Grandmother Urges Supreme Court To Stop The IRS From Confiscating Bank Accounts

After the IRS demanded half of her bank account for failing to file a one-page form, an 82-year-old grandmother is calling on the U.S. Supreme Court to reject that penalty as an unconstitutionally excessive fine. By taking her case, the Supreme Court could rein in what the IRS’s own National Taxpayer Advocate called one of “the harshest civil penalties the government may impose.”

Though Monica Toth lives near Boston today, she was born in South America in 1940. Her father was a Jewish refugee who fled Nazi Germany during the 1930s. Over the years, he became a successful entrepreneur.

Based on his own firsthand experience, he strongly believed that Monica must have an emergency financial reserve in case she ever needed to escape an oppressive regime. So before he died in 1999, he gifted Monica several million dollars, stored in a bank account in Switzerland. By then, Monica had immigrated to the United States and became an American citizen.

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However, under the Bank Secrecy Act, any American who holds a foreign bank account with more than $10,000 must file a Report of Foreign Bank and Financial Accounts (FBAR) with the federal government. This FBAR report is a one-page form that discloses personal information and identifies the foreign bank account. Monica—who filed her taxes by hand, using forms from her local library— didn’t learn about the FBAR requirement until 2010. When she found out, she submitted FBARs for the past five years.

After conducting an audit, the IRS concluded that Monica owed the federal government roughly $40,000 in civil penalties and outstanding taxes. She paid it off promptly and in full.

But the government wasn’t done yet. The agency also penalized her for failing to file an FBAR for 2007. Typically, people who didn’t file an FBAR face a maximum penalty of $10,000.

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Not Monica. According to the IRS, Monica’s simple failure to file was actually “reckless.” In turn, that let the IRS categorize her actions as “willful,” which triggered a substantially higher penalty: half of the entire balance in the unreported account.

For Monica, that amounted to $2,173,703, or more than 54 times the penalties and outstanding taxes she had already paid. And when she didn’t pay up, the government sued her. Monica argued that the $2.17 million penalty violated the Eighth Amendment, which prohibits “excessive fines.”

This should have been an open-and-shut case. Almost 30 years ago, the U.S. Supreme Court ruled that the Excessive Fines Clause applies not only to criminal prosecutions, but civil cases as well. So long as a financial sanction serves “in part to punish,” it qualifies as a fine. For Monica’s case, an FBAR penalty is, by its very nature, designed to punish and deter reporting violations.

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But the First Circuit U.S. Court of Appeals disagreed. Disregarding Supreme Court precedent, the First Circuit concluded that Monica’s $2.17 million civil penalty wasn’t actually a “fine.” In the court’s telling, the “civil penalty is not tied to any criminal sanction” and lacks “any punitive purpose.” On that basis, the court held that “the Excessive Fines Clause of the Eighth Amendment does not apply” to FBAR penalties. That ruling lets the government dodge any modicum of constitutional accountability and places it beyond the Bill of Rights. As a result, even if an FBAR fine is excessive, the individual is out of luck just because the government decided to label the fine as “civil” rather than “criminal.”

This type of semantic lawfare isn’t limited to Monica. According to the IRS’s National Taxpayer Advocate, “the government has eroded the distinction between willful and non-willful violations.” And by demolishing that distinction, the government is free to impose the maximum FBAR penalties. Between 2012 and 2020, the IRS assessed almost $1.5 billion in FBAR penalties alone. Represented by the Institute for Justice, Monica has filed a cert petition calling on the U.S. Supreme Court to take her case.

Unfortunately, evading the protections of the Excessive Fines Clause is by no means limited to the IRS. Last month, the Ohio Supreme Court ruled that forcing a man to forfeit a $31,000 truck—his entire net worth—over a misdemeanor wasn’t an excessive fine. In July, the Eleventh Circuit U.S. Court of Appeals upheld an almost $30,000 fine imposed by a Florida city against a homeowner for having tall grass.

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“Across the country, Americans suffer from abusive fines,” said IJ Attorney Brian Morris. “The Eighth Amendment is their protection. But if the government can escape judicial scrutiny of ruinous fines by clever wording, nothing would be out of the government’s reach.”