Supremes Asked to Determine that ‘penalties’ are Subject to ‘Excessive Fines’ Limit

The Supreme Court already has decided, in just recent years, that confiscating a car over a relatively minor violation of the law violated the Constitution’s protection against excessive fines.

Now it is being asked to determine whether governments can avoid that pitfall in their desire to punish people in a major way by calling the cost a “penalty” instead of a “fine.”

The fight is being assembled by the Institute for Justice, said the case involves Monica Toth of Boston.

The IJ’s Andrew Wimer explained the fight in an online report: “The Eighth Amendment is clear – the government may not impose excessive fines. But what if the government calls a multimillion-dollar punishment a ‘civil penalty’? Can it escape constitutional scrutiny? A new appeal to the U.S. Supreme Court from a Boston-area grandmother and the Institute for Justice (IJ) calls on the court to confirm what should already be obvious: a $2.17 million civil penalty is subject to the Excessive Fines Clause.”

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He described the background and how the dispute developed:

In the mid-1930s, Monica Toth’s father fled from Germany to South America to escape rising, violent antisemitism. Monica was born there in 1940 and emigrated to the United States in her twenties. Back in South America, her father became a successful businessman, and, before his death, he gifted Monica a considerable amount of money, which was kept in a foreign bank account. Like many who fled Germany or later survived the Holocaust, he felt strongly that his daughter should have a reserve of money in case (as happened to him) she might one day have to flee government persecution.

Years later, Monica learned about the federal government’s Foreign Bank and Financial Accounts (FBAR) reporting requirement. Under the 1970 Bank Secrecy Act, Americans with foreign bank accounts containing more than $10,000 are required to file an FBAR form with the federal government. In 2010, Monica filed five years’ worth of reports. Following an audit, she ended up being assessed a relatively modest amount of back taxes and penalties, which she paid promptly and in full.

But then the problem developed.

The IJ reported the IRS then decided she should have known about the FBAR demands, which it interpreted to mean that the reporting violation was “reckless” and therefore “willful.”

It demanded a “penalty” of more than $2 million.

“Monica raised the Eighth Amendment’s Excessive Fines Clause as a defense. But first the district court and then the 1st U.S. Circuit Court of Appeals rejected that defense on a startling ground. According to the First Circuit, the multimillion-dollar penalty ‘is not a ‘fine” and ‘the Excessive Fines Clause of the Eighth Amendment does not apply to it.'”

But IJ lawyer Sam Gedge pointed out, “The Eighth Amendment’s Excessive Fines Clause is a key check on the government’s power to punish. That is why the Excessive Fines Clause is part of the Bill of Rights, and that is why the federal courts need to take it seriously.”

The IJ said the court’s interpretation “is profoundly wrong.”

The last time the Supreme Court considered the clause it was a 9-0 verdict in favor of protecting a citizen from government demands.

That was in the Timbs v. Indiana case, also handled by the Institute for Justice. The Supreme Court said protections against excessive fines are “both fundamental to our scheme of ordered liberty and deeply rooted in this Nation’s history and tradition.”

IJ lawyer Brian Morris added, “Across the country, Americans suffer from abusive fines. The Eighth Amendment is their protection. But if the government can escape judicial scrutiny of ruinous fines by clever wording, nothing would be out of the government’s reach.”

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