SAN FRANCISCO—The IRS wants to take most of the life savings of Tuncay Saydam, an 88-year-old retired professor. More than $400,000. Not because Tuncay did not pay his taxes, but because he did not fill out a one-page form. A form he didn’t even know about. This past winter, a district court in California upheld Tuncay’s fine, reasoning that the courts owe special “deference” to the other branches of government on whether exorbitant fines are or aren’t excessive. But in fact, the Eighth Amendment’s Excessive Fines Clause guards against precisely this kind of overreach. So Tuncay is teaming up with the Institute for Justice (IJ) to appeal his case and fight for constitutional limits on fines.
“The Eighth Amendment’s Excessive Fines Clause enshrines a timeless teaching: The fine must fit the crime,” said IJ Attorney Mike Greenberg. “A runaway civil penalty for a minor reporting violation is just the sort of punishment the Framers designed that provision to check.”
Tuncay (pronounced Toon-jai) was born and raised in Turkey, growing up in poverty and becoming an early pioneer in computer software engineering. In 1980, he was recruited by the University of Delaware and moved there with his family, serving as a professor for 25 years. He and his wife became American citizens. While working at Swiss universities during his sabbaticals, Tuncay also consulted for several companies in Switzerland. Tuncay kept those earnings at a bank there, eventually growing to about $500,000. And when the Swiss bank stopped doing business with American customers, he moved the funds to a Turkish bank, before eventually transferring it to his bank in the U.S. To Tuncay, it was a nest egg—his life savings.
But Tuncay did not know he was violating U.S. law. Federal law requires people who own foreign bank accounts totaling more than $10,000 to file an annual one-page form with the IRS, called the “FBAR.” It’s separate and apart from your obligation to pay income tax; it applies whether or not the foreign account makes any taxable income at all. And the maximum penalties are shocking: either $100,000 or half the balance in the unreported account (whichever is greater) for each unfiled year.
When the government audited Tuncay, it determined that he owed around $29,000 in back taxes, for which it assessed an additional $11,000 in late penalties. But separate from that, it imposed an astounding $437,000 on him simply for having failed to timely file his FBAR forms. And when Tuncay contested the fine as violating the Eighth Amendment’s Excessive Fines Clause, the district court said it owed special “deference” to the IRS’s assessment of an appropriate penalty.
“When I heard the numbers, I was flabbergasted,” said Tuncay. “Apart from the couple of traffic tickets I have received, I have not ever had trouble with the law. I am an optimistic American citizen. I live that dream, and I hope the appeals court will recognize the injustice that is being done.”
For years, the federal government has tried to evade Eighth Amendment review of its FBAR penalties, even as it imposes crippling penalties on countless ordinary people: first-generation immigrants like Tuncay, Americans living abroad, and even a 100-year-old Holocaust survivor. Across the country, the IRS argues that “civil penalties” are somehow different from “fines,” making them immune from the Excessive Fines Clause. This argument allowed the government to drain the life savings of a Massachusetts grandmother, free from constitutional scrutiny, in an earlier case appealed by IJ to the U.S. Supreme Court. The Supreme Court denied review in that case—over the dissent of Justice Gorsuch, who warned future judges against repeating the “mistakes” made by the lower court in that case.
“Courts should not defer to the IRS about whether the IRS’s fines violate the Excessive Fines Clause,” said IJ Senior Attorney Sam Gedge. “That’s especially true when the IRS insists in court that its fines aren’t subject to the Excessive Fines Clause at all.”
The Institute for Justice (IJ) is a public-interest law firm that litigates nationwide to protect property rights. In 2019, IJ secured a Supreme Court victory holding that the Excessive Fines Clause applies to state and local governments. IJ is now seeking to protect an Alaska bush pilot’s $95,000 airplane from being forfeited because one of his passengers had beer in her luggage. IJ is also protecting Detroiters targeted by Wayne County, Michigan’s forfeiture scheme and thousands of Alabamians victimized by a notorious profit-fueled ticketing scheme in Brookside, Alabama.