SCOTUS Denies Cert in FBAR Excessive Penalty Case

Foreign Nationals & Expats

Houston Tax Attorney

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The U.S. Supreme Court on Monday declined to review a Ninth Circuit decision imposing a $1.1 million FBAR penalty on a taxpayer.  The Internal Revenue Service assessed the penalty after finding the taxpayer failed to report assets exceeding $1 million in a Swiss bank account.

The taxpayer argued the amount of the assessment violated the Eighth Amendment protection against excessive fines and said the IRS improperly obtained nontax information, such as the existence of the foreign account, through the Swiss-U.S. tax treaty.

Below are details from the appellate history in United States v. Bussell.

FBAR Penalty Case – Facts

From 1981 through approximately 1995, when Bussell filed for bankruptcy, she conducted her medical practice through various corporations, including Letantia Bussell M.D. Inc. Before she filed for bankruptcy in 1995, she restructured her medical practice to conceal her interest in the practice. Bussell funneled her profits between 1993 and 1995, which totaled $1,149,048, into a non-interest bearing account to an offshore account at Sanwa Bank (Switzerland). She maintained control over the account but the account was under the name of BBL Medical Management, Inc. In January 1996, she transferred the balance of the Sanwa Account to a personal bank account at Swiss Bank Corp. Swiss Bank Corp. later became known as UBS AG. Defendant failed to disclose the funds from the Sanwa Account and her interest in the Swiss account in her 1996 tax return.

Pursuant to IRC 5321(a)(c), the IRS assessed an approximately $1.2 million penalty against Bussell for failing to disclose her financial interests in an overseas account on her 2006 tax return, which she was required to report in 2007. Bussell did not pay the penalty, and the government filed suit. Bussell previously had been criminally charged for concealing financial assets in 2002. On appeal, Bussell admitted that she willfully failed to disclose her financial interests in her overseas account on her 2006 tax return, but she raised several arguments seeking reversal of the district court’s summary judgment ruling. These arguments appear below.

#1 FBAR Civil Penalties and the 8th Amendment Excessive Fines Clause

Bussell argued that the government’s assessment against her is grossly disproportional to the gravity of her offense, and therefore violates the Excessive Fines Clause.

However, the assessment against her is not grossly disproportional to the harm she caused because Bussell defrauded the government and reduced public revenues. Therefore, Bussell has failed to carry her burden to establish that the penalty is grossly disproportional to her offense.

#2 FBAR Statute of Limitations

Bussell also asserted that the government violated the statute of limitations by failing to bring its claim earlier.

Under IRC 5321 (b)(1), the Secretary of the Treasury may assess a civil penalty under subsection (a) at any time before the end of the 6-year period beginning on the date of the transaction with respect to which the penalty is assessed.

Because Bussell failed to disclose her financial interests in 2007, the statute of limitations began to run at that time. The IRS assessed a penalty against Bussell within the statutory period in June 2013, and the government’s claim against Bussell is connected to that assessment.

#3 Due Process

Bussell next asserts the assessment against her violated her due process rights because the government could have brought the claim against her earlier. Because the government’s claim is connected to Bussell’s failure to report assets in 2007, the government could not have brought its claim before 2007, and, as explained above, the government brought its claim within the statute of limitations. Therefore Bussel is not entitled to relief under this theory.

#4 FBAR Penalties & Ex Post Facto Clause

Bussell also asserts that the assessment against her violates the Ex Post Facto Clause, U.S. Const. art. I, § 9, cl. 3, which prohibits the imposition of a new criminal punishment for conduct that has already taken place. Because the Ex Post Facto clause does not apply to civil statutes unless they have a punitive purpose or effect, it is not applicable here.

#5 Multiple Punishments

Bussell also asserts that she has received “multiple punishments” for the same underlying offense. Even if the funds at issue here were traceable to the funds at issue in her criminal prosecution, the offense here, failing to report her foreign bank account on her 2006 tax return, was unrelated to her criminal conviction.

#6 IRS Abuse of Discretion

Bussell suggests that the IRS abused its discretion in calculating the penalty amount, and that the district court committed legal error by not engaging in analysis of the reasonableness of the penalty. Because the district court reviewed Bussell’s penalty when it reduced it, and the assessment is consistent with the limits set by Congress, Bussell has not shown that the district court erred in reviewing the assessment against her.

#7 Laches Defense

Bussell next argues that the government’s claim is barred by laches. Bussell offers no authority for applying laches against the government in this context. Generally, the United States “is not bound by . . . laches in enforcing its rights.”. Therefore, Bussell’s laches defense is inapplicable here.

#8 Violation of U.S.-Swiss Treaty

Lastly, Bussell argues that introduction of banking evidence at the district court violated an international treaty between the United States and Switzerland. Because Bussell has not shown that the treaty she relies on creates an enforceable right, Bussell is not entitled to relief under this theory.