Supreme Court Won’t Stop $2 Million IRS Penalty Against Grandmother Whose Family Fled Nazis

The Supreme Court turned away an appeal on Jan. 23 over a $2.1 million penalty the IRS assessed against a grandmother whose family fled Nazi persecution, for failing to report a foreign bank account.

The decision came as the U.S. House of Representatives, now controlled by Republicans, voted earlier this month to repeal a congressional provision allotting almost $80 billion to the IRS over the coming 10 years for increased enforcement.

Democrats say the IRS has long been underfunded, but Republicans say the extra money will be used to harass taxpayers.

Only 4 percent of the additional funding will be devoted to improving taxpayer service while 58 percent will go to upping enforcement, the New York Post reported in August 2022.

Harsh Penalty

The denial prompted a sharply worded dissent by Justice Neil Gorsuch who implied he agreed with lawyers’ argument that such a harsh penalty “incentivizes governments to impose exorbitant civil penalties as a means of raising revenue.”

The decision to penalize the petitioner in this case “is difficult to reconcile with our precedents,” Gorsuch wrote, adding that the Supreme Court recognizes that the Excessive Fines Clause of the Eighth Amendment to the U.S. Constitution, “traces its venerable lineage” to the Magna Carta of 1215 and the English Bill of Rights of 1689.

The Supreme Court denied the petition in Toth v. United States (court file 22-177), an appeal from the U.S. Court of Appeals for the First Circuit. Gorsuch was the sole dissenter to the unsigned order.

Now in her 80s, Monica Toth, who lives in the Boston area, had argued that the penalty runs afoul of the Eighth Amendment.

In the mid-1930s, Toth’s father fled Germany, relocating to South America to escape violent anti-Semitism. Toth was born in Argentina in 1940 and emigrated to the United States when she was in her 20s, leaving her parents behind, according to the Institute for Justice (IJ), a national non-profit public interest law firm that is representing her.

Her father was a success in business and he gifted his daughter an endowment that was held in a Swiss bank account. His thinking was that his daughter should have emergency funds available in case, like him, she might one day have to escape government persecution.

Foreign Bank Accounts

Only years later did she become aware of the federal government’s Foreign Bank and Financial Accounts (FBAR) reporting requirement. Under the Bank Secrecy Act of 1970, Americans with foreign bank accounts holding more than $10,000 are required to file an FBAR form with the federal government.

In 2010, Toth got caught up by filing five years’ worth of reports. Following an audit, she ended up being reportedly assessed around $40,000 in back taxes and penalties, which she paid.

But the IRS later decided that a reasonable person in her situation would have tried to figure out whether the FBAR requirements applied. The finding triggered a legal provision allowing the agency to impose the maximum civil penalty of more than $2 million, or 50 percent of the funds that Toth’s father set aside for her.

A federal district court ruled against her and the First Circuit upheld that decision, finding that the large penalty did not constitute a “fine,” and therefore the Eighth Amendment did not apply.

Toth’s attorney at the IJ, Sam Gedge, told The Epoch Times by email that his firm was “disappointed” with the ruling.

“Monica’s experience shows that civil penalties can have devastating consequences for real people,” Gedge said.

Massive Civil Fines

“Naturally, we’re disappointed that the court declined to take up this case. The Excessive Fines Clause should serve as a key check on economic sanctions, and we hope the First Circuit will heed Justice Gorsuch’s dissent and correct its misreading of the Excessive Fines Clause in future cases.”

“Justice Gorsuch understood what’s at stake,” added IJ attorney Brian Morris.

“Under the First Circuit’s decision, governments are incentivized to impose massive civil fines to raise revenue. And individuals, like Monica, are left helpless to the whims of the government—no matter the size of the penalty that it picks,” Morris said.

The Epoch Times has reached out for comment to the U.S. Department of Justice.

Supreme Court justices are currently deliberating another FBAR filing requirement case, Bittner v. U.S., which the court heard on Nov. 2, 2022.

Like Toth, Romanian-born Alexandru Bittner initially received a modest financial penalty for not filing IRS forms about foreign bank accounts—$50,000 in his case—but the IRS later increased the penalty to $2.72 million.

A decision in the Bittner case is expected by June.