Only sixteen words, the Eighth Amendment to the US Constitution is the shortest of the twenty-seven amendments. Primarily thought of as the “cruel and unusual punishment” amendment, the Eighth Amendment also prohibits “excessive fines,” which history has shown to be a rather mercurial phrase, one which has led to substantial controversy and consequent unfolding by the courts, not unlike a much-creased love letter to constitutional ambiguity. In January 2025, the Eleventh Circuit Court of Appeals added another chapter to the excessive fines’ lexicon with its opinion in United States v. Schwarzbaum, No. 22-14058, 127 F.4th 259 (11th Cir. 2025).
On the surface, Schwarzbaum is an FBAR Hallmark movie—a formulaic détente between the government and a US individual with an unreported fortune in foreign bank accounts. Predictably, the protagonist of the saga, Isac Schwarzbaum, was felled by the unconscionably low “willful” Foreign Bank Account Reporting (“FBAR”) standard, and the courts found that he was reckless enough to justify the penalties for a willful FBAR violation. Like the charming woman who went to a quaint Vermont town to discover the father who orphaned her as a baby, only to find love instead in Finding Father Christmas, Engaging Father Christmas, and Marrying Father Christmas, Isac Schwarzbaum signed on for a sequel, which came with a twist. An Eighth Amendment twist.
The Eleventh Circuit’s decision to apply the Eighth Amendment’s Excessive Fines Clause to willful FBAR penalties represents a potentially significant shift in tax jurisprudence and a split between circuits. Three years earlier, in United States v. Toth, 33 F.4th 1 (1st Cir. 2022), cert. denied, 143 S.Ct. 552 (2023), the First Circuit Court of Appeals heard a similar case and concluded that FBAR penalties were not subject to the Eighth Amendment’s excessive fines clause. In the face of its sister circuit’s decision, the Eleventh Circuit spilled the proverbial tea and in somewhat of a catty aside let it be known that "[w]e remain unpersuaded” by those Yankee courts ( Schwarzbaum at 25).
Schwarzbaum has ignited debate over the extent to which constitutional protections should apply to civil tax penalties—particularly in cases involving very substantial assessments. Whether the Eleventh Circuit’s heightened scrutiny of punitive penalties will be upheld by the Supreme Court remains to be seen. However, the proverbial die has been cast, the circuits split, and the constitutional question raised. In this article, we discuss Toth and explore Schwarzbaum, concluding that the Eleventh Circuit’s decision should—and likely will—be upheld if and when the Supreme Court decides the issue.
Fathers’ Trust in Swiss Banks
Isac Schwarzbaum was born in Germany and later lived in Switzerland where his parents moved when he was a young man. His father found success in Germany in textiles and real estate. His parents moved to Switzerland in the 1990s, where his father sold his businesses, and his mother donned a dirndl (we’re guessing here). Most importantly for this story, though, his father deposited the proceeds of the sale in Swiss bank accounts.
Schwarzbaum became a US resident in 1995 and a US citizen in 2000, though he spent most of his time outside the United States in Germany, Switzerland, Spain, and Costa Rica. Missing the call of the Alpenhorn (think Ricola commercials), he moved back to Switzerland in 2010 and returned to the United States six years later. Having sold the family business, his father and the younger Schwarzbaum never had a Billy Madison moment. Thus, to an outside observer, Isac Schwarzbaum was destined to forever be an itinerant freeloader, subsisting solely from gifts and bequests from daddy.
He received his first large gift—the transfer of an existing Swiss account—from his father in 2001. He received additional gifts for the rest of his father’s life and bequests after the elder Schwarzbaum yodeled his last. Isac Schwarzbaum kept these funds in Swiss accounts, and even after his father’s death, he followed his father’s instructions that bankers manage the accounts conservatively. He did not direct how the money should be invested and consented to all recommendations of the bankers.
In 2006 and 2007, he had an interest in four accounts in Switzerland. Between 2007 and 2009, he had an interest in nine accounts in Switzerland. During these years, he also maintained two accounts in Costa Rica, where he lived for part of the year. Like many individuals struck hard by FBAR penalties, Schwarzbaum had an uncanny knack for choosing the wrong accountants. Though he disclosed his gifts and accounts to his first CPA, the dummkopf advisor advised Schwarzbaum that, because they were located outside the United States, they were not required to be reported to the US government.
Not to be outdone, his next überdummkopf CPA, likewise informed him that the gifts and accounts were not reportable unless they had a “connection to United States.” Seeing as Schwarzbaum was a US citizen at the time, this was doubly bad advice. Not dissuaded by common sense, Schwarzbaum believed them, later arguing that their advice “made sense to him because it was consistent with the tax laws of other countries in which he lived where taxation is based on residency, not citizenship” (Schwarzbaum, Initial Brief for Appellant, 22-14058 at 10 (11th Cir. 2023)). This position is a curious one, as during the years at issue (2007-2009), Schwarzbaum was both a resident and a citizen of the United States.
Monica Toth’s father fled his home in Germany in the 1930s to escape the swell of violent antisemitism and settled in Argentina like many German emigrants did…such as Adolf “World’s Most Wanted Nazi” Eichman and Josef “Angel of Death” Mengele, to name just a few. Like the elder Schwarzbaum, Toth’s father banked in Switzerland, the financial headquarters for his company and because he felt Switzerland had been good to those who fled the Nazis during World War II.
Before his death in 1999, Toth’s father gave several million dollars to her in a Swiss bank account. “He encouraged his daughter to keep the money there—just in case” (Toth v. United States, 143 S. Ct. 552, 552 (2023)). She followed her father’s advice even as she aged and became a grandmother.
When Toth found herself in the District Court of Massachusetts, she was an eighty-year-old grandmother. Not deterred by Father Time, and despite having a Swiss bank account that held $4,347,406 in 2007, Toth was the epitome of a do-it-yourself granny and a cautionary tale that attorney’s fees are often a bargain compared to the costs of the foibles of a penny wise, pound foolish pro se litigant.
She received notice from UBS in 2010 that her account was within the scope of a 2009 treaty between Switzerland and the United States, which required Swiss banks to report the names of US holders of numbered Swiss bank accounts. Taking no heed, but embittered at UBS for other matters, she contacted the IRS in 2010 bemoaning the fact that she believed UBS was not withholding taxes on her behalf. At that time, the IRS strongly advised her to file FBARs.
Ever the epistolarian, Toth wrote to the Treasury Department in early November 2010 enclosing an FBAR and stating that she recently learned that filing an FBAR was required. The IRS received the November 4, 2010, letter and accompanying FBAR on November 8, 2010. At the time of receipt, the IRS had not yet been alerted to Toth’s UBS Account pursuant to the treaty.
Toth wrote again to the Treasury Department in late November 2010 and enclosed five completed FBAR forms for the calendar years 2005-2009. Unfortunately, the letter and FBARs were received by another government agency, decidedly not the IRS. Not unsurprisingly, the other agency was rather befuddled as to why it received these financial forms, and, having no idea what they were, failed to forward Toth’s FBARS to the IRS. Eight months after Toth’s abortive attempt to file her FBARs, the IRS notified her that she was subject to an audit (Toth v. United States, Initial Brief for Appellant, 21-1009 at 7 (1st Cir. 2021)). Toth represented herself during the audit and appeal, as she would until sanctioned by the district court for discovery violations, inter alia.
Willfulness in the FBAR Context
The Bank Secrecy Act, 84 Stat. 1118 (1970), requires US persons with a financial interest in or signature authority over foreign financial accounts exceeding $10,000 to annually file an FBAR with the Financial Crimes Enforcement Network (“FinCEN”). Failure to comply with these reporting obligations can lead to Brobdingnagian civil penalties, particularly in cases involving “willful” violations. As the congressional records attest, these penalties were designed to serve as both a deterrent and a means for the government to ensure compliance with offshore tax reporting obligations.
Non‑willful FBAR violations generally occur when a taxpayer negligently fails to file an FBAR due to a misunderstanding of the requirements or an unintentional oversight. In such cases, penalties are typically capped at $10,000 per failure to file the FBAR rather than per account (See Bittner v. U.S., 598 U.S. 85 (2023); see also Scott St. Amand, A Romanian Walks Into an FBAR: Supreme Court to Decide Non-Willful FBAR Penalties in ‘Bittner’, 63 Tax Mgmt. Memo. No. 26, 382 (Dec. 19, 2022)). However, when a violation is deemed willful, a tremendously low standard, the penalties become draconian—the greater of $100,000 or 50% of the balance of the account(s) at the time of the violation.
In the FBAR context, “willfulness” is interpreted very broadly—encompassing both knowing violations and a “reckless disregard” for reporting obligations. What’s more, courts are inclined to not require direct evidence of intent but to “infer” willfulness from circumstantial evidence. The broad interpretation and influence of circumstantial evidence heft an exceptionally heavy burden onto taxpayers, and most accused of willfulness fail to shrug off the weight of being labeled “willful.”
Split Circuits
In Schwarzbaum, after much back and forth, the Southern District of Florida found that Schwarzbaum was willful and imposed a nearly $13 million penalty. On appeal, he cried foul, arguing that the penalties were punitive and warranted Eighth Amendment scrutiny. The Eleventh Circuit agreed, in part, setting a new precedent for judicial oversight in FBAR enforcement.
In Toth, the IRS imposed a penalty of $2.17 million, equal to 50% of the balance in her undisclosed Swiss account. Toth also argued that the penalty was excessive and punitive rather than remedial, but the District Court of Massachusetts disagreed. On appeal, the First Circuit affirmed, holding that FBAR penalties were merely regulatory in nature and that the Excessive Fines Clause did not apply. The court reasoned that the penalties were intended to enforce compliance rather than to punish, rejecting Toth’s argument that they should be subject to a constitutional proportionality analysis.
The Eleventh and First Circuits’ decisions present fundamentally opposing views on the nature of willful FBAR penalties. The Schwarzbaum court acknowledged that such penalties could have a punitive effect and, therefore, required Eighth Amendment scrutiny. In contrast, the Toth court maintained that FBAR penalties are purely remedial and declined to consider their proportionality under the Constitution. The Schwarzbaum decision introduces judicial oversight of excessive penalties, while Toth reinforces broad IRS discretion in penalty assessments.
This circuit split has significant consequences for taxpayers. Under Schwarzbaum, taxpayers in the Eleventh Circuit may now have a constitutional defense against excessive FBAR penalties, forcing courts to consider whether fines are proportionate to the offense. Meanwhile, under Toth, taxpayers in the First Circuit remain subject to the full weight of the IRS’s penalty structure with no constitutional recourse. This discrepancy highlights the need for Supreme Court resolution to establish a uniform standard on whether willful FBAR penalties must comply with the Eighth Amendment.
A Brief Procedural History of Schwarzbaum
Between tax years 2006 and 2009, Schwarzbaum had an interest in eleven Swiss bank accounts and two Costa Rican bank accounts. His 2006 and 2007 FBARs disclosed only a single foreign bank account, and he failed to file his 2008 FBAR until December 2011. His 2009 FBAR disclosed a single Swiss account and two others.
In 2010, he became aware that he was in violation of the FBAR requirements, and so he disclosed his foreign accounts through the IRS’s Offshore Voluntary Disclosure Initiative for 2003 through 2010. Smart move, Isac. Ultimately, and for unknown but tremendously myopic and ultimately costly reasons, he opted out of the IRS’s leniency program, and his case was referred to the IRS for investigation. Following the investigation, the IRS determined that Schwarzbaum willfully violated the FBAR reporting requirements for the 2006-2009 tax years. Dummkopf.
Although the FBAR regulations require penalties to be calculated based on the balance of the account on June 30th of the year being reported pursuant to 31 U.S.C. § 5321(a)(4)(D)(ii), the IRS used the highest aggregate balances during the year, arriving at an initial aggregate penalty of $35.4 million. Even though the IRS ultimately mitigated the penalty, Schwarzbaum challenged the penalty amount, arguing that the IRS failed to use the proper account balances as a starting point.
The Southern District of Florida found that, although Schwarzbaum did not knowingly violate the FBAR reporting requirements, he did so with “willful blindness” or “recklessness” because, after reading the FBAR instructions and self-preparing his own FBAR in 2007, he was aware, or should have been aware, of a high probability of tax liability with respect to his unreported accounts. Throwing a bone to Isac, the district court found that the IRS had used the wrong values and took it upon itself to recalculate the penalties.
On appeal, the Eleventh Circuit affirmed both the finding of willfulness and the district court’s conclusion that the penalties were not in accordance with the FBAR statute because the IRS had used the wrong base numbers in its calculation. The IRS recalculated the penalties to correct the error in the original calculation and returned a corrected (and unmitigated) aggregate penalty in the amount of $13.5 million—7.7% higher than the original penalty ( Schwarzbaum at 13).
In its infinite administrative grace, however, the IRS asked that the district court forgo the difference in the revised penalty and limit judgment to the original penalty amount of $12.6 million…plus interest…and failure-to-pay penalties ( Id.). As before, Schwarzbaum appealed to the Eleventh Circuit, arguing that the penalty violated the Eighth Amendment Excessive Fines Clause.
History of “Punitive” FBAR Penalties
Congress enacted the FBAR filing requirement in 1970 after hearing testimony that US law enforcement agencies had difficulty obtaining account information from foreign authorities regarding criminals that were using secret foreign bank accounts for untoward and illegal purposes. In a statement to Congress in 1970, Robert M. Morgethau, the United States Attorney for the Southern District of New York, observed that “in addition to the usual difficulties attending to the detection of criminal conduct in financial transactions, we have here the added obstacle of the use of secret foreign accounts to avoid discovery...where criminals have made such extraordinary efforts to cover their tracks, we must respond with equal vigor to uncover them” (H.R. Rep. No. 241-3, at 27, 50 (1970)).
In the same year, Eugene T. Rossides, the Assistant Secretary of the Treasury for Enforcement and Operations observed that the “overall aim” of the FBAR reporting requirements was “to build a system to combat organized crime and white-collar crime and to deter and prevent the use of secret foreign bank accounts for tax fraud and their use to screen from view a wide variety of criminally related financial activities” (Foreign Bank Secrecy: Hearings on S. 3678 and H.R. 15073 Before the S. Subcomm. on Financial Institutions, Comm. on Banking and Currency, 91st Cong. 2nd Sess. at 170 (1970) (emphasis added)).
Although a criminal penalty already applied to those who willfully failed to report the existence of a foreign account on a tax return, Treasury Department officials testified that a less-severe civil penalty would be easier to assert and potentially less likely to violate the US Constitution than penalties that were criminal in form and substance. One commentator noted that "[c]ivil penalties can be imposed administratively and there are cases where it might be appropriate to impose a civil penalty where imposition of a criminal penalty…could raise evidentiary or constitutional problems” (Foreign Bank Secrecy: Hearings on S. 3678 and H.R. 15073 Before the S. Subcomm. on Financial Institutions, Comm. on Banking and Currency, 91st Cong. 2nd Sess. at 152 (1970) (statement of Robert Cole, Special Assistant for Int’l Affairs, Treas. Dept.) (emphasis added)).
Even the Internal Revenue Manual at the time of Schwarzbaum’s violations acknowledged that the maximum statutory penalty for “willful” failures to file an FBAR may be disproportionate to the offense (IRM 4.26.16.4(5) (July 1, 2008) (stating that the penalties may “greatly exceed an amount that would be appropriate in view of the violation”)). Some commentators, including the National Taxpayer Advocate, argued that willful FBAR penalties are so disproportionate and criminal in nature that they were potentially violative of the Excessive Fines Clause (See National Taxpayer Advocate, Annual Report to Congress: Foreign Account Reporting, 331, 335 (2014)).
Although in rem forfeitures to the government are less likely to be found to be punitive than civil penalties, which “simply compensate the [g]overnment,” their treatment by federal courts is illustrative as to whether willful FBAR penalties are criminal in nature (See, e.g., UnitedStates. v. Ursery, 518 U.S. 267, 284 (1996)). In Austin v. United States, 509 U.S. 602, 610 (1993), the Supreme Court explained that it “need not exclude the possibility that a forfeiture serves remedial purposes to conclude that it is subject to the limitations of the Excessive Fines Clause” (Id.). Instead, the Court must only “determine that [the forfeiture] can only be explained in part to punish” (Id.).
The Long History of the Excessive Fines Clause
The Eighth Amendment provides that "[e]xcessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” According to the Supreme Court, the text was adopted “almost verbatim, from a provision of the Virginia Declaration of Rights of 1776, which in turn derived from the English Bill of Rights of 1689,” and it was “was intended to curb the excesses of English judges under the reign of James II” (Ingraham v. Wright, 430 U.S. 651, 664 (1977)).
The English Bill of Rights excessive fines prohibition was not a novel concept; it was, instead, a codification of a much older tradition prohibiting disproportionate fines dating back to the Charter of Liberties of Henry I, issued in 1101. The Charter provided that "[i]f any of my barons or men shall have committed an offence he shall not give security to the extent of forfeiture of his money…but according to the measure of the offence so shall he pay” (Timbs v. Indiana, 586 U.S. 146, 160, 139 S. Ct. 682, 203 L. Ed. 2d 11 (2019) (Thomas, J., concurring)).
A little over a century later, the concept of proportionate penalties was again enshrined in the Magna Carta, which noted in part that "[a] free man shall be amerced for a small fault only according to the measure thereof, and for a great crime according to its magnitude, saving his position” (Id.). As the Charter of Liberties influenced the Magna Carta, so too did the Magna Carta influence the principles underpinning the US Constitution.
The Eighth Amendment, therefore, reflected the Founding Fathers’ fears of the “imposition of torture and other cruel punishments not only by judges acting beyond their lawful authority, but also by legislatures engaged in making the laws by which judicial authority would be measured” (Ingraham, 430 U.S. at 665). By the time that the Bill of Rights took shape, at least eight of the original States that ratified the Constitution already had equivalents to the Excessive Fines Clause within their own State constitutions (Browning-Ferris Indus. of Vt., Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 262 (1989)). Thus, “Congress did not discuss what was meant by the term ‘fines,’ or whether the prohibition had any application in the civil context” (Scwarzbaum at 16 (internal quotations omitted)).
Despite its storied beginnings, the Supreme Court considered the Excessive Fines Clause in the civil context for the first time in Browning-Ferris, a 1989 case in which the Supreme Court was presented with the question as to whether the ambit of the clause encompassed private civil actions. The Court ultimately held that the “Excessive Fines Clause does not apply to awards of punitive damages in cases between private parties” (492 U.S. at 260). Although the Court emphasized that the Eighth Amendment generally concerned “criminal process” and “direct actions initiated by government to inflict punishment,” it declined to hold that the Excessive Fines Clause applied solely to criminal cases (Id. at 260, 263).
The broader question presented in Schwarzbaum—whether the Excessive Fines Clause applies to civil cases between a private party and the government—arose four years later in the case of Austin v. United States, 509 U.S. 602 (1993). In Austin, the Court concluded that because the Excessive Fines Clause limits the government’s power to extract payments, whether in cash or in kind, “as punishment for some offense,” the Court reframed the question, positing that the application of the clause turned not on whether a given fine is “civil or criminal, but rather whether it is punishment” (Id. at 609-10).
The Austin decision established a critical distinction between penalties that were “remedial” versus those that were “punitive.” To escape the scrutiny of the Eighth Amendment, the Court held that a penalty must “fairly be said solely to serve a remedial purpose” (Id. at 610). Expanding on this concept, the Court observed that a penalty would be considered “remedial” if it “removes dangerous or illegal items from society” or serves to compensate the government for a loss or the costs of enforcing the law (Id. at 621). However, if the penalty in any way serves “either retributive or deterrent purposes, [it] is punishment,” and thus subject to the Excessive Fines Clause (Id. at 610 (emphasis added)). One need only look to the congressional testimony cited above to understand that one of the primary purposes of the FBAR penalties was to deter the concealment of foreign assets.
The next development in application of the Excessive Fines Clause to civil penalties arose in the 1998 Supreme Court case of United States v. Bajakajian, 524 U.S. 321 (1998). Like the willful FBAR penalty, the penalty at issue in Bajakajian arose under the Bank Secrecy Act, specifically 31 U.S.C. § 5316(a)(1)(A), which penalizes a US person who fails to report that he was transporting more than $10,000 outside of the United States (Id. at 325).
The government sought civil forfeiture of the entire $357,144 carried by the Bajakajian (Id.). The Supreme Court held this forfeiture was subject to the Excessive Fines Clause because the forfeiture of the unreported currency “serves no remedial purpose, is designed to punish the offender, and cannot be imposed upon innocent owners” (Id. at 332).
The Court in Bajakajian observed that "[t]he additional fact that such a remedial forfeiture also serves to reimburse the [g]overnment for investigation and enforcement expenses is essentially meaningless because even a clearly punitive criminal fine or forfeiture could be said in some measure to reimburse for criminal enforcement and investigation” (Bajakajian, 524 U.S. at 343 n.19 (internal quotations omitted)). Instead, the Court explained that the critical question remained whether the penalty “is designed to punish the offender” and thus serves as “punishment even in part” (Id. at 332, 331 n.6). Thus, even a partially punitive penalty would be “sufficient to bring the forfeiture within the purview of the Excessive Fines Clause” (Id. at 329 n.4). Most recently, in Kokesh v. SEC, the Supreme Court affirmed, albeit in dicta, that a “modern statutory forfeiture is a ‘fine’ for Eighth Amendment purposes if it constitutes punishment even in part” (581 U.S. 455, 467 (2017)).
“In Substantial Measure Punitive in Nature”
In Schwarzbaum, the court was faced with “the fundamental question of whether FBAR penalties are fines within the meaning of the Eighth Amendment’s Excessive Fines Clause” (Schwarzbaum at 3). The court noted that the question was posed and answered in the negative by the First Circuit in Toth; however, "[a]fter careful consideration of the historical development of the Excessive Fines Clause and the FBAR’s text, structure, and history, we decline to follow the First Circuit. Rather, we hold that FBAR penalties are in substantial measure punitive in nature” (Id.). As such, “under controlling Supreme Court precedent, they are subject to review under the Eighth Amendment’s Excessive Fines Clause” (Id.).
Notably, the Eleventh Circuit found only that $100,000 in penalties levied against one account in 2007, 2008, and 2009—a total of $300,000—were “grossly disproportionate to the offense of concealing that account, and [were], therefore, in violation of the Excessive Fines Clause” (Id.). The other penalties levied against the remaining accounts “did not violate the Excessive Fines Clause because [they] were not grossly disproportionate to Schwarzbaum’s willful concealment of tens of millions of dollars in overseas accounts” (Id.).
In Schwarzbaum, the government argued that the purposes of the FBAR penalty is not to deter, but “to remedy the [g]overnment’s investigation and enforcement expenses associated with violations of the FBAR statute” (Id.). However, the court was quick to point out that “the text of the statute mandates that the penalty is calculated irrespective of the magnitude of the financial injury to the United States, if any” (Id. at 20-21 (citing Yates v. Pinellas Hematology & Oncology, P.A., 21 F.4th 1288, 1308 (11th Cir. 2021))). Indeed, the court observed that the government can impose a $1,000,000 penalty on a $2,000,000 account “regardless of whether the [g]overnment spent a million dollars investigating the case or whether it spent nothing at all, or any number in between” (Id. at 21).
Because the penalty is imposed each year and can constitute 50% of the account balance on the date of the violation, “FBAR penalties imposed for willful violations over a series of years could consume an account of any size in its entirety in just two years” (Id. at 23). Although the court’s math is completely incorrect, its judicial heart was in the right place.An account with $1 million, which is penalized 50% in year 1, will be reduced to $500,000.In year 2, a 50% penalty will reduce the account to $250,000, and so on.Notwithstanding sneaky sixth-grade division, the court’s observation that it is “aware of no comparable civil penalty in any other statute and none has been cited to us” is well-founded (and not subject to arithmetic errors) (Id.).
In the context of applying the Excessive Fines Clause to civil forfeiture, the Eleventh Circuit previously held that "[w]here the value of forfeited property bears no relationship to the government’s costs, an inquiry into whether the forfeiture is remedial is not necessary; it is almost certain that a portion of the forfeited property will constitute punishment” (United States v. Dean, 87 F.3d 1212, 1213 (11th Cir. 1996)). The court observed that the very design of 31 U.S.C. §5321 “makes clear that the severity of the penalty is tied directly to culpability,” as a willful violation of the FBAR statute “has a ceiling limited only by the size of the violator’s bank account, regardless of the corresponding tax liability or the time or cost spent by the government remediating the problem” (Schwarzbaum at 22). Provisions that focus on the culpability or mens rea of the defendant make a statutory penalty “look more like punishment, not less” (Austin, 509 U.S. at 619).
The court next looked to the history of the willful FBAR penalty, which was raised in 2004 due to the rampant noncompliance of individuals with reporting obligations. “Congress believed that increasing the prior-law penalty for willful noncompliance with this requirement…[would] improve the reporting of foreign financial accounts” (Staff of Joint Comm. on Tax’n, 108th Cong., General Explanation of Tax Legislation Enacted in the 108th Congress, pt. 17, §VII at 34 (2005)). It was clear to the court that “the purpose of the new penalties was to deter violations of the reporting requirement” (Schwarzbaum at 25). To this end, before a recent change, even the Internal Revenue Manual stated that "[p]enalties should be determined to promote compliance with the FBAR reporting and recordkeeping requirements” (IRM 4.26.16.6 (Nov. 6, 2015)).
“Economic penalties imposed to deter willful noncompliance with the law are fines by any other name. And the Constitution has something to say about them: They cannot be excessive.” (Tyler v. Hennepin County, 598 U.S. 631, 649-50 (2023) (Gorsuch, J., concurring)). Simply put, at least for the purposes of the Eighth Amendment, “deterrence is punitive in nature, not remedial” (Bajakajian, 524 U.S. at 329; see also Austin, 509 U.S. at 620 (noting that the characterization of a penalty as a “powerful deterrent” “confirm[ed] the punitive nature of these provisions”). “Whether we look at the text and structure of the statute…or at the deterrent reasons Congress has articulated…by every reasonable measure, the FBAR penalty has a powerful punitive purpose” (Schwarzbaum at 26 (alliteration in original)).
It is important to note that Schwarzbaum did not make “any facial challenge on the FBAR penalty scheme as a whole,” so the Eleventh Circuit did not question the constitutionality of the willful FBAR penalty itself. The only question before the court was whether the fines imposed were excessive as to Schwarzbaum. Consequently, the court delved into each of the annual FBAR penalties assessed against his accounts.
Principal Principle of Proportionality
The Supreme Court in Bajakajian observed that "[t]he touchstone of the constitutional inquiry under the Excessive Fines Clause is the principle of proportionality: The amount of the [penalty] must bear some relationship to the gravity of the offense that it is designed to punish” (524 U.S. at 334). A fine or monetary penalty will violate the Excessive Fines Clause if it is “grossly disproportional to the gravity of a defendant’s offense” (Id.).
The Eleventh Circuit noted that translating the gravity of an offense into monetary terms in order to determine if it is proportionate to the penalty “is not a simple task” (Schwarzbaum at 30). Not one to back away from a challenge, the Eleventh Circuit identified three non-exhaustive factors that the court uses to gauge proportionality: "(i) whether the defendant is in the class of persons at whom the statute was principally directed; (ii) how the imposed penalties compare to other penalties authorized by the legislature; and (iii) the harm caused by the defendant” (Id. (citing Yates, 21 F.4th at 1314)).
Schwarzbaum argued that the court’s proportionality analysis should look to the proportionality of the total aggregated fine. The court was not persuaded. Instead, the court found that the penalty for willful violations of the FBAR rules require a proportionality analysis be conducted on an account-by-account basis rather than a report-by-report basis as is proper for non-willful violations (See Scott St. Amand, A Romanian Walks Into an FBAR: Supreme Court to Decide Non-Willful FBAR Penalties in ‘Bittner’, 63 Tax Mgmt. Memo. No. 26, 382 (Dec. 19, 2022)). Specifically, the language in the FBAR penalty statute provides that a violation occurs for the “failure to report the existence of an account” and that the penalty is determined by the “balance of the account at the time of the violation” (31 U.S.C. §5321(a)(4)(D)(ii)).
The willful violation-by-violation (account-by-account) proportionality analysis for willful violations accords with Eleventh Circuit precedent: “when penalties accrue on a violation-by-violation basis, courts should examine each penalty in proportion to each violation, rather than the cumulative total” (See Moustakis v. City of Fort Lauderdale, 338 Fed. App’x 820, 822 (11th Cir. 2009)). When the court examined each penalty assessed between 2007-2009, one Swiss account with Aargauische Kantonalbank gave the court pause. The balances of the account on the dates of the violations (June 30th) never exceeded $12,000, yet Schwarzbaum was penalized $100,000 for each year. Not mincing words, the court found that "[t]he penalty levied against the Aargauische account is constitutionally excessive in all three years at issue” (Schwarzbaum at 32). The court further observed that "[a] fine that is over eight times the amount in the account on the day of the assessment, and over six times the greatest amount ever held in the account, constitutes an excessive penalty” (Id. at 33).
The court noted that the government had the discretion to assess a proportionate penalty for the account; instead, the government sought the maximum statutory willful penalties (Id. at 35 (stating "[n]othing forbade the Government from assessing a penalty proportionated to the nature and extent of the violation on the Aargauische account in each year,” and that "[i]nstead…the Government sought the statutory maximum…each time”)). As such, there was “little doubt in [the court’s] mind that each of these penalties is grossly disproportionate,” and therefore “constitutionally excessive” (Id.). Critically, however, the court also found that "[t]he penalties assessed on the remainder of the accounts…raise no proportionality problems” (Id.).
The court was faced with two interesting problems with respect to eight of the accounts: between 2007 and 2009, the June 30th balances of five accounts were unknown, and three were closed prior to June 30th; however, for each of these eleven accounts, their maximum values during the years at issue were known and were very, very large. Nonetheless, for these accounts, because the June 30th balances were unknown, or the accounts were closed, the government assessed only $100,000 penalties. The court opined that the unknown June 30th value “does not necessarily hamstring a proportionality analysis comparing the amount of currency in the account to the $100,000 penalty” (Id. at 35-36).
The court observed that “the harm Congress sought to ameliorate” was not associated with the June 30th account balance, but rather “the amount concealed in the account during the reported tax year,” which could be determined by looking at the maximum value of the account during the year (Schwarzbaum at 36). “As the maximum balance concealed in the bank account during the tax year increases, so does the gravity of [the reporting violation]” (Id.).
Harkening back to Bajakajian, the court observed that the proportionality analysis turns on “the gravity of the offense itself” (Id. (citing Bajakajian, 524 U.S. at 334)). Additionally, “the principle that greater harm yields a greater penalty” is common throughout US civil and criminal statutes (Id. at 40). Thus, the court found that if the June 30th value is unknown, or the account was closed prior to June 30th, the 50% penalty will not apply, and the proportionality of the $100,000 penalty will be tested against the maximum value of the account during the year, i.e., the amount of funds concealed by failing to report the account.
The court also considered Schwarzbaum’s argument that the proportionality of the total penalty assessed against Schwarzbaum—$12,555,813—must be tested in the aggregate for proportionality. The court seemed to chide Isac, finding that “the aggregate penalty is not grossly disproportionate to [his] willful years-long concealment of tens of millions of dollars in many overseas bank accounts…in two separate countries” (Id. Forshame, Isac. Forshame).
In so finding, the court affirmed its prior prescient postulation that when the cumulative cost of culpability is made up of a plenitude of proportionate penalties, the plenary punishment is plainly “proportionate to the [peccadillo]” (Id. at 48 (citing Moustakis, 338 F. App’x at 822) (alliteration aptly added)). Simply stated, when the parts of the penalty are proportionate, the whole of the aggregate penalty will likewise be proportionate. Additionally, "[t]he presumption of constitutionality is particularly strong when the specific penalty sought by the Government is less than the statutory maximum” (Id.). In Schwarzbaum, the aggregated maximum statutory penalty ($13,521,328) was nearly $1 million more than the amount ultimately assessed by the government ($12,555,813).
Recall also that the court, in part, based its determination that the willful FBAR penalty was punitive and, therefore, subject to the Excessive Fines Clause was based on the “deterrent effect” of the willful penalty rather than its “remedial effect.” In doing so, the court found that Congress’s decision to base the size of the willful FBAR penalty on the size of the account was “particularly rational where, as here, a fundamental purpose of the penalty is deterrence” (Id. at 41). This must have come as a gut punch to Schwarzbaum, because his success in invoking the Excessive Fines Clause on the basis of its “deterrent” effect ultimately came to bite him, since it was the deterrent effect that justified the size of the penalty.
The court reaffirmed that it was “not considering the constitutionality of any hypothetical 50% penalty applied year after year” but instead was faced only with the question of “whether the penalties here [were] grossly disproportionate as applied to Schwarzbaum” (Id. at 46 (emphasis in original)). As if dangling a carrot before eager taxpayers and practitioners alike, the court noted in passing that it had “no trouble imagining situations where [the 50%] penalty would be clearly excessive” (Id.).
Because the court emphasized that Schwarzbaum engaged in “serious offenses of willfully concealing [multiple] foreign bank accounts containing many millions of dollars,” (Id. at 47) perhaps the court is referring to situations where the number of violations is low, and the aggregate values of the account are less than $1 million. Unfortunately, although the opinion’s dicta leaves the door cracked ever so slightly open to future Eighth Amendment challenges to the 50% penalty, the court offers no clues as to which “situations” would render such penalty to be considered excessive.
Foreboding Future Challenges to Disproportionate “Civil” Penalties
The stark divergence between the Schwarzbaum and Toth decisions highlights the growing legal uncertainty surrounding willful FBAR penalties. The Eleventh Circuit’s willingness to engage in a limited Eighth Amendment Excessive Fines analysis contrasts sharply with the First Circuit’s categorical rejection of constitutional review. This circuit split leaves taxpayers in different jurisdictions facing inconsistent legal standards—with some having access to limited constitutional defenses against willful FBAR penalties, while others remain subject to the IRS’s full penalty discretion without constitutional recourse.
The Schwarzbaum decision could carry significant implications for tax enforcement. While it clearly opens the door—albeit, just enough to see light on the other side—for further legal challenges to excessive FBAR penalties, it remains to be seen whether courts outside of the First Circuit will be inclined to adopt the Eleventh Circuit’s finding that the penalties are punitive rather than remedial, thereby engaging in the necessary proportionality analysis. If, on the other hand, courts follow the Toth decision, they will preserve the government’s broad discretion to impose crushing penalties, thereby reinforcing the argument that compliance-based enforcement mechanisms should remain unencumbered by constitutional constraints.
As courts, policymakers, and practitioners grapple with the implications of these conflicting rulings, one question looms large: Does the Excessive Fines Clause serve as a check on the IRS’s penalty power, or do willful FBAR penalties exist in a constitutional void? The answer may ultimately lie with the Supreme Court, which may be called upon to resolve this circuit split and to provide a definitive ruling on the constitutional limits of willful FBAR penalties.
The Eleventh Circuit’s reasoning in Schwarzbaum aligns with foundational constitutional principles that safeguard individuals from disproportionate financial penalties. The court correctly recognized that willful FBAR penalties serve an important deterrent function, and their application may cross into excessive punitive territory. By applying Eighth Amendment scrutiny, the court reinforced the need for proportionality in tax enforcement, ensuring that penalties are not wielded as an instrument of financial devastation but rather as a means to encourage compliance. One wonders, however, what the distinction is between penalties that “encourage compliance” (a remedial penalty), and penalties that “discourage non-compliance” (a deterrent, punitive penalty)?
The Eleventh Circuit’s approach promotes consistency and judicial oversight in an area historically dominated by broad administrative discretion. The IRS’s ability to impose willful FBAR penalties without meaningful checks has led to significant disparities in enforcement. Recognizing these penalties as potentially excessive fines introduces a necessary judicial counterbalance, preventing arbitrary and excessive punishment while preserving the government’s ability to deter tax evasion. By affirming that taxpayers have a constitutional defense against disproportionate penalties, the Eleventh Circuit’s decision in Schwarzbaum provides a framework for fairer and more just FBAR enforcement.
Justice Gorsuch’s dissent to the denial of certiorari to the First Circuit’s decision in Toth offers insight into how the Supreme Court might approach this issue (See Toth v. United States, 143 S. Ct. 552, 552 (2023) (Gorsuch, J., dissenting)). Gorsuch strongly criticized the First Circuit’s reasoning, arguing that the court ignored established Supreme Court precedent which recognized that even putative “civil” penalties can, in fact, be punitive and, therefore, subject to the Eighth Amendment’s protections. He emphasized that labeling a penalty as “civil” does not automatically exempt it from constitutional scrutiny, pointing to cases such as Austin and Bajakajian, which each held that monetary sanctions serving even a partially punitive purpose prompt review under the Excessive Fines Clause (Id. at 553). Indeed, Gorsuch noted that “the notion of ‘nonpunitive penalties’ is ‘a contradiction in terms’” (Id. (citing Bajakajian, 524 U.S. at 346 (Kennedy, J., dissenting)).
Gorsuch also raised concerns that the First Circuit’s ruling in Toth sets a dangerous precedent by allowing the government to impose massive financial penalties without any meaningful judicial oversight (Id.). He warned that unchecked civil penalties could serve as a backdoor means for revenue generation rather than genuine regulatory enforcement (Id.). The final sentence of his dissent is, perhaps, the most portentous for taxpayers: “As things stand, one can only hope that other lower courts will not repeat [the First Circuit’s] mistakes” in Toth (Id.).
Justice Gorsuch’s dissent suggests that, should the Supreme Court take up this issue, the textualist conservative majority may be inclined to follow the Eleventh Circuit’s reasoning in Schwarzbaum, ultimately concluding that willful FBAR penalties must be examined for proportionality under the Eighth Amendment Excessive Fines Clause. This analysis aligns with the broader judicial trend of scrutinizing excessive financial penalties and ensuring they do not become tools of government overreach rather than legitimate deterrents to noncompliance.
Importantly, Gorsuch’s dissent is written in broad strokes. Rather than focusing only on willful FBAR penalties, Gorsuch couched his criticism of Toth in terms of all tax penalties that are “punitive economic sanctions” disproportionate to the offense (Id.). As a clear shot across the IRS’s administrative bow, Gorsuch warned that left unchecked, the result in Toth could “incentivize[] governments to impose exorbitant civil penalties as a means of raising revenue” rather than encouraging compliance (Id.).
If Justice Gorsuch’s dissent to the denial of certiorari in Toth presages the Supreme Court’s analysis of excessive penalties, Schwarzbaum may prove the progenitor of constitutional challenges to tax penalties, civil forfeitures, and other statutes where the monetary enforcement of the statutes that may be deemed disproportionate to the underlying offense. However, before practitioners begin to argue that all civil tax penalties should be subject to a proportionality review, we must remember that the question presented to the Eleventh Circuit in Schwarzbaum was very narrow, and the opinion’s analysis of the application of the Excessive Fines Clause is likewise limited. Although the decision could open the door to the constitutional scrutiny of other non-remedial “civil” penalties, it will not likely come before the Supreme Court in the Schwarzbaum appeal.
It is important to note that the First Circuit’s error in Toth was not to uphold her penalty. Instead, the court failed to recognize that the willful FBAR penalty was punitive in nature. Even if the court had engaged in a proportionality analysis, even under the Schwarzbaum standard, it is likely that the First Circuit would have found Toth’s penalty to be proportionate to her offense. Because of this, the Supreme Court’s decision will not necessarily absolve Toth of her penalties, nor will it likely provide substantial relief to Schwarzbaum even if the Court determines that the Eleventh Circuit’s decision is the correct one.
Whether Schwarzbaum is appealed to the Supreme Court remains to be seen. Given the circuit split, however, it is only a matter of time before the Court weighs in on the Eighth Amendment implications of willful FBAR penalties. Even if Schwarzbaum is appealed by the government, recall that the question of whether the willful FBAR penalty, itself, violates the Excessive Fines Clause was not brought before the Eleventh Circuit; therefore, determining that the penalty violates the Eighth Amendment is likely outside the scope of the Supreme Court’s review.
Notwithstanding the narrow question and result, Schwarzbaum will likely have a lasting effect on not only FBAR litigation but more broadly on the litigation of tax penalties before the Tax Court and Circuit Courts—though the latter arguments will likely not have any merit in all but the most egregious scenarios. (This does not mean that the case will not give the Office of Chief Counsel fits over the next few years.) Nonetheless, we will continue to observe the evolution of the courts’ interpretation of FBAR violations and penalties, in case the Supreme Court goes rogue and determines the whole regime to be constitutionally improper.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Scott St. Amand is the head of the tax controversy department of Fisher, Tousey, Leas & Ball, P.A., in Jacksonville, Florida. He is a Florida Bar Board Certified Tax Attorney. Scott earned his LL.M. in Taxation from the University of Florida, his J.D. from the University of Richmond, and his B.A. from Wake Forest University. He is the founder and editor of the blog Briefly Taxing, which offers an insightful yet humorous take on taxes.
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