Supreme Court Declines Case Challenging Excessive IRS Penalties

The Supreme Court today rejected to consider a case on whether some Internal Revenue Service (IRS) penalties are actually unconstitutionally excessive fines.

The case revolves around Monica Toth, an 82-year-old Boston-area woman who the IRS wants to seize more than $2 million from because she ran afoul of IRS documentation guidelines.

In the 1930s, Toth’s family fled from Nazi Germany to Argentina, where she was born. Toth moved to America at age 22 and later became a U.S. citizen. Toth’s father, a successful businessman, gifted Toth millions of dollars in a Swiss bank account before dying in 1999.

The federal Bank Secrecy Act establishes various record and reporting guidelines for citizens, including a mandatory annual form for any American citizen with more than $10,000 in a foreign bank—the Report of Foreign Bank and Financial Accounts (FBAR). Toth was not filing this form with her taxes and claimed she wasn’t aware of the requirement. Once she knew of the form’s requirement, she contacted the IRS to attempt to come into compliance. The IRS audited her in 2011, finding she overpaid her taxes some years and underpaid others. She ended up paying $40,000 in penalties for her mistakes.

But that’s not where the story ends. Under federal law, there’s a penalty for failing to file an FBAR, and it’s a doozy. The maximum penalty for failing to file the report is either $100,000 or half the value of the account’s balance, whichever is greater. The IRS called her failure to file the r