Excessive Fines Clause in Eighth Amendment Not Breached with $12.9 Million FBAR Penalty

If you invest your money in other countries, or if you save money in foreign bank accounts, you have to report those assets to the IRS and pay the appropriate taxes (if any). However, a lot of people seem to think that if they are making money in other countries, they don’t have to pay those taxes. They think they can get away with not telling the IRS about this money. (Perhaps the thinking is that the IRS will never find out?)

The reality is that the IRS has many ways to discover when you have money to invest in foreign assets or you have savings in foreign bank accounts. If you have failed to report those assets, you can face a big fine – which is exactly what happened to one Florida taxpayer who now faces $12.9 million in penalties. That person tried to challenge the ruling on the grounds that the fines were excessive and violated the Eighth Amendment, but that challenge was dismissed. Our Gilbert tax lawyers are here to explain the details of the case.

Excessive Fines Clause in Eighth Amendment Not Breached with FBAR Penalty

Schwarzbaum Case

In U.S. v. Schwarzbaum, one individual claimed that the $12.9 million fine assessed against him violated the Eighth Amendment of the U.S. Constitution, which stipulates that “excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” The person charged had multiple accounts that went unreported.

The fines were assessed because the individual did not file a Report of Foreign Bank and Financial Accounts (FBARs) with the Financial Crimes Enforcement Network (FinCEN). This report is required whenever a person has more than $10,000 in a foreign account.

The taxpayer entered the Offshore Voluntary Disclosure Initiative (OVDI) in 2011, but later left the program and decided to submit to full examination of his tax returns instead. The IRS then assessed fines for the tax years 2006 through 2009.

The taxpayer argued that the IRS should not have penalized him because it was looking at returns through an extended date that was established through him entering OVDI. Once he withdrew from that program, he argued that the timeline for looking at those returns should not have been extended.

FBAR Penalties

As top-rated Phoenix tax lawyers, we have an in-depth understanding of tax law and everything you need to know. Under the law, the IRS may issue penalties to anyone who willfully fails to file an FBAR. The fines can be up to $100,000 per violation or 50 percent of the amount in the account at the time the violation was noted, whichever is greater.

Initially, the taxpayer challenged the IRS’ ability to levy the penalties based on the timing. When that challenge was rejected, the taxpayer then argued that the penalties violated the Excessive Fines Clause. A Federal District Court ruled that the penalty did not violate that clause and the taxpayer would have to pay the $12.9 million as ordered.

The court ordered that the penalty should not be seen as punishment, but rather, as reimbursement to the government for the taxes not paid and for the cost of investigating the case and recovering the taxes owed.

Reporting Foreign Assets and Accounts

You must always report your income, whether through your salary or your investments, whether you make that money in the United States or in another country. Do not think that you can get away from this requirement because the IRS won’t know what you are doing since you are operating in another country. The IRS will find out, and when it does, you will be facing huge fines. Without help from a Gilbert tax attorney, you could even face criminal prosecution, depending on whether the IRS thinks you willfully evaded your tax obligations or committed fraud.

If you aren’t sure of your tax obligations, you must work with a qualified Arizona tax audit representation lawyer to determine your responsibilities. If you know that you should have reported foreign income or accounts but didn’t, you have options for coming into compliance while also keeping your penalties low (or avoiding them altogether).

Talk with a qualified Phoenix tax attorney at Silver Law PLC to learn more about your options for meeting your foreign tax reporting obligations. Our experienced tax lawyers can help you understand your various options for filing your taxes or for rectifying unpaid taxes. Our goal is to help you fulfill your responsibilities while also keeping your tax obligation and your penalties low. Don’t end up paying a massive fine or fighting a battle against the IRS you can’t win. Call our tax law firm today to learn more about your legal options.

Silver Law PLC

Arizona Location
7033 E. Greenway Pkwy, Ste 200
Scottsdale, AZ 85254


Nevada Location
410 South Rampart Blvd, Suite 390
Las Vegas, Nevada 89145

Office: 702-318-7130

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