173,703 willful penalty for failing to file an FBAR on her 2007 tax returns.

Toth argued that the fine imposed against her was excessive and violated the protections of the 8th Amendment. However, at the District Court level, it was determined that even if the FBAR penalty was analyzed as a fine governed by 8th Amendment protections, it was not excessive. On January 23, 2023, the Supreme Court denied Toth's petition for certiorari. Accordingly, it will not be determined whether FBAR penalties are afforded protections under the excessive-fines clause of the 8th Amendment.

What Protections Does the 8th Amendment Establish Against Excessive Fines?

The 8th Amendment to the U.S. Constitution establishes protections against "excessive fines imposed." Commonly referred to as the "Excessive Fines Clause," this provision limits the amount that the federal and state government may fine a convicted individual for a particular crime. Unfortunately, the protections outlined by the Excessive Fines Clause are rarely invoked. There have been very few instances where the Supreme Court has agreed to analyze whether a government fine was excessive.

Who Needs to File an FBAR?

Americans with offshore bank accounts must file their Reports of Foreign Bank and Financial Accounts (FBAR). Any American citizen with an overseas financial account worth more than $10,000 in value at any point in the year must file an FBAR. Brokerage accounts, pension accounts, and foreign bank accounts are all subject to FBAR reporting requirements. If you need help filing your FBAR, you can seek aid from our Dual Licensed International Tax Attorneys and CPAs. Our team can ensure you comply with the requirements for filing your report.

What Constitutes a Willful FBAR Violation?

Willful FBAR violations, such as the one applied to Monica Toth, will warrant more severe penalties than non-willful violations. A willful violation occurs when taxpayers deliberately neglect their income tax and foreign information reporting obligations. However, the government does not need to show that a mistake was made intentionally to prove that a willful violation occurred. Those who exhibit reckless disregard or willful blindness for their obligations will also be considered willful violators.

No universal test is used to determine whether a violation was willful. Each case is unique. Accordingly, when investigating an FBAR violation, the government will consider several factors. Typically, taxpayers should avoid any FBAR violations whatsoever. However, if you committed an error, or omitted entirely, your FBAR, you can call our Dual Licensed International Tax Attorneys and CPAs for help determining the appropriate steps to take.

What Are the Penalties for Willful FBAR Violations?

Penalties for willful FBAR violations can be serious. If you committed a willful violation, the penalties you face could reach upwards of 50% of your maximum account value per year. The total penalty for all years is limited to 100% of your account's value. Furthermore, you can face criminal penalties for committing a willful FBAR violation. However, in most cases, only civil penalties are assessed. Guidance from our Dual Licensed Tax Attorneys and CPAs can be very helpful when seeking to reduce or eliminate a willful FBAR penalty.

Are Lower Penalties Imposed for Non-Willful FBAR Violations?

If it was determined that your FBAR violation was non-willful, you will face less severe penalties. In some cases, those who commit non-willful violations will only be served with warning letters. However, others may be assessed $10,000 fines for committing such violations. While the fine is significant, it is notably lower than the fines associated with willful errors.

Should You Voluntarily Disclose FBAR Violations?

The Internal Revenue Service (IRS) has established the Voluntary Disclosure Practice (VDP) in order to facilitate offshore tax compliance for those who commit violations regarding foreign financial accounts. Accordingly, if you committed an FBAR violation, you can self-report the violation to the VDP. After receiving your voluntary disclosure, the VDP will assess your case and determine which penalties should be applied.

In order to make a submission to the VDP, the funds at issue must have been acquired illegally acquired. Furthermore, those who make submissions to the VDP must ensure that they include information pertaining to all foreign income, investments, accounts, and assets.

By filing a voluntary disclosure, you are nearly guaranteed criminal prosecution if you qualify for the program and comply with its requirements. However, serious complications can arise for those who enter the program and attempt to leave before their case is resolved. Therefore, you should contact our law firm before deciding whether to disclose an FBAR violation voluntarily. Our Dual Licensed International Tax Attorneys and CPAs can help protect your interests and determine the proper course of action.

If You Need to Resolve an FBAR Issue, Our Attorneys Can Help

If you have an issue regarding your FBAR reporting requirements, get help from our experienced Dual Licensed International Tax Attorneys and CPAs by calling (800) 681-1295 or clicking here to schedule a reduce rate initial consultation. Our team at the Tax Law Offices of David W. Klasing is ready to assist.

If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.

Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.

It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.

Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!

Types of Voluntary Disclosure Programs

See our 2011 OVDI Q and A Library

See our FBAR Compliance and Disclosure Q and A Library

See our Foreign Audit Q and A Library

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Public Contact: Dave Klasing Esq. M.S.-Tax CPA, [email protected]

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