SCOTUS Will Not Review FBAR Penalties Case

FBARThe Supreme Court of the United States recently denied a petition to review the plight of a taxpayer who was assessed an egregious fine for failing to file a report of Foreign Bank and Financial Accounts (FBAR).


Ms. Monica Toth is the daughter of a man who escaped from antisemitism in Germany in the 1930s. He eventually created a new life in South America, where Ms. Toth was born in Argentina.  Ms. Toth immigrated to the U.S. where she married and raised a family of her own. Perhaps scarred by his own experience and ever careful of shifting political morays, her father maintained a Swiss bank account which he shared with Ms. Toth before his death. Ms. Toth’s father encouraged her to leave the money safely in place. And she did.


Although an American taxpayer, Ms. Toth had no knowledge of the annual requirement to file an FBAR. U.S. taxpayers with eligible holdings in foreign bank accounts, offshore tax shelters, or other foreign tools are required to report the details of their holdings each year to the IRS. The fines for failure to file an FBAR are substantial and intended to be punitive.


In 2011, Ms. Toth learned of her obligation to file the reports and did so—paying the applicable back taxes owed in full. Regardless of her reports and voluntary payment of the taxes due, the IRS declared her failure to file the FBARs to be intentional—rather than the innocent mistake that it seemed to be.


As a result, the IRS charged Ms. Toth with willful violation of the FBAR rule and assessed a civil penalty of $2.1 million—half of the money left to her by her father. Then, the IRS tacked on an additional $1 million fine for late fees and interest due. 


In taking the matter to court, the tax lawyers for Ms. Toth argued the assessment was excessive and violated an Excessive Fines Clause of the Eight Amendment. The lower courts did not see it that way—and apparently neither did the Supreme Court. In January 2023, SCOTUS denied Ms. Toth’s writ of certiorari, which would have allowed her case to be taken before the highest court in the land.


Only Justice Gorsuch dissented, noting, “We have recognized that the Excessive Fines Clause “traces its venerable lineage” to Magna Carta and the English Bill of Rights. We have held that “protection against excessive punitive economic sanctions” is ‘fundamental’ and “deeply rooted in this Nation’s history and tradition.”


Of the decision of the Court not to review the case, Justice Gorsuch wrote, “As things stand, one can only hope that other lower courts will not repeat its mistake.”


Judge Gorsuch also wrote that the decision of Ms. Toth to represent herself in lower court proceedings against the IRS “did not go well.” Monica Toth is an 82-year-old grandmother who was careful with the money her father had worked hard to save for her. When she became aware of the FBAR requirement, she corrected her filings, paid taxes owed, and honestly responded to the IRS. The IRS handily relieved her of most of her inheritance. If challenged by the IRS, work with an experienced IRS tax attorney from the outset to obtain the best possible outcome for your circumstances.


Cleveland tax lawyers provide strong representation when you face a civil audit or tax controversy

The tax group at Robert J. Fedor, Esq., LLC represents business and individual clients responding to tax controversy, offshore tax allegations, or litigation over foreign bank accounts. When experienced tax advice is needed locally or internationally, call 800-579-0997 or contact us for a free consultation.


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