Academic journal article The William and Mary Bill of Rights Journal

The Eighth Amendment and Tax Evasion: Whether Fatca Non-Compliance Fines and Fbar Penalties Are Excessive

Academic journal article The William and Mary Bill of Rights Journal

The Eighth Amendment and Tax Evasion: Whether Fatca Non-Compliance Fines and Fbar Penalties Are Excessive

Article excerpt

INTRODUCTION

Globalization and technological development have contributed to one of the most pressing issues in the United States-offshore tax evasion.1 Although it is difficult to estimate the exact amount of revenue losses from offshore tax abuses, the United States loses approximately $100 billion per year from offshore tax evasion.2 The problem was highlighted in 2008 when the United States Department of Justice's Tax Division investigated Switzerland's largest bank, UBS AG.3 In 2009, UBS AG admitted to defrauding the United States by impeding the Internal Revenue Service's (1RS) collection of tax revenues from U.S. taxpayers and paid $780 million in fines, penalties, interest, and restitution to the United States.4 More recent than the UBS AG scandal, the Tax Division has assisted the investigation of many other prominent banks throughout the world that have conspired to defraud the United States.5 As of the end of August 2015, more than twenty major Swiss banks reached non-prosecution agreements with the Department of Justice.6

Despite successful attempts at reigning in foreign banks, however, the United States unilaterally responded to the global problem. Congress enacted the Foreign Account Tax Compliance Act (FATCA) in 2010,7 veiled as the funding mechanism for the Hiring Incentives to Restore Employment Act (HIRE Act).8 FATCA enlists foreign financial institutions to provide specific information directly to the 1RS re- garding financial accounts that are held by either U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest.9 Moreover, foreign financial institutions that fail to comply with the reporting obligations incur a withholding tax on a variety of withholdable payments from the United States.10 1RS Commissioner John Koskinen recently stated that the 1RS "owe[s] it to the vast majority of honest U.S. taxpayers to tirelessly search for and prosecute those who dodge paying their fair share and the unprincipled professionals who assist them.""

FATCA serves as an important weapon that is necessary to combat offshore tax evasion;12 however, it teeters on the edge of constitutionality like many other powerful policy mechanisms.13 FATCA's admirable purpose is undermined by its questionably blatant disregard for the U.S. Constitution.14 An essential part of FATCA is to encourage voluntary compliance with U.S. tax laws,15 yet it aims to deter offshore tax evasion via substantial penalties relative to the assets that U.S. taxpayers must disclose on Form 8938,16 regardless of willfulness.17 Andrew Quinlan stated that "FATCA remains both politically and legally vulnerable, and ultimately represents a doomed effort to treat the symptoms of the tax code's many inadequacies rather than root causes."18 Quinlan cited three constitutional objections to FATCA that U.S. attorney Jim Bopp has now argued,19 one of which is that both FATCA and FBAR violate the Eighth Amendment's Excessive Fines Clause.20 On July 14,2015, attorneys Jim Bopp and Justin Me Adam filed a complaint in the United States District Court for the Southern District of Ohio seeking declaratory and injunctive relief.21 The complaint, however, did not address the argument that FATCA may be unconstitu- tional under the Eighth Amendment with regard to individuals; rather, it focused on the penalties imposed on foreign financial institutions and passthrough entities.22 Although FATCA is the most recent policy tool for combating tax evasion, the Report of Foreign Bank and Financial Accounts (FBAR)23 also serves as a powerful tool.

Pursuant to the Currency and Foreign Transactions Reporting Act of 1970, which is commonly referred to as the Bank Secrecy Act (BSA), all United States financial institutions must assist the U.S. government in detecting and preventing money laundering and tax evasion.24 Under the BSA, U.S. financial institutions must retain records of cash purchases of negotiable instruments, file reports of cash transactions that exceed $10,000 (daily aggregate amount), and report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. …

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