$2.3m Penalty for a Swiss Bank Account Might be Excessive, Even When the Account Was Opened in the Name of the Taxpayer’s Dog

The IRS uses huge civil penalties as an aggressive enforcement weapon in the international arena, but an opinion issued by the U.S. Court of Appeals for the 11th Circuit reminds us that the government’s ability to punish is not limitless.

Decided on June 4, 2026, United States v. Eugene Niksich delivered two key findings. While the 11th Circuit agreed with the lower court’s determination that the FBAR failures were willful, they remanded the case back to the District Court to review whether the penalty violates the Eighth Amendment’s Excessive Fines Clause.

A Secret Account Named “Misty”

The litigation stemmed from Niksich’s failure to file complete and accurate FBARs for tax years 2006-2012. The IRS assessed willful penalties based on several key facts:

• Use of Aliases: The taxpayer opened a Swiss account under the name “Misty” (his dog) rather than his own name.
• Active Concealment: He paid the bank a small fee to hold mail related to the account.
• Tax Return Omissions: He either checked “no” or left blank the foreign account disclosure questions on Schedule B of his self-prepared tax returns.

Reckless Disregard Equals Willfulness

On appeal, Niksich argued that his failure was based on a subjective misunderstanding of the law, believing disclosure was only required if the funds were invested. The Court rejected this defense and reaffirmed that “willfulness” in the civil FBAR context is governed by an objective standard that includes reckless behavior. The Court held that Niksich’s pattern of behavior clearly met the threshold for recklessness.

The Eighth Amendment Applies

Despite ruling in the government’s favor on the willfulness issue, the Court reversed the district court’s ruling that civil FBAR penalties are not “fines” and are therefore exempt from Eighth Amendment scrutiny. Building upon its 2025 decision in United States v. Schwarzbaum, the Court reiterated that willful FBAR penalties are punitive in nature because they are tied directly to a taxpayer’s culpability and carry severe financial consequences irrespective of actual revenue loss.

Consequently, they constitute “fines” under the Eighth Amendment. On remand, the District Court must evaluate whether this multi-million-dollar penalty is “grossly disproportionate” to the offense.

The Potential Ripple Effect

International tax practitioners are watching closely to see how this constitutional logic will apply to other draconian civil tax penalties, such as those related to foreign trust reporting (Form 3520). Under § 6677, the penalty for failure to file a timely and complete Form 3520 starts at 35% of the gross reportable amount. If the taxpayer does not rectify the failure within 90 days of being notified by the IRS, there are also “continuation penalties” of $10,000 for every 30 day period thereafter (up to 100% of the gross reportable amount). The penalties apply even when no tax is owed on the underlying foreign funds.

A New Playbook for Taxpayers

Up to this point, challenging Form 3520 penalties under the Eighth Amendment has been an uphill battle. The Tax Court has dismissed the argument in decisions like Mukhi v. Commissioner, relying on the old narrative that tax penalties are not “fines” because they are intended to encourage voluntary compliance  rather than punish taxpayers. Other courts have reached the same conclusion based on the logic that civil penalties are remedial in nature rather than punitive. See In re Wyly, 552 B.R. 338, 613 (Bankr. N.D. Tex. 2016).

The Eleventh Circuit’s decisions in Schwarzbaum and Niksich provide the playbook for challenging this theory. By demonstrating that Form 3520 penalties have no relation to actual government expenses or tax deficiencies—and instead are designed to deter and punish—taxpayers can argue that these penalties are punitive “fines” masquerading as remedial tools.

The takeaway is that the punishment has to fit the crime. Even if the government can prove there was a failure to comply with an international reporting requirement, they don’t necessarily get a free pass to ruin the taxpayer financially.