The Eighth Amendment is clear—the government may not impose excessive fines. And as recently as 2019, the U.S. Supreme Court held emphatically that the Eighth Amendment’s “protection against excessive punitive economic sanctions” is “both fundamental to our scheme of ordered liberty and deeply rooted in this Nation’s history and tradition.” But what if the government uses a word other than fine? Say, civil penalty? Can the government sidestep the Eighth Amendment through creative wordsmithing?
The easiest answer is the right one: Of course not.
But the 1st U.S. Circuit Court of Appeals disagreed. The court recently held that the Excessive Fines Clause “does not apply” to a $2.17 million civil penalty, imposed on a grandmother for (in the government’s telling) “willfully” failing to timely file a one-page form.
That is a profound misreading of the Eighth Amendment’s prohibition on excessive fines and one that 82-year-old Monica Toth is asking the U.S. Supreme Court to correct. The Excessive Fines Clause is a key part of our Constitution’s Bill of Rights. It acts as a vital check on the government’s power to punish. And it’s a provision the courts must take seriously.
The Court declined to hear Monica’s case. However, Justice Neil Gorsuch wrote in opposition to the denial.
Monica Toth was born in South America in 1940. Her Jewish father had fled there in the mid-1930s to escape rising, brutal antisemitism in Germany. Growing up, Monica was taken out of grade school at the end of sixth grade. But at the age of 22, she emigrated to the United States. She completed a high-school equivalency program, got married and had four children. By the early 1970s, she had earned a college degree. In the 1980s, she became a U.S. citizen.
In the meantime, Monica’s father became a successful businessman in South America. Shortly before his death in the late 1990s, he put a considerable amount of money in a foreign bank account for Monica. Like many who fled Germany or later survived the Holocaust, he felt strongly that his daughter should have a reserve of money in case (as happened to him) she might one day have to flee government persecution.
Monica kept the money in the account, without incident, for many years. But in 2010, she learned about the federal government’s Foreign Bank and Financial Accounts reporting requirement, known by the acronym “FBAR.”
Under the Bank Secrecy Act of 1970, Americans with foreign bank accounts containing more than $10,000 are required to file a one-page FBAR form with the federal government. The FBAR identifies basic information about the account, the filer, the bank, and the maximum value during the reporting period.
Until 2010, Monica was unaware of the need to file FBARs. (During this period, she would fill out her tax returns by hand, using forms from the town library.) When she learned of the requirement, she filed a partially completed one that November and noted that she’d get the outstanding information and file the required forms. By the end of November, she had mailed out completed forms for the preceding five years. Those forms got lost in the federal bureaucracy and ended up, not with the Treasury Department, but with the Center for Medicare and Medicaid Services. In the audit that followed, Monica was assessed a relatively modest amount of back taxes and penalties. She paid them promptly and in full.
The “FBAR Penalty”
But then came the “FBAR penalty.” Whether or not a reporting violation causes any financial harm to the government, the IRS can impose “civil penalties” for failing to timely file an FBAR. And if the government determines that a failure was willful—which the IRS construes to cover not just deliberate violations, but “reckless” ones too — the penalties skyrocket. Willful violators face a maximum civil penalty of either $100,000 or half the balance in their unreported account, whichever sum is greater. As the IRS’s National Taxpayer Advocate observed last year, these “maximum FBAR penalt[ies]” are “among the harshest civil penalties the government may impose.”
Monica learned all this the hard way. In 2012, the government decided that an objectively reasonable person in Monica’s shoes would have figured out they should have filed an FBAR for 2007. So, the government said, Monica’s failure to file her report was reckless, which made it “willful,” which triggered a maximum penalty of $2,173,703. The government then sued Monica in federal court to collect.
Monica fought back as best she could. At first defending herself without attorneys, she insisted that she hadn’t meant to violate the FBAR requirement. She also raised the Eighth Amendment’s Excessive Fines Clause as a defense. But first the district court and then the First Circuit rejected her Eighth Amendment defense on a startling ground. That $2.17 million penalty? According to the First Circuit, it “is not a ‘fine’” and “the Excessive Fines Clause of the Eighth Amendment does not apply to it.” As a result, the court declined even to consider whether the penalty might be excessive.
Seeking Supreme Court Review
The First Circuit’s ruling is profoundly wrong, and it is an error Monica is now asking the U.S. Supreme Court to correct. Now represented by the Institute for Justice (IJ), Monica is asking the Supreme Court to intervene and confirm what should be obvious: a debilitating civil penalty, which compensates no financial loss to the government, is just the sort of punishment the Excessive Fines Clause exists to check. The main evil addressed by the Excessive Fines Clause (like its precursors in the English Bill of Rights and Magna Carta) is the government impulse to use fines and forfeitures as a means of raising revenue. This constitutional safety valve is as urgently needed today as ever. And clear rules are key. As Justice Scalia observed three decades ago, fines are a “source of revenue” for the government. So, he warned, “[t]here is good reason to be concerned that fines, uniquely of all punishments, will be imposed in a measure out of accord with the penal goals of retribution and deterrence.”
The federal government’s FBAR regime captures this concern perfectly; over the past decade, the government has exploited these penalties to the hilt. For example, the government is asking the Supreme Court to bless a $2.12 million FBAR penalty on an immigrant whose reporting violation was undisputedly “non-willful.” Earlier in 2022, the government sought to impose an $8.8 million FBAR penalty on “an almost one hundred-year-old Holocaust survivor.” In 2021, the government imposed a penalty of $3.1 million, based on unreported funds originally placed in foreign accounts to keep them “hidden from the Nazis and subsequently hidden from the Communist authorities in the Soviet Union.” As early as 2012, the National Taxpayer Advocate (an independent agency watchdog) sounded alarm bells about the IRS’s “insistence on draconian penalties against taxpayers with overseas accounts, irrespective of their benign purpose.”
An Excessive Fines Clause that does not apply to these sorts of penalties would be unrecognizable to those who ratified it. And the importance of Monica’s case extends far beyond foreign bank accounts. Increasingly, governments—federal, state and local alike—resort to the criminal-justice system to raise revenue. Often the resulting injustices fall on the poor and the politically powerless. The Constitution’s Framers foresaw this phenomenon. Even then, it was nothing new. That’s why the Excessive Fines Clause is in the Bill of Rights, and that’s why courts in the 21st century need to take the Excessive Fines Clause seriously.
About the Institute for Justice
The Institute for Justice is a public-interest law firm that litigates nationwide to vindicate individual liberties. In 2019, IJ secured a Supreme Court victory holding that the Excessive Fines Clause applies to state and local governments. IJ is currently working to protect a Florida homeowner from ruinous fines for how she parked on her own driveway; drivers targeted by an abusive impound regime in Wilmington, Delaware; and thousands of Alabamians victimized by a notorious profit-fueled ticketing scheme in Brookside, Alabama.