An 82-year-old grandmother from Boston is headed to the Supreme Court after the IRS demanded she pay $2.1 million in penalties for failing to file the proper banking form.
When antisemitism and fascism began taking hold in 1930s Germany, Monica Toth’s family fled to Argentina. There, Toth was born in 1940.
At 22, Toth immigrated to the United States, where she married and, in 1980, became a naturalized citizen.
Toth’s father became quite a successful businessman in Buenos Aires, and prior to his death in 1999, he opened for his daughter a Swiss bank account, in which he placed roughly $4.2 million in the event his little girl may one day have to flee the persecution of her government as he once had done, the New York Post reports.
U.S. law requires nationals or permanent residents to file a one-page form called a “Foreign Bank and Financial Accounts” report (FBAR) if they have a foreign bank account with a balance greater than $10,000. The FBAR must be submitted to the IRS every year.
Ignorant of the requirement until 2010, Toth was audited by the IRS. She promptly filed five years’ worth of FBAR reports and paid $40,000 in back taxes, according to the Institute for Justice, a non-profit dedicated to ending “widespread abuses of government power” and protecting the constitutional rights of Americans.
The IRS could have thanked Toth for paying the owed taxes in full as soon as she was made aware of her error, but instead, the agency deemed her reporting violation to be “reckless” and “willful,” and demanded that she fork over more than $2 million — the maximum civil penalty they could impose.
Initially attempting to battle the IRS on her own, Toth represented herself in court and raised a defense based on the Eighth Amendment’s Excessive Fines Clause.
Both the district court and the 1st U.S. Circuit Court of Appeals shot down her argument, with the First Circuit ruling that her penalty “is not a ‘fine,'” and thus, “the Excessive Fines Clause of the Eighth Amendment does not apply to it.” The court refused to consider whether the exorbitant penalty was excessive.
“That interpretation of the Eighth Amendment is profoundly wrong,” the Institute for Justice argues. “As the IRS’s National Taxpayer Advocate warned last year, ‘The maximum FBAR penalty is among the harshest civil penalties the government may impose.’ It is precisely the sort of punishment the Excessive Fines Clause serves to check.”
The grandmother’s case, now represented by the Institute, is now headed to the Supreme Court.
“Across the country, Americans suffer from abusive fines,” said IJ Attorney Brian Morris. “The Eighth Amendment is their protection. But if the government can escape judicial scrutiny of ruinous fines by clever wording, nothing would be out of the government’s reach.”
The case comes as the IRS has received an $80 billion boost and a bunch of weapons from the Biden administration’s Inflation Reduction Act.
“Fines, fees and forfeitures, if unrestrained, threaten Americans’ cherished liberties,” said IJ President and General Counsel Scott Bullock. “The courts must respect the Constitution and control the government’s impulse to prioritize revenue over people’s lives.”
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