My excessive fines post of February 22, 2012, suggested that the IRS would not risk an excessive fines lawsuit against money legitimately gained:
It seems unlikely, if the money is legitimate, that the IRS would charge a penalty at all. If taxes are owed, perhaps a small FBAR penalty. But in case the penalty is confiscatory, the IRS is well aware that the Eighth Amendment protects the taxpayer. … it is sufficient at this point to say that fines must be proportionate to the crime and to the damage done to the government, and if the tax code already applies fines and interest against unpaid taxes, it seems unlikely to me that the IRS would risk applying any FBAR fine to foreign accounts because the Supreme Court could possibly strike down the entire FBAR law as unconstitutional under the Eighth Amendment.
But I soon retracted that view because of the penalties the IRS was actually handing out. Now, 14 years later (!), the Institute for Justice has take up the case of US citizen and resident whose bank account in Switzerland contained money he had earned through legitimate consulting. The fine of US $437K seems excessive when the damage to the IRS on the undisclosed income was a mere $29K and there was already $12K late payment tacked on to that. There is no penalty for money laundering in this case. It is innocent money. However, it seems extremely unlikely to me now that the whole FBAR law would be struck down merely because the fine structure is excessive.
Perhaps amending the FBAR requirements requiring ONLY Domestic, USA Residency Based Reporting, respecting the 4th and 5th Amendment as well as the 8th.
@SArvay, I agree that carve outs for non-residents is vital. The US citizen in this 8th Amendment case is a USA resident. If the fines are excessive for US residents, how much more for benign actors who are not resident in the USA and who have bank accounts that are part of their innocent lives being carried out outside of the United States. This is an a fortiori argument.
Thanks for posting about this case – a very signficant case indeed.
Significantly AARO “Association of Americans Resident Overseas” has filed an amicus brief in support of Mr. Saydam and the principle that the eighth amendment should apply to FBAR penalties. It is clear that:
Everyday Americans with foreign accounts — including Americans residing overseas — face the possibility that they could be fined hundreds of thousands of dollars, or much, much more, for failing to file a form they did not know about. One of the few protections they have left is the Eighth Amendment’s Excessive Fines Clause. In analyzing Saydam’s constitutional challenge to the penalties assessed against him, the court should take into account the lack of fair notice he and many Americans have of the FBAR.
The AARO brief is discussed in the following Tax Notes article:
https://www.taxnotes.com/research/federal/other-documents/other-court-documents/overseas-citizens-organization-takes-issue-fbar-penalties/7w58l
It is a very good brief and should be read by all. Significantly it references some of the research of AARO board member and SEAT co-founder Laura Syder.
Here is a link to the AARO announcement:
https://aaro.org/press/press-releases/aaro-files-amicus-brief-in-united-states-v-tuncay-saydam