On Jan. 23, 2023, the Supreme Court of the United States released its denial to hear the case of Toth v. United States. This was a case concerning civil, willful Report of Foreign Bank and Financial Accounts (FBAR) penalties. The taxpayer, Monica Toth, sought to argue the amount of the fine of $2.1 million for failure to timely file FBAR’s was an excessive fine violating the U.S. constitution’s prohibition against such things.

In this case, Toth, an 82-year-old U.S. citizen and resident, had received a large gift from her father shortly before he died. Her father had fled Germany during World War II, had built a career and life for himself and his family outside the United States, amassed a small fortune from his business activity and kept some of his funds in Swiss accounts. Later, when he gifted his daughter some of this money, he advised her to keep the money in the Swiss account in case she needed it in the future. And as so often happens, a child heeded the advice of a parent.

Jumping ahead, Toth discovered her FBAR obligations after years of ignorance and non-filing. She prepared the FBARs, filed them, but was later penalized. The Internal Revenue Service (IRS) assessed her willful penalties for millions.

With the aid of her attorneys, Toth fought the penalty arguing, in part, that the size of the penalty was so large as to be punitive. The First Circuit disagreed, holding that the civil FBAR penalties were merely “remedial” in nature, meaning it is meant to compensate the federal government rather than punish the offender. Does a $2.1 million penalty for the non-filing of an FBAR, even a willful non-filing, violate the excessive fines provision of the U.S. constitution? Toth and her attorneys wanted to argue that it did and that the lower court had erred.

The Supreme Court, however, decided it need not answer that question. By declining to hear the case, the lower court’s decision, as well as the large penalty assessed by the IRS, stands.

Cases such as this drive home the point that taxpayers must make sure their foreign filings are complete and accurate. A quick survey of the various court decisions on FBAR penalties will show the standard to avoid penalty is almost inescapably high. The best defense against these penalties remains getting it right the first time.

Having the right team can make all the difference. Contact Moore Doeren Mayhew to speak with one of our tax advisors should you want to understand your FBAR filing requirements.