When Is a Fine Considered “Excessive”?

The Eighth Amendment to the United States prohibits a court from imposing any “excessive fines.” As the United States Court of Appeals for the 11th Circuit explained in a recent decision, United States v. Schwarzbaum, this ban on excessive fines was taken from the Virginia Declaration of Rights of 1776, which in turn got the idea from the English Bill of Rights of 1689. The English parliament imposed the ban to curb what it considered “excessive and partisan” fines levied by judges appointed by King James II against his political opponents. In many cases, such excessive fines were used to keep the King’s enemies in jail, as they could not afford to pay them.

11th Circuit Reduces Filing Penalty by $300,000

In contemporary law, the Eighth Amendment ban on excessive fines can apply to both criminal and civil cases. With respect to the latter, the Supreme Court has said that if a fine in a civil proceeding is “punitive” in any way, it is subject to the Eighth Amendment. For example, a civil penalty imposed by the IRS in connection with a tax matter may be considered a “fine” under the Eighth Amendment if it contains any degree of punishment.

The 11th Circuit’s Schwarzbaum decision was itself an illustration of this point. In this case, the defendant was a German-born naturalized citizen of the United States. The defendant is also a wealthy businessman with bank accounts in a number of foreign countries. As an American citizen, the defendant was therefore required to file a Report of Foreign Bank and Financial Accounts (FBAR) form with the IRS each year listing those accounts.

The defendant failed to file his FBAR forms between 2007 and 2009. Under federal law, a “willful” violation of the reporting requirement carries a civil penalty of $100,000 or 50 percent of the balance of the unreported account, whichever is higher. In this case, the IRS calculated the defendant’s civil penalty at around $12.5 million. When he refused to pay, the federal government filed a civil lawsuit in Florida to collect.

After lengthy litigation, a federal judge ordered the defendant to pay the $12.5 million plus interest and penalties. The defendant appealed to the 11th Circuit, arguing that the penalty constituted an excessive fine under the Eighth Amendment. The 11th Circuit agreed. First, it held that the purpose of the civil penalty for failing to file a FBAR was “at least in part” a punishment. The court noted there is no connection between the amount of the fine and the government’s costs in investigating alleged violations. More importantly, the “severity of the penalty is tied directly to culpability.” That is, a non-willful failure to file a FBAR is subject to a maximum penalty of $10,000, while a willful violation can lead to seizure of half of a defendant’s bank account.

As to whether the particular “fine” assessed against the defendant here was unconstitutionally excessive, the 11th Circuit said it was, at least with respect to some of the bank accounts involved. Ultimately, the appellate court reduced the final civil penalty by $300,000, from around $12.5 million to around $12.2 million (plus interest and penalties).

Contact the Joshi Law Firm Today

Criminal fines and civil penalties can quickly add up, especially in cases involving the IRS. If you need legal advice or representation from a qualified Orlando tax fraud lawyer, call the Joshi Law Firm, PA, today at 844-GO-JOSHI or contact us online to schedule a free initial consultation.

Source:

media.ca11.uscourts.gov/opinions/pub/files/202214058.pdf