Eleventh Circuit panel finds Excessive Fines Clause applies to FBAR penalties

A helpful reader made sure I did not miss a lengthy new ruling from the Eleventh Circuit late last week in US v. Schwarzbaum, No. 22-14058 (11th Cir. Aug. 30, 2024) (available here).  Here are excerpts from the start of the 50+ page opinion:

Isac Schwarzbaum is a wealthy naturalized citizen of the United States.  He was born in Germany and holds significant wealth in numerous bank accounts in Switzerland and Costa Rica.  The U.S. tax regime required Schwarzbaum to report any foreign bank accounts to the Internal Revenue Service (the “IRS”) using a form known as the FBAR.  Although Schwarzbaum had read the FBAR filing instructions and engaged accountants to assist with his filings, he failed to report his foreign bank accounts to the IRS for years 2007–2009....

This case presents essentially two categories of questions.  The first set are procedural questions asking whether the district court can enforce the IRS’s recalculated penalties.  These questions are easily answered: (1) the United States, as plaintiff in a civil case, has the discretion to seek a lower penalty amount than the IRS assessed; (2) the Eleventh Circuit in Schwarzbaum I already disposed of and rejected Schwarzbaum’s statute-of-limitations argument; and (3) the district court did not err by retaining jurisdiction during a remand to the IRS that was, in essence, an interlocutory order.

More difficult is the fundamental question of whether FBAR penalties are fines within the meaning of the Eighth Amendment’s Excessive Fines Clause.  This is a matter of first impression for this Court.  The only other circuit court to have addressed the question, the First Circuit, recently held that the Eighth Amendment’s Excessive Fines Clause does not apply to FBAR penalties.

After careful consideration of the historical development of the Excessive Fines Clause and the FBAR’s text, structure, and history, we decline to follow the First Circuit.  Rather, we hold that FBAR penalties are in substantial measure punitive in nature.  Therefore, under controlling Supreme Court precedent, they are subject to review under the Eighth Amendment’s Excessive Fines Clause.  And in this case, examining the penalties assessed against Schwarzbaum account by account as we must, we identify $100,000 in penalties levied against one account in each of the years 2007–2009, for a total of $300,000, that are grossly disproportionate to the offense of concealing that account, and are therefore in violation of the Excessive Fines Clause.  We also hold, however, that the other penalties levied against the remaining accounts did not violate the Excessive Fines Clause because the penalties assessed against them were not grossly disproportionate to Schwarzbaum’s willful concealment of tens of millions of dollars in overseas accounts.