U.S. Supreme Court

$2.1M IRS civil penalty for unreported Swiss bank account merits SCOTUS review, Gorsuch argues

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Justice Neil Gorsuch argued Monday that the U.S. Supreme Court should have agreed to hear the case of a woman who argued that the Internal Revenue Service violated the excessive fines clause when it required her to pay a $2.1 million civil penalty for failing to report a Swiss bank account.

The woman, Monica Toth, had $4.2 million in her account when the IRS imposed a civil penalty of half the balance and assessed another $1 million in late fees and interest, wrote Gorsuch in his Jan. 23 dissent to the cert denial.

Under the Bank Secrecy Act, the maximum civil penalty for failing to report foreign bank accounts with more than $10,000 is either $100,000 or half the balance in the unreported account, whichever sum is greater. Toth’s lawyers argued that the civil penalty in her case violated the Eighth Amendment’s excessive fines clause because it had “an avowedly punitive mission.”

Toth had received the money in the Swiss bank account as a gift from her father, who had “a successful business career in Buenos Aires” after escaping from Nazi Germany, Gorsuch said. Toth’s father had always kept a reserve of funds in the Swiss bank account, and he encouraged his daughter to do the same.

Toth, who is now in her 80s, “followed her father’s advice,” Gorsuch wrote. For several years, she failed to report the account as required by law. Toth said she didn’t know about the requirement, and when she learned of it, she completed the disclosure forms.

The 1st U.S. Circuit Court of Appeals at Boston had ruled that there was no violation of the excessive fines clause because the IRS assessment was “not tied to any criminal sanction” and served a “remedial” purpose.

“This decision is difficult to reconcile with our precedents,” Gorsuch wrote. Protection under the excessive fines clause “would mean little if the government could evade constitutional scrutiny under the clause’s terms by the simple expedient of fixing a ‘civil’ label on the fines it imposes and declining to pursue any related ‘criminal’ case.”

Also, the claim that the penalty served a remedial purpose does not make it “beneath constitutional notice,” Gorsuch said.

“Really, the notion of ‘nonpunitive penalties’ is ‘a contradiction in terms,’” Gorsuch said. “Just take this case. The government did not calculate Ms. Toth’s penalty with reference to any losses or expenses it had incurred. The government imposed its penalty to punish her and, in that way, deter others.”

Toth was represented by the Institute for Justice, a nonprofit public interest law firm that defends property rights, according to a Jan. 23 press release.

Hat tip to SCOTUSblog and Reuters.

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