First, Do not bring an excessive fines case unless you are the perfect plaintiff.
One of Mr. Bussell’s claims was the $1.2 million willful FBAR penalty was an excessive fine in violation of the 8th Amendment. Now, allow me to editorialize: Of course it is excessive. It is wildly excessive. If the Framers of the Constitution were alive they would likely advocate for tar and feathers for the responsible government employees. But a lot has changed since the Bill of Rights was ratified. Namely, it is difficult to win an 8th Amendment excessive fines claims…and it is nearly impossible with these facts:
- In 2002, Ms. Bussell was convicted on charges involving making false statements in a bankruptcy proceeding and of tax fraud. She was ordered to pay $2.3 million in restitution.
- In 2006, she failed to file an FBAR and was penalized.
Do you see how the court would not look at her sympathetically? This is someone who was previously found guilty of Title 18 and Title 26 felonies and was assessed a $2.3 million (later lowered to $1.2 million) restitution order.
In order to prevail on an excessive fines claim, the taxpayer needs to be incredibly sympathetic. I think the court looked at Ms. Bussell as someone who just doesn’t get it.
The court stated the rest of her claims did not have merit. The interesting thing to note is that this decision is completely silent on the main issue litigated in FBAR cases — whether the taxpayer was willful or not. Bussell never raised the willfulness argument. We wonder if she might have actually been non-willful. Why would someone who has plead guilty and is under a supervised release want to avoid filing their FBAR? What possible advantage did she think she would have by not filing this form?
This case may be very similar to Williams. In Williams, the defendant plead guilty to tax evasion involving an unreported Swiss account. While the criminal case was pending, Mr. Williams did not file an FBAR that was due for the current year. Then, the government assessed him with a willful penalty violation — even though the government knew full well of the Swiss account as it was the account he was pleading guilty to using!
The two FBAR cases the IRS relies on when imposing Willful FBAR penalties are are Williams, and McBride (a Utah district Court decision). And still, the government continues to rely on the dissent in US v. Ratzlaf on the issue of Title 31 willfulness. Why? Because the bulk of appellate and Supreme Court decisions do not quite support the IRS’s idea of what willful and non-willful mean.
We expect to see the IRS now rely on this 9th Circuit case even though it has little precedential value for the bulk of FBAR penalty claims, as the IRS does not have much law to choose from.
If you are concerned about yours or your clients FBAR penalty potential or assessment, please contact us after reviewing how we help with some of the most common FBAR penalty issues. Call us at 888-727-8796 or email firstname.lastname@example.org.
The Court’s judgment follows.
* * *
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA,
Appeal from the United States District Court
for the Central District of California
S. James Otero, District Judge, Presiding
Argued and Submitted October 6, 2017
Before: M. SMITH, MURGUIA, and NGUYEN, Circuit Judges.
Defendant-appellant Letantia Bussell appeals the district court’s decision
granting partial summary judgment in favor of the government. We have
jurisdiction under 28 U.S.C. § 1291, and we review the district court’s decision de novo. Szajer v. City of Los Angeles, 632 F.3d 607, 610 (9th Cir. 2011).
In June 2013, 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 admits that she willfully failed to disclose her financial interests in her overseas account on her 2006 tax return, but she raises several arguments seeking reversal of the district court’s summary judgment ruling.
1. First, Bussell contends that the IRS’s penalty against her violates the
Eighth Amendment Excessive Fines Clause. Bussell bears the burden to prove that the fine against her violates the Constitution. See United States v. $132,245.00 in U.S. Currency, 764 F.3d 1055, 1058 (9th Cir. 2014) (explaining that the claimant has the burden of establishing that the forfeiture is grossly disproportional to the offense). Generally, “a punitive forfeiture violates the Excessive Fines Clause if it is grossly disproportional to the gravity of a defendant’s offense.” United States v.Bajakajian, 524 U.S. 321, 334 (1998).
Bussell relies on Bajakajian, for her position that the government’s
assessment against her is “grossly disproportional” to the gravity of her defense, 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. See United States v. Mackby, 339 F.3d 1013, 1017–18 (9th Cir. 2003). Therefore, Bussell has failed to carry her burden to establish that the penalty is grossly disproportional to her offense.
2. Bussell also asserts that the government violated the statute of
limitations by failing to bring its claim earlier. The applicable statute of limitations is six years. 31 U.S.C. § 5321(b)(1). 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. Therefore the government did not violate the statute of limitations.
3. 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 Bussell is not entitled to relief under this theory.
4. 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. See Kansas v. Hendricks, 521 U.S. 346, 370 (1997). Because the Ex Post Facto clause does not apply to civil statutes unless they have a punitive purpose or effect, see Smith v. Doe, 538 U.S. 84, 92 (2003), it is not applicable here.
5. 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. 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, see Mackby, 339 F.3d at 1017–18 (explaining the penalties available under the False Claims Act, 31 U.S.C. §§ 3729–3733), Bussell has not shown that the district court erred in reviewing the assessment against her.
7. 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.” Chevron, U.S.A., Inc. v. United States, 705 F.2d 1487, 1491 (9th Cir. 1983); see Costello v. United States, 365 U.S. 265, 281 (1961) (noting that the Court has “consistently adhered” to the principle that “laches is not a defense against the sovereign”). Therefore, Bussell’s laches defense is inapplicable here.
8. 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, see United States v. Mann, 829 F.2d 849, 852 (9th Cir. 1987), Bussell is not entitled to relief under this theory.