Tag Archives: Schwarzbaum

Schwarzbaum – FBAR Penalties ARE Subject To The “Excessive Fines Clause”

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Prologue – U.S. Citizenship And The Tax, Form and Penalty Club

U.S. citizens are members of the world’s premier “tax, form and penalty club”. The law of Mr. FBAR is a testament to the American penchant for imposing penalties for various “form crimes”.

One of most interesting issues is whether there are constitutional limits to the penalties that can be imposed for failing to file an FBAR. The eighth amendment of the U.S. constitution does include the prohibition on “Excessive Fines”. Can a fine that might exceed the value in the unreported account be consistent with the “Excessive Fines Clause”? This is one of the most significant social and legal issues in 21st Century America.

The Supreme Court of the United States refused to hear an appeal from Monica Toth’s FBAR penalty. In her petition to the Supreme Court, she asked the court to consider whether FBAR penalties might violate the “Excessive Fines Clause”. The court declined to hear the Toth FBAR case. Justice Gorsuch wrote a powerful dissent in which he invited lower courts to consider the issue. In 2024, the Eleventh Circuit obliged and ruled that FBAR penalties ARE subject to the “Excessive Fines” clause in the eighth amendment. The litigant was none other than Mr. Isac Schwarzbaum – a true pioneer in the development of FBAR jurisprudence.

Isac Schwarzbaum – Discussion In Various Podcasts

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Schwarzbaum – Willfulness In A Civil FBAR Penalty vs. Willfulness In A Criminal FBAR Penalty

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Prologue

In 2024 the Eleventh Circuit (contrary to the First Circuit in Toth) ruled that FBAR penalties are subject to the “Excessive Fines Clause”. I wrote about the Schwarzbaum decision here. The decision was a small win for Mr. Schwarzbaum but a large win for U.S. citizens and those “U.S. residents” subject to the FBAR rules.

Isac Schwarzbaum’s contribution to the understanding of Mr. FBAR continues …

Two kinds of “willful” FBAR penalties:

Generally both “civil” and “criminal” FBAR penalties can be asserted. Conviction of a “criminal FBAR penalty” may result in incarceration.

Willful FBAR Penalty 1 – The Civil Willful Penalty – 31 U.S.C. 5321(a)(5)(c)

31 U.S. Code § 5321 – Civil penalties

(C) Willful violations.—In the case of any person willfully violating, or willfully causing any violation of, any provision of section 5314—

(i) the maximum penalty under subparagraph (B)(i) shall be increased to the greater of—
(I) $100,000, or
(II) 50 percent of the amount determined under subparagraph (D), and
(ii) subparagraph (B)(ii) shall not apply.

Willful FBAR Penalty 2 – The Criminal Willful Penalty – 31 U.S.C. 5322

31 U.S. Code § 5322 – Criminal penalties

(a) A person willfully violating this subchapter or a regulation prescribed or order issued under this subchapter (except section 5315, 5324, or 5336 of this title or a regulation prescribed under section 5315, 5324, or 5336), or willfully violating a regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508, shall be fined not more than $250,000, or imprisoned for not more than five years, or both.

JR Commentary: Notice that both the civil and criminal penalty sections are triggered by “willfully violating”. The issue is whether the words “willfully violating” have the same meaning in the civil and criminal context. The Government (rightfully) argues they have different/separate meanings in each context. (The meaning of “willfully violating” has one meaning in the civil context and a different meaning in the criminal context.) The Government appeal of the Eleventh Circuit decision in Schwarzbaum includes this issue.

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