IRS Demands Grandmother Pay $2.1 Million

Wait, What Happened?

Every year American citizens all over the country and indeed all over the world, pay taxes, file their tax returns, and hope that they never get any further follow up questions from the Internal Revenue Service or IRS. Unfortunately, 82 year-old Monica Toth received a follow up question, and the IRS was asking for $2.1 million. 

The Boston woman had inherited a $4.2 million sum as a gift from her father who had been a successful businessman in Argentina after escaping Nazi persecution in Europe. The amount was left in a Swiss bank account in her name as a safe place of storage from his traumatic experience of persecution and confiscation in Germany. 

The Law and Grandma

US law requires that citizens and permanent residents with foreign bank accounts with amounts over $10,000 have to fill out a one-page form called the Foreign Bank and Financial Accounts report (FBAR) and submit it to the IRS every year. 

Toth did not know of the requirement and retroactively filed reports in 2010 when she found out about it. This brought about $40,000 in back taxes which she paid, and thought was the end of it. However, the IRS came back with follow up questions. They had determined that she had violated the Bank Secrecy Act of 1970 and required her to pay the $2.1 million penalty, 50% of the account value. 

Toth claimed that the demand is excessive and violates the Eighth Amendment of the Constitution which protects against excessive fines. Unfortunately for Toth, two lower federal courts sided with the government explanation that this was not a fine, but a penalty. This nuance of wording exempts Toth from protection under the Eighth Amendment. 

Growing Concerns Moving Forward

This comes at the heels of President Joe Biden recently signing the Inflation Reduction Act into law, which authorizes $80 billion in funding for the IRS over the next 10 years with $45 billion earmarked for enforcement. The most controversial aspect has been the plan to hire an “army” of 87,000 new IRS agents to bolster audits. Although the notion that the IRS will have 87,000 new workers focused on auditing Americans into the foreseeable future, the nuance of the situation is that this figure is just an estimate for what those funds could be spent on. The new hires would be made contingent on the estimated 50,000 existing IRS workers who are slated to retire in the next five years. 

The technical state of the IRS, its funding, and its workforce are beside the point of the seemingly predatory character that the agency has taken in the eyes of US taxpayers and in the action that it takes in taxation practices toward the American people. It can perhaps be argued that taxing US nationals living abroad is excessive. It is well-known that sooner or later, the IRS will collect their cut. 

Toth’s example is just one of countless instances of someone’s life being turned upside down by the IRS. Perhaps American society would do well to consider how the US government spends its tax revenues and how ordinary people suffer under the shadow of the tax collectors.