From the Tax Law Offices of David W. Klasing: Recent U.S. Supreme Court Decision Could Change the Landscape of Certain Excessive Federal and State Tax Penalties and Premature Seizure Actions

IRVINE, Calif., Feb. 26, 2019 /PRNewswire/ -- Imagine a situation where you have been accused of a crime, but because you did not commit the crime, you have not been charged. Now imagine the government seizing property that is even remotely connected with the criminal activity that you have not been charged with committing. Finally, imagine the government selling that property and keeping the profit. This is a technique called civil asset forfeiture at its worst. And it's not just the police that use civil asset forfeiture. Unfortunately, taxpayers are at risk of the IRS, Department of Justice, and state taxing authorities seizing their assets, too. Luckily, the U.S. Supreme Court recently dealt a blow to states attempting to use civil asset forfeiture in an excessive manner.

Civil asset forfeiture is a method used by federal, state, and local law enforcement officials and government agencies to seize property that they believe is connected with criminal activity. Because the burden of proof in civil matters is much lower than in criminal cases, the government has been successful in seizing the property of citizens for years. In many cases, the value of the property seized appears to be significantly higher than what would seem to be commensurate for the crime the individual was accused of.

A prime example of asset forfeiture in the tax context is Foreign Bank Account Reporting (FBAR) penalties for those who have been accused of failing to report in accordance with the Bank Secrecy Act. If the government finds that a taxpayer willfully failed to comply with FBAR laws, the government asserts that they have the right to half of the value of the high-balance of the account for the year of noncompliance. For taxpayers with accounts with million-dollar balances, the financial penalty if often disproportionate to the amount of loss that the government has suffered due to the taxpayer's purported tax noncompliance.

In Timbs v. Indiana, the Court unanimously agreed that the 8th Amendment to the U.S. Constitution applies to the states (through the 14th Amendment) and prevents excessive fines. Timbs could be a major win for taxpayers on both the federal and state fronts and the disposition in Timbs is likely to reignite litigation about what constitutes excessive fines and penalties. For those who are facing a massive Federal or State penalties or asset seizures, this line of litigation should be of particular interest.  See full version of the article - Here

Public Contact: Dave Klasing Esq. CPA, [email protected]

SOURCE Tax Law Offices of David W. Klasing, PC