Tuesday, May 9, 2017

Government FBAR Willful Penalty Suit Survives Motion to Dismiss (5/9/17)

In United States v. Toth, 2017 U.S. Dist. LEXIS 66664 (D MA 2017), here, the Court denied the defendant's motion to dismiss the Government suit for judgment on a FBAR willful penalty.  I attach the docket entries, here, which indicate that the Government filed the case in September 2015 and there have been many twists and turns to the date of the order.  Among those twists was a default judgment because Toth did not accept or avoided service of the complaint.  And, perhaps driving the twists and turns is that in this suit involving an FBAR willful penalty of $2,173,703, Toth is representing herself pro se. (I suppose there is redundancy there but I wanted it to be clear.)

According to the complaint, here:
  • Toth opened the UBS account in 1999 and it had remained open continuously since.  
  • At all times, Toth had control and a financial interest in the account.  
  • "The balance of the Account in calendar year 2007 was approximately $4,000,000."  
  • "As of June 30, 2008, the balance of the Account was at least $4,347,407."  
  • The FBAR penalty is $2,173,703, which is 50% of the amount on 6/30/08.  
  • The complaint contains two spare statements of the basis for liability:
21. Monica Toth failed to file an FBAR disclosing the existence of the Account for the 2007 calendar year on or before June 30, 2008.
22. Monica Toth voluntarily and intentionally violated a known duty to appropriately and timely disclose the existence of the Account to the Internal Revenue Service and the Department of the Treasury.
23. The failure of Monica Toth, to timely file the FBAR with regard to the 2007 calendar year was willful within the meaning of 31 U.S.C. § 5321(a)(5).
I don't think Toth filed an answer.  At least my search of the docket entries did not pick one up.  However, she did file the motion to dismiss which led to the order.

There is nothing in the order particularly important other than to the litigants.  Apparently in the mix, however, was whether the FBAR willful penalty violated the 8th Amendment's Excessive Fines prohibition.  On that issue, the court said:
Toth also argues that the fine imposed by the Government violates the [*12]  Excessive Fines Clause of the Eighth Amendment. "The Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314." 31 U.S.C. § 5321(a)(5)(A). The penalty may not exceed $10,000 unless the violation is willful. Id. § 5321(a)(5)(B)—(C). Whether Toth, in fact, violated § 5314, and, if so, whether that violation was willful is a question of fact that the Court cannot resolve at this stage. Accordingly, the Court does not address whether the fine to be imposed, if any, violates the Eighth Amendment.
For further context on the 8th Amendment, I attach the Government's Opposition, here, addressing the Eight Amendment issue.  The Opposition is dated December 14, 2016. The opening of that Opposition says:
By way of background, the United States alleged in the complaint that defendant Monica Toth willfully failed to file an FBAR as required by statute because she had a bank account in Switzerland which contained over $4 million. Ms. Toth moved to dismiss the action on several theories, from defective service of process, to delayed service, to failure to state a claim on which relief could be granted. These are meritless and were addressed in a prior brief filed by the United States. But Ms. Toth also argued in one or two sentences that the Excessive Fine Clause in the 8th Amendment to the U.S. Constitution precluded judgment from being entered. She cited no authority for her argument. 
Undersigned counsel recognized that a similar argument was pending before the Ninth Circuit and sought (and received) an extension of time to brief the issue until the briefs were filed in the Ninth Circuit to ensure that the Tax Division was taking a consistent position. The Ninth Circuit brief has now been filed and this brief thus responds to the 8th Amendment issue Ms. Toth raised. The remainder of the arguments presented by Ms. Toth were addressed in a prior filing by the United States. For the reasons set forth below, the Excessive Fines Clause of the U.S. Constitution does not preclude entry of judgment of approximately $2 million against Ms. Toth for willfully failing to file an FBAR.
The Opposition then sets forth the Government's detailed argument that on which the Court deferred action.

One issue that struck me was that the Government demanded a jury in its original complaint.  I just wonder whether, strategically, demanding a jury is a good idea in any penalty case and particularly where there is a pro se defendant.  At a minimum, with a jury, the demands of the case will go up and efficiency will be sacrificed.  Of course, the defendant could have demanded a jury if the Government did not and, in any event, the parties can waive the jury later.

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