A $1 million penalty for failing to disclose a foreign financial account has been upheld by a federal appeals court. The Ninth Circuit rejected the taxpayer’s argument that the penalty was unconstitutional.
A U.S. person with financial interests in or signature authority over foreign financial accounts generally must file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) if, at any point during the calendar year, the aggregate value of the accounts exceeds $10,000. A civil penalty may be imposed on any person who fails to file a required FBAR. The penalty is not imposed if the person has reasonable cause for the failure, and the balance of the account is properly reported.
The taxpayer in this case had an account with a financial institution in Switzerland. The account reached more than $2 million. In 2013, the IRS imposed a $1 million penalty for failing to disclose the account. The taxpayer did not pay the penalty. A federal district court, on summary judgment, found in favor of the government and the taxpayer appealed to the Ninth Circuit.
The Ninth Circuit found that the penalty did not violate the Constitution’s prohibition on excessive fines. This penalty was not grossly disproportional to the harm caused, the court found. The taxpayer had defrauded the government and reduced public revenues, the court added.
The court also rejected the taxpayer’s argument that the IRS abused its discretion. Additionally, the court rejected the taxpayer’s Ex Post Facto, due process, tax treaty, and statute of limitations arguments. The Ex Post Facto clause does not apply in civil cases, the court found. Further, the taxpayer failed to show that the U.S.-Switzerland tax treaty gave her any relief.
Bussell, 2017-2 ustc ¶50,384