Prologue – Before The Supreme Court – The Background To The Toth FBAR Case
This Is Post 7 in a series of posts describing the statutory and regulatory history of Mr. FBAR.
These posts are organized on the page “The Little Red FBAR Book“.*
Historically the strength of America has been found in its moral authority. As President Clinton once said:
“People are more impressed by the power of our example rather than the example of our power…”
The FBAR penalty imposed on Ms. Toth is an example of the legal power to impose penalty and NOT an example of the restraint on power and the application of law in a just way. I have heard it said that when a person (and by extension country) loses its character it has lost everything.
The Story Of Monica Toth – Three Perspectives
Perspective 1: The story of Ms. Toth’s encounter with Mr. FBAR as described by Justice Gorsuch in his dissent:
In the 1930s, Monica Toth’s father fled his home in Germany to escape the swell of violent antisemitism. Eventually, he found his way to South America, where he made a new life with his young family and went on to enjoy a successful business career in Buenos Aires. But perhaps owing to his early formative experiences, Ms. Toth’s father always kept a reserve of funds in a Swiss bank account. Shortly before his death, he gave Ms. Toth several million dollars, also in a Swiss bank account. He encouraged his daughter to keep the money there—just in case.
Ms. Toth, now in her eighties and an American citizen, followed her father’s advice. For several years, however, she failed to report her foreign bank account to the federal government as the law requires. 31 U. S. C. §5314. Ms. Toth insists this was an innocent mistake. She says she did not know of the reporting obligation. And when she learned of it, she says, she completed the necessary disclosures. The Internal Revenue Service saw things differently.
Pursuant to §5321, the agency charged Ms. Toth with willfully violating §5314’s reporting requirement and assessed a civil penalty of $2.1 million—half of the balance of Ms. Toth’s account—plus another $1 million in late fees and interest.
Perspective 2: The issue in the Toth case as described in a September 20, 2022 post:
.@InFBARWeTrust Take 2: The great question of our age is how to impose the equivalent a willful #FBAR penalty on a non-willful victim. Scenario 2 – Toth – The answer is to create willfulness out of thin air. Pretend that the non-willful person is willful https://t.co/hlt5GBijys
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) September 8, 2022
The penalty imposed on Ms.Toth was dependent on a finding of “willfulness”. “Willfulness” is a question of fact to be determined by the court. In the Toth case the District court deemed Ms. Toth to be “willful” as a court imposed sanction. There was no independent evaluation of the facts to determine whether she was “willful”. Absent an independent evaluation of the facts, can there ever be a finding of willfulness necessary to support the 50% account penalty?
Perspective 3: The August 26, 2022 PETITION FOR A WRIT OF CERTIORARI to the Supreme Court of The United States described the issue as follows:
The Bank Secrecy Act and implementing regulations require U.S. persons to file an annual report — called an FBAR — if they have foreign bank accounts containing more than ten thousand dollars. The maximum civil penalty for willfully failing to file the report is either $100,000 or half the balance in the unreported account, whichever sum is greater. 31 U.S.C. § 5321(a)(5)(C)-(D). Using this formula, the government imposed on petitioner a civil penalty of $2,173,703.00.
The question presented is whether civil penalties imposed under 31 U.S.C. § 5321(a)(5)(C)-(D) — penalties that are avowedly deterrent and noncompensatory — are subject to the Eighth Amendment’s Excessive Fines Clause.
Eighth Amendment Cruel and Unusual Punishment
Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.
The indisputable facts include (but are not limited to) that, Mr. FBAR is being used to confiscate approximately two million dollars of a Swiss Bank account with a balance of approximately four million dollars. The account was owned by an 82 year old woman and was funded by money received from her father in Argentina. The account was initially funded by money that was NOT and never was subject to US taxation. The penalty was based on the penalty for failing to file an FBAR. In addition, the necessary condition of “willfulness” was based on a court sanction and NOT on an independent evaluation of the facts.
These facts resulted in Ms. Toth’s encounter with Mr. FBAR in the penalty zone!
The Supreme Court Response – January 23, 2023:
I had the opportunity to discuss the decision in a podcast with Dubai based lawyer Virgina La Torre Jeker.
Podcast – @VLJeker and @Expatriationlaw discuss: On January 23, 2023 "US Supreme Court Denied Toth #FBAR Cert Petition, In So Refusing To Decide Whether @InFBARWeTrust Penalties Violate ”Excessive Fines Clause” Of 8th Amendment". This is significant! https://t.co/iWoP2w8WG3
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) January 24, 2023
On January 23, 2023 the Supreme Court of the United States (Justice Gorsuch dissenting) denied the cert petition. In other words, the court declined to consider whether Ms. Toth’s 2 million willful civil FBAR penalty, based on a 4 million Swiss bank account balance, violated the “Excessive Fines” clause of the eighth amendment. (The effect of the court’s decision to NOT hear the case means that the US government is now – through the law of FBAR – in a position to confiscate two million from Ms. Toth. But,”It’s The Law”.)
More broadly and abstractly, the refusal to grant the cert petition means that the court refused to hear the case. The court’s refusal to hear the case is NOT equivalent to a ruling that civil willful FBAR penalty is constitutional. It means only that the Supreme Court of the United States will NOT be the court (at least as of January 23, 2023) to decide the issue. In his dissent Justice Gorsuch reinforces this point (and invites lower courts to consider the issue) by writing:
For all these reasons, taking up this case would have been well worth our time. As things stand, one can only hope that other lower courts will not repeat its mistakes.
Nevertheless, the court’s refusal to hear the Toth case will likely be interpreted:
– by the IRS (and other government agencies) as a license to continue a growing penchant to impose punitive FBAR penalties in general and engage in civil forfeiture in particular
– by the public as a continuing signal that there is a clear distinction between the interpretation of law and the application of justice and never shall the twain meet
– by the legal profession that the penalties under Title 31 are a subset of civil forfeiture penalties in general
– by the international community as further confirmation that the United States is a country lacking proportionality between violations of the law and the penalties imposed
Interestingly and significantly Justice Gorsuch penned a vigorous dissent*. In this dissent he took the time to describe the facts, describe the history of penalty in the United States and to explain why the court should have agreed to hear the Toth appeal. Justice Gorsuch appeared to rely on an amicus curie brief filed by California law professor Beth A. Colgan**. Excerpts from both are included as Appendixes *A and **B to this post.
One is left with the impression that:
Justice Gorsuch is an island of justice and sanity in an ocean of unfairness, injustice and insanity.
The world eagerly awaits the Supreme Court’s decision in the Bittner FBAR case!