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Million-Dollar Penalty Upheld for Failing to Disclose Foreign Financial Assets

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Million-Dollar Penalty Upheld for Failing to Disclose Foreign Financial Assets

In 2002, Letantia Bussell was criminally charged with concealing financial assets in offshore accounts.  Bussell was required to disclose her financial interest in an overseas account which she had to report in 2007 by filing a Report of Foreign Bank and Foreign Accounts (“FBAR”).  She failed to make the required disclosure.  Each U.S. person with a financial interest, signature authority or other authority over any foreign financial accounts (i.e., bank, securities, or other types of financial accounts in a foreign country) must file an FBAR if the aggregate value of the financial accounts exceeds $10,000 during the calendar year.  For failing to file an FBAR, the IRS assessed a penalty of approximately $1.2 million against Bussell in 2013 (within the six-year statute of limitations).  Bussell refused to pay the penalty, and the IRS sued.

Civil and Criminal penalties for failing to file an FBAR are significant.  Civil penalties for non-willful violation can range up to $10,000 per violation while the civil penalties for a willful violation can range up to the greater of $100,000 or 50% of the amount in the account during violation.  Taxpayers may assert a reasonable cause exception for non-willful violations, but not willful violations.  The maximum criminal penalty for a willful FBAR violation is a five-year sentence of imprisonment and a $250,000 fine.

The district court held that Bussell willfully failed to file an FBAR but reduced the penalty to approximately $1.1 million, which was the maximum civil penalty allowed.  Bussell argued that the fine was grossly disproportional to the gravity of her offense under the Eighth Amendment Excessive Fines Clause because her offense was a reporting offense and not a serious crime.  The district court reasoned that while the taxpayer’s tax evasion crime was not as serious as some crimes triggering civil forfeiture actions, the crime fit within those targeted by the Bank Secrecy Act.

On Appeal, Bussell admitted that she willfully failed to disclose her financial interest in the overseas account.  Regarding her argument that the penalty violated the Eighth Amendment Excessive Fines Clause, the Ninth Circuit held that the penalty was not grossly disproportionate to the harm the taxpayer caused in defrauding the government and reducing public revenues.

Bussell petitioned the Supreme Court to review the Ninth Circuit’s decision arguing that the Eighth Amendment prohibited the excessive fines.  On April 30, 2018, the Supreme Court refused to review the Ninth Circuit’s decision.

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