by John Bodur, MBAJune 23, 2023

Supreme Court Declines to Rehear Landmark FBAR Penalty Case

The Supreme Court’s recent decision to forgo reviewing a pivotal case has cast a spotlight on an 82-year-old woman named Monica Toth, who faced a staggering $2 million penalty for failing to comply with the Foreign Bank Account Report (FBAR) requirements. This landmark case, known as Toth v. United States, not only raises fundamental questions about the Eighth Amendment’s prohibition on excessive fines, but also sheds light on the intricate implications of FBAR violations.


Monica Toth inherited a Swiss bank account from her father, who had relocated the family to Argentina during the tumultuous years of World War II. Unbeknownst to her, this inheritance came with a legal obligation to report the account to the US authorities under the FBAR provisions. 


Toth staunchly argued that she had no knowledge of these reporting requirements pertaining to foreign bank accounts. Furthermore, she asserted that her failure to disclose the account was entirely unintentional. Unfortunately, the Internal Revenue Service (IRS) deemed her omission willful and imposed a penalty of half the account’s balance.


Toth’s legal defense centered on the argument that the $2 million penalty was a gross violation of the Eighth Amendment, as it constituted an excessive fine. The Eighth Amendment prohibits the government from imposing “excessive bail, excessive fines, or cruel and unusual punishments.” However, while the Supreme Court has yet to outline the parameters of an “excessive” fine definitively, it has consistently maintained that fines must align with the gravity of the offense committed.


In response, the government contended that the $2 million penalty was not excessive, as its primary purpose was to deter future law violations. However, the Supreme Court has previously established that the government cannot employ the threat of excessive fines to discourage behavior that is not inherently criminal.


The Supreme Court’s decision to abstain from reviewing Toth’s case leaves the crucial question of whether the $2 million penalty is indeed excessive unanswered. Nevertheless, this case raises significant inquiries regarding the Eighth Amendment’s prohibition of excessive fines and sheds light on the intricate web of FBAR violations. 


The intricate nature of FBAR regulations and the potential repercussions of non-compliance demand closer examination. It is highly likely that the Supreme Court will revisit these inquiries in the near future, sparking a fresh analysis of this vital constitutional provision and the implications surrounding FBAR compliance. 


For all updates regarding FBAR regulations, as well as any inquiries on our various international tax services, please do not hesitate to contact us.

John Bodur, MBA is a Senior Tax Consultant in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services including transfer pricing, and the firm’s compliance expertise.

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