The Supreme Court turned away an appeal on Jan. 23 over a $2.1 million penalty the IRS assessed against a grandmother whose family fled Nazi persecution, for failing to report a foreign bank account.
The decision came as the U.S. House of Representatives, now controlled by Republicans, voted earlier this month to repeal a congressional provision allotting almost $80 billion to the IRS over the coming 10 years for increased enforcement.
Democrats say the IRS has long been underfunded, but Republicans say the extra money will be used to harass taxpayers.
Only 4 percent of the additional funding will be devoted to improving taxpayer service, while 58 percent will go to upping enforcement, the New York Post reported in August 2022.
The denial prompted a sharply worded dissent by Justice Neil Gorsuch, who implied that he agreed with lawyers’ argument that such a harsh penalty “incentivizes governments to impose exorbitant civil penalties as a means of raising revenue.”
The decision to penalize the petitioner in this case “is difficult to reconcile with our precedents,” Gorsuch wrote, noting that the Supreme Court recognizes that the excessive fines clause of the Eighth Amendment to the U.S. Constitution “traces its venerable lineage” to the Magna Carta of 1215 and the English Bill of Rights of 1689.
The Supreme Court denied the petition in Toth v. United States (court file 22-177), an appeal from the U.S. Court of Appeals for the 1st Circuit. Gorsuch was the sole dissenter to the unsigned order.
Now in her 80s, Monica Toth, who lives in the Boston area, had argued that the penalty runs afoul of the Eighth Amendment.
In the mid-1930s, Toth’s father fled Germany, relocating to South America to escape violent anti-Semitism. Toth was born in Argentina in 1940 and emigrated to the United States when she was in her 20s, leaving her parents behind, according to the Institute for Justice (IJ), a national nonprofit public interest law firm that’s representing her.
Her father was a success in business, and he gifted his daughter an endowment that was held in a Swiss bank account. His thinking was that his daughter should have emergency funds available in case, like him, she might one day have to escape government persecution.
Foreign Bank Accounts
Only years later did she become aware of the federal government’s Foreign Bank and Financial Accounts (FBAR) reporting requirement. Under the Bank Secrecy Act of 1970, Americans with foreign bank accounts holding more than $10,000 are required to file an FBAR form with the federal government.
In 2010, Toth got caught up by filing five years’ worth of reports. Following an audit, she ended up being reportedly assessed around $40,000 in back taxes and penalties, which she paid.
But the IRS later decided that a reasonable person in her situation would have tried to figure out whether the FBAR requirements applied. The finding triggered a legal provision allowing the agency to impose the maximum civil penalty of more than $2 million, or 50 percent of the funds that Toth’s father set aside for her.
A federal district court ruled against her, and the 1st Circuit upheld that decision, finding that the large penalty didn’t constitute a “fine,” and therefore, the Eighth Amendment didn’t apply.
Toth’s attorney at the IJ, Sam Gedge, told The Epoch Times by email that his firm was “disappointed” with the ruling.
“Monica’s experience shows that civil penalties can have devastating consequences for real people,” Gedge said.
“Naturally, we’re disappointed that the court declined to take up this case. The excessive fines clause should serve as a key check on economic sanctions, and we hope the 1st Circuit will heed Justice Gorsuch’s dissent and correct its misreading of the excessive fines clause in future cases.”
Massive Civil Fines
“Justice Gorsuch understood what’s at stake,” IJ attorney Brian Morris said.
“Under the 1st Circuit’s decision, governments are incentivized to impose massive civil fines to raise revenue. And individuals, like Monica, are left helpless to the whims of the government—no matter the size of the penalty that it picks.”
Clark Neily, senior vice president for legal studies at the Cato Institute, who authored the think tank’s friend-of-the-court brief, waxed philosophical about the ruling.
“The deeper the federal government sinks into unprecedented debt, the stickier its fingers will become and the less concerned it will be with constitutional niceties like the rule of law,” Neily said by email.
The IRS levied an “obviously … punitive fine” for a technical reporting violation “and then sought to avoid meaningful judicial review by disingenuously characterizing that fine as a ‘remedial’ penalty, which it plainly was not. The Supreme Court’s refusal to rebuff that acquisitive chicanery will only encourage more of it.”
U.S. Department of Justice officials didn’t respond by press time to a request by The Epoch Times for comment.
Supreme Court justices are currently deliberating another FBAR filing requirement case, Bittner v. U.S., which the court heard on Nov. 2, 2022.
Like Toth, Romanian-born Alexandru Bittner initially received a modest financial penalty for not filing IRS forms about foreign bank accounts—$50,000 in his case—but the IRS later increased the penalty to $2.72 million.
A decision in the Bittner case is expected by June.