Zwerner Case Settles Without Decision on Excessive Fines Issue (6/6/14; Updated 6/12/14)

The Zwerner case has settled.  See the case closing document here.  I add the public settlement terms below.  The court's case closing says:  "the parties advised that they have amicably settled this matter."  (Emphasis supplied.)  I assume that the word amicably is a euphemism for the real world where the settlement is equally -- more or less -- painful to both sides, in order to strike a settlement balance.

Most immediately, it leaves several issues unresolved.

1.  The Excessive Fines / Eighth Amendment issue.

2.  The burden of proof issue -- preponderance or clear and convincing.  The judge instructed the jury to apply the preponderance standard.  Critical mass seems to be forming for preponderance, but I assume that was an issue Zwerner was prepared to assert on appeal.  I continue to think it should be clear and convincing, as the IRS itself once had.

3.  The issue of whether the trier of fact can assess the reasonableness of the IRS's exercise of discretion as to where between 0 and 50% the IRS should apply the willful penalty.  I don't think this was presented as an issue in the pretrial skirmishing and trial, but think that it should be an issue.  If the jury had been asked the further question of whether the IRS abused its discretion to assert in the aggregate an amount exceeding the account value, perhaps the jury would have given some relief.  This is not exactly the Excessive Fines issue, but has certain resonances with it.  Of course, this issue -- if it is even a proper issue -- would be one that would be decided by the jury.  The Excessive Fines issue would be decided by a judge.

Addendum 6/12/14:

The Notice of the Settlement is here.  The description of the settlement is short, so I cut and paste them:

Under the terms of the settlement, by September 2, 2014, Zwerner is to fully pay the United States the 50% FBAR penalties assessed against him for 2004 and 2005 in the amounts of $723,762 and $745,209 respectfully, interest thereon of $21,336.11 and $20,947.52 respectively, plus statutory penalties that have accrued under 31 U.S.C. § 3717(e)(2) on the FBAR penalty assessments for 2004 and 2005 of $128,016.64 and $125,685.11 respectively.

Analytically, this is a substantial concession by the Government.  It is two years of penalties where the jury awarded 3 years (in effect awarded because it found 3 years of willful failures).  Since the jury verdict was not likely to be overturned, one might infer that the substantial concession by the Government recognizes some risk with respect to the Excessive Fines issue.  That is an inference, however, and there may be other factors that caused the Government to reach this settlement.