Americans Are Correct to Be Instinctively Terrified of the IRS

[Muda69]

https://www.nationalreview.com/corner/americans-are-correct-to-be-instinctively-terrified-of-the-irs/?utm_source=recirc-desktop&utm_medium=homepage&utm_campaign=right-rail&utm_content=corner&utm_term=second

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This argument seems to be popular online this week:

 

Markowitz says that he has “never understood the fear of an IRS audit.” Given that he is an IRS-enrolled agent — that is, that he makes his living representing taxpayers in front of the IRS — this should perhaps not be too surprising. Oddly enough, my butcher doesn’t understand vegetarians. Nevertheless, I might be able to help Markowitz out a little — or, at least, to shed some light on why this particular tweet yielded such a cacophony of mockery and indignation, and on why the Democratic Party’s desire to be associated with IRS audits is a terrible political move.

Markowitz suggests that those who are worried about being audited by the IRS should just make sure that they are truthful on their return. “Don’t lie,” he suggests. “How about just don’t cheat on tax returns?” But this, of course, misses the point. I do not “cheat” on my tax return, and I never have. I don’t “lie,” either. But I’m still terrified of the IRS. Why? Because the process of being audited — especially in-person, which this funding will increase — is an absolute nightmare. It’s costly. It’s stressful. It’s invasive. It’s time-consuming. It’s easily manipulated by rogue political actors. And it is all of those things even if the saga concludes with a nice letter saying that everything is in order after all.

One suspects that, in any other circumstance, this would be intuitively obvious. Suppose that, tomorrow, the FBI announced that it intended to begin “auditing” millions of people to find out if they had committed any federal crimes. Would Markowitz and co. respond to this news by shrugging and saying, “don’t lie,” or “if you haven’t broken any laws, who cares?” I suspect that they would not. And they’d be absolutely right to decline to do so. The federal government is extremely powerful, and having it snoop around your life is distressing and scary even when you’ve done nothing wrong. In what other circumstances would Markowitz’s implication hold water? I’m not a domestic abuser. Should I therefore not care if the government wants to put cameras around my house? I haven’t murdered anyone. Should I therefore not care if the local police open a homicide investigation into me? The very idea is totalitarian.

 

To illustrate this, let’s assume, for the sake of argument, that the IRS’s intent here was reversed — that, instead of the Democratic Party having passed a law designed to squeeze more money out of taxpayers by cracking down on tax evasion, the Republicans had passed a law designed to ensure that Americans were taking advantage of all the deductions and credits in the tax code. In other words, assume for the sake of argument that Americans were facing the prospect of a million-and-a-half more audits, but with the aim of ensuring that everyone audited was getting a bigger refund than they otherwise might. “We just want,” the Republicans might say, “to ensure that you’re not overpaying. Even better: The average audited American will get to keep an extra $240!”

Would that make me comfortable with such an audit?

No, it bloody well would not. On the contrary: I would enthusiastically relinquish that $240 — or more — in order to avoid one.

One of the best things about the United States is that its constitution habitually preempts the “If you have done nothing wrong . . .” arguments that tend to prevail elsewhere. As a matter of course, Americans do not buy the idea that only a man with something to hide would cherish the Fourth Amendment or that only a man who is guilty would plead the Fifth or that only a man who wishes to demean others would wish to favor a robust understanding of freedom of speech. The broad opposition to a supercharged IRS that has so baffled Adam Markowitz and his fellow travelers is predicated upon a similar conceit: that this is a free country, and that those who wish to make it less so can shove it.

The IRS is the very definition of government totalitarianism. 

[Muda69]

The Origin of the Income Tax

https://mises.org/library/origin-income-tax

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"The freedoms won by Americans in 1776 were lost in the revolution of 1913," wrote Frank Chodorov. Indeed, a man's home used to be his castle. The income tax, however, gave the government the keys to every door and the sole right to change the locks.

Today the American people are no longer the master and the government has ceased to be the servant. How could this be? The Revolution fought in the name of the inherent natural rights to life, liberty and the pursuit of happiness promised to enthrone the gains of individualism. Instead, federal taxation bribes the States and individuals to serve the interests of ever-greater submission to the centralized will.

How did tax slavery come to the land of the free?

1812

The first proposal to impose an income tax on America occurred during the War of 1812. After two years of war, the federal government had accumulated a then-staggering $100 million of debt. To fund the war against Britain, the government doubled the rates of its major source of revenue, customs duties on imports, which obstructed trade and ended up yielding less revenue than the previous lower rates. At the height of the war, excise taxes were imposed on goods and commodities, and housing, slaves and land were taxed. After the war ended in 1816, these taxes were repealed and instead a high tariff was passed to retire the accumulated war debt. Thankfully, the notion of an income tax was defeated.

However, the malevolent spirit of the income tax reappeared as a measure to fund the Union armies in the war to prevent the secession of the Confederacy. The war was expensive, costing on average $1,750,000 a day.1 Struggling to meet this expenditure, the Republican Congress borrowed heavily, doubled tariff rates (the Morrill Tariff initially provoked the Deep South to secede), sold off public lands, imposed a maze of licensing fees, increased old excise tax rates and created new excise taxes. But none of this was enough.

1861

In July 1861, the Congress passed a 3% tax on all net income above $600 a year (about $10,000 today). However, no revenue was ever raised because a second tax passed before the first was due (on June 30, 1862). The war's demand on resources made the earlier tax ineffective, and the sale of bonds could not keep up with the expenditures of the administration and the armies. In March, the Congress passed an income tax of 3% on annual incomes of $600 to $10,000 and 5% on incomes from $10,000 to $50,000 and threw in a small inheritance tax too. Lincoln signed the bill on July 1, 1862 to take effect a month later. The Union debt then stood at $505 million. 2 This tax also included the first appearance of withholding and was applied to federal salaries and on interest and dividends.3

In 1863, Congress then passed a special 5% tax on incomes above $600 to pay for an army recruitment program that would pay men $2 per recruit and pay recruit's their first month's pay in advance.4

In mid-1864, the rates were raised again. The 3% tax on incomes above $600 was increased to 5%, a new 7.5% rate was introduced on incomes over $5,000, and the old rate of 5% on incomes above $10,000 was raised to 10%. The tax on interest and dividends was also raised from 3% to 5%.

And for the first time, with the changes, Americans now had to swear to the veracity of their tax returns, and government assessors could now challenge a return. The penalty for not filing a tax return was likewise doubled to 10%.5

At first, the income tax raised comparatively little revenue in relation to the war's demand for it. Harvesting only $2.7 million in 1862–1863, by the next year, the tax pulled in $20.2 million. And believing that many large-income earners were eluding the taxman, Congress raised the rate on incomes over $5,000 to 10% and gave the assessors the power to estimate income and increased the penalties for noncompliance, from fines of 25% to double that for filing fraudulent returns. By 1866, 30% of federal revenues derived from the income tax totaling $73 million, and derived primarily from just three states, New York, Pennsylvania and Massachusetts.

In a move to increase compliance and the veracity of returns, the government even made tax returns available to the press. This practice was outlawed in 1870.6

The Confederacy also experimented with a progressive income tax, eventually imposing a tax in kind that further destroyed the already ruptured and blockaded economy of the South.7

1865

After the war ended, the income tax continued on to pay the government's gigantic debt, but resistance was building. In 1867, progressing rates were replaced with a flat tax of 5% on all incomes above $1000 a year. However, the penalty for failure to file was raised to 50% and the payment date was moved from June 30 to April 30.8

This income tax expired in 1870 and was replaced with a 2.5% tax on incomes above $2,000. Finally, when that law expired in 1872, the United States was again without an income tax.

In the post-war years, a booming economy produced tariff surpluses for decades, but this didn't deter many attempts to reintroduce an income tax, with members of Congress introducing sixty-eight bills to do so between 1874 and 1894.

1894

Amid the panic of 1893, an amendment was passed establishing a 2% tax on all incomes above $4,000 a year (about $50,000 today), but exempted the salaries of state and local officials, federal judges, and the president.

Democratic Senator David Hill of New York lamented, "It may be impracticable that our distinctively American experiment of individual freedom should go on."9

 

President Cleveland opposed the income tax, but let it become law without his signature, believing it to be unconstitutional. In 1895, the Supreme Court ruled 5–4 against the income tax, saying that its provisions amounted to a direct tax, which was prohibited by the U.S. Constitution.10

Article I, Section 8 and 9 declares that direct taxes must be apportioned amongst the states according to the census. The Sixteenth Amendment was designed to get around this problem.

1895–1909

Aside from an attempt to float an income tax to pay for the Spanish-American war, the income tax largely disappeared as a major issue. Nonetheless, the Democratic Party, turning its back on its Jeffersonian heritage, endorsed a constitutional income tax amendment in their party platforms of 1896 and 1908.11

In 1908 Theodore Roosevelt endorsed both an income tax and an inheritance tax, becoming the first President of the United States to openly propose that the political power of government be used to redistribute wealth.

Meanwhile, factions within the Congress cobbled together a compromise amendment and in 1909, President Taft, known to be favorable to an income tax, if not necessarily an amendment, stated that although ratification may be difficult, he had "become convinced that a great majority of the people of this country are in favor of vesting the National Government with power to levy an income tax."12

That same year, the income tax amendment passed overwhelmingly in the Congress and was sent off to the states. The last state ratified the amendment on February 13, 1913. The Springfield Republican reported "The Sixteenth Amendment owes its existence mainly to the West and South, where individual incomes of $5,000 or over are comparatively few."13

1913

Richard E. Byrd, speaker of the Virginia House of Delegates, predicted, "a hand from Washington will be stretched out and placed upon every man's business. . . . Heavy fines imposed by distant and unfamiliar tribunals will constantly menace the taxpayer. An army of Federal officials, spies and detectives will descend upon the state. . . ."14 Pandora had opened the box.

The presidential election of 1912 was contested between three advocates of an income tax. The winner, Woodrow Wilson, after the ratification of the Sixteenth Amendment, called a special session of Congress in April 1913, which proceeded to pass an income tax of 1% on incomes above $3,000 and applied surcharges between 2% and 7% on income from $20,000 to $500,000. A few years later the Supreme Court kissed and blessed progressivity.

The income tax returned as the product of an unholy combine between statist intellectuals with visions of state-sponsored utopias, envious demagogues and the desire by established, wealthy interests to prevent any competition to their place and to offload business costs to an expanding regulatory welfare state.15

At first the revenue raised by the new income tax was disappointing: only $28 million in 1914. But then it accelerated. $41 million the next year, when the top rate was 7%, and nearly $68 million in 1916, when it was raised to 15%.16 Eventually more than $1 billion would be pulled in by the income tax during the whole of World War I, when the rates were raised to 67% in 1917 and 77% in 1918, and make the hated tax the permanent feature it has become today.17

After the war, the top rate would fall to 73%. In the 1920's it fell to a low of 24% in 1929 but never again got as low as the pre-war rate of 7%. What would Americans do for a 7% rate today, one wonders? Hoover and the Republicans raised the rates to 25% in 1930, then to 63% in 1932. Under the corporate statism of the New Deal, rates leaped to 79% in 1936, 81% in 1940, finally exhausting itself at 94% in 1944–1945.

The lowest rates showed the same appetite, advancing from a 1% rate on incomes below $20,000 in 1915. In 1917, it became 2% up to $2,000, then 6% up to $4,000. By 1941, the lowest rate was 10% on incomes below $2,000. In 1945, this had jumped to 23%. Today it is 10% on annual income up to $7,000; 15% on income below $28,000. The top 10% of all income earners pay 60% of all tax revenue. And the top half pay over 95% of all revenue raised by the federal income tax.18 The average American now works twenty years for the government simply to pay his taxes.19

In 1943, the government began withholding taxes on the advice of Milton Friedman.20 After the war ended, this method of stealth taxation (and tax increases) continued.

Not until 1964 were the top rates lowered, down to 77%. In 1982, the top rate was lowered to 50% and by the late eighties the rate had been lowered to 28%.21 But rates were raised again to 31% under George H.W. Bush, and again in 1993 to 39.6% under Clinton. George W. Bush apparently holds as an unshakeable principle that no American should be taxed more than a third of his income by the federal government. John Kerry, should he become president, appears likely to suggest the rates be raised back to the Clinton level.

The income tax lived up to its nature during World War II, devouring American wealth and liberties like a swarm of locusts, where it became the nearly universal tax we know today. In 1940, fewer than fifteen million tax returns were filed. Just ten years later in 1950, the number would be fifty-three million. In 1939 the income tax raised $1 billion. 16 years later it would raise $19 billion.22 The state had found its most fertile harvests—middle class and working-class taxpayers. As Chief Justice John Marshall remarked, truly "the power to tax involves the power to destroy."

Adjusting for inflation, in the 81 years between the enactment of the income tax in 1913 to 1994, government spending increased 13,592%!23

The great critic of the income tax, Frank Chodorov wrote "Whichever way you turn this amendment, you come up with the fact that it gives the government a prior lien on all the property produced by its subjects."24 The United States government "unashamedly proclaims the doctrine of collectivized wealth....That which is foes not take is a concession."25

It was with great honestly that Frank Chodorov lamented, "America is no longer America of the Declaration of Independence."26

 

[Impartial_Observer]

You guys think there’s a shortage of officials now, wait till those 1099’s start going out next January. 

[swordfish]

(Copied from a friend's post)

Do the math my friends. According to IRS records there are 2.8 million tax returns where people earn $400,000 or more. Our newest legislation calls for hiring 87,000 new IRS agents that according to the White House yesterday, WILL NOT BE INVOLVED IN REVIEWING OR AUDTITING any taxpayer who earns less than $400,000 per year. Divide 2.8 million by 87,000 and you will find that each of the "new" agents will only have to deal with 32 taxpayers annually to cover EVERYONE that earns over $400,000. Still believe this is true...hahaha

[Impartial_Observer]

More logically the new agents will be tasked with figuring out where all the pa democrats money went. 

[Impartial_Observer]

6 hours ago, Impartial_Observer said:

More logically the new agents will be tasked with figuring out where all the pa democrats money went. 

Sorry I just noticed this typo and I can’t edit. Should have read:

More logically the new agents will be charged with figuring out where all the pandemic money went. 

[Muda69]

Democrats’ Inane Stock-Buyback Tax

https://www.nationalreview.com/2022/08/democrats-inane-stock-buyback-tax/

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As part of the cynically misnamed Inflation Reduction Act, Democrats propose to enact a new 1 percent tax on stock buybacks — the thing is, we already have a tax on stock buybacks, ranging from 15 percent to 37 percent. It’s called the “capital gains tax” or, for short-term gains, the “income tax,” and thanks to the presence of high inflation and the absence of indexation, it has become even more of a disincentive to investment than before.

 

The income tax — maybe you’ve heard of it?

Don’t let the financial jargon put you off — this isn’t all that complicated.

So, what’s a stock buyback, and why do companies undertake them? A stock buyback is, as the name suggests, what happens when a company finds itself sitting on a pile of extra cash and decides that the best use of that money is to give it back to investors — i.e., the people who own the company and who put up the money for its operations. Some of those investors are Wall Street types of the sort Democrats like to denounce when not shaking them down for donations, but many of them are (directly or indirectly) retired teachers and ordinary people of that sort — pension funds and retirement accounts are among the largest investors around. To be sure, gains that come into retirement accounts are tax-deferred, but when the money is eventually paid out to the retiree, the taxman will be waiting for his slice.

A company can return its profits to its investors in two ways: One is through dividends, meaning a payment of a certain amount of money per share to investors; dividends are paid out of profits that already have been subjected to the corporate-income tax, and investors pay another tax on the dividends once those checks hit their bank accounts. Dividends are usually taxed at the capital-gains tax rate of 15 percent or 20 percent but may in some cases be taxed at the ordinary income-tax rate of up to 37 percent. Return of the extra cash referred to above is often arranged via “extraordinary” dividends or by systematically paying ordinary dividends at a higher rate than might be justified by its earnings level.

The second and slightly more complicated way to return capital to investors is through a stock buyback. When a company buys back stock, those shares effectively cease to exist; with fewer shares on the market, earnings per share are higher; higher earnings per share tend to mean that the price of stock will go up, though buybacks by no means guarantee long-term increases in share prices. The idea is that share buybacks reward investors by making their shares more scarce and therefore more valuable, driving share prices up. It should be stressed, however, that this is by no means the only consideration that might drive a share up in the wake of a buyback. For instance, a company may well buy back shares as, again, a way of reducing excess cash, increasing (in theory, and to take one measure) its return on equity, something that may well be rewarded in the markets, which prefer to see capital deployed as efficiently as possible, as, indeed, should we all.

Investors who receive a benefit from selling their shares at a higher price pay a tax on that profit — that’s what a “capital gain” is. A married couple filing jointly typically pays a tax of 15 percent on the first half a million or so in nominal capital gains and 20 percent on gains beyond that, or else pays the regular income-tax rate on investments held for less than a year. The bigger the gain, the higher the tax. Because capital gains are only taxed once the profit is realized — once the appreciated asset is sold — there is no tax due as long as the asset is held, which may well be attractive to wealthy people and institutions who can let their investments ride for a long time before needing to cash out. But there is no avoiding the tax.

 

Democrats want to impose another tax on top of all that, charging companies a 1 percent tax on the value of shares acquired through a stock buyback. That doesn’t sound like very much, but it is, in fact, a relatively big bite: The current earnings yield for the S&P 500 is about 4.7 percent, and Goldman Sachs calculates that the new buyback tax could reduce earnings by as much as 0.5 percent per share. Put another way, that would mean about $10 billion a year in new taxes on investors, taxes that cannot be avoided even if those investors have placed their investment in a 401(k) or have offsetting capital losses — if, that is, the buyback tax doesn’t reduce buybacks, which, of course, it probably will.

There is a false impression, cultivated by Democratic class-warfare demagogues, that wealthy Americans and businesses somehow do not pay their “fair share” of taxes. In reality, high-income Americans pay practically all of the federal income tax (about 97 percent of it is paid by the top half of earners), while businesses and investors pay billions upon billions of dollars in taxes on business income, personal income, and investment income, not to mention the other taxes they pay on everything from commercial real estate to tariffs on imported industrial materials and manufacturing components. There is a good deal of special-interest favoritism in our tax code: For example, billionaire green-energy entrepreneurs and electric-vehicle makers enjoy very generous tax subsidies — subsidies that Democrats propose to sustain or increase in the very same bill that would impose higher taxes on businesses and investors that do not benefit from that kind of political favoritism.

One of the problems with our tax code is that it is so complex that the cost of complying with it represents a second substantial tax on its own — by some estimates, U.S. businesses spend more money on tax compliance than they actually pay in taxes. Making that already complex system more complex is good for no one — except for politicians who can hide behind the complexity of the tax code to hand out favors and sweetheart deals to allies and political supporters. Punishing investment is a particularly boneheaded way of going about raising revenue, even more so in today’s inflationary environment, a time when boosting the supply side is of even greater importance than normal — and we should probably point out that the $10 billion a year or so that this tax would raise in an optimistic scenario is chickenfeed in the context of the federal budget. If anything, we should be encouraging more Americans to save and invest in order to more fully avail themselves of the benefits of our magnificently productive economy and the innovative firms and entrepreneurs who make it so remarkably dynamic.

It is the case that investors expect a return on their investments and that any halfway sophisticated corporate management will structure its finances in such a way as to ensure that investors do not pay any unnecessary taxes — minimizing investors’ exposure to the capital-gains tax is, after all, one of the reasons that stock buybacks emerged in the first place as a favored strategy for big, cash-rich firms such as Apple and Alphabet, Google’s parent company, which has never paid a dividend as long as it has been in business. Investing for profit and engaging in intelligent tax planning is not a crime, and we should not be looking to punish it. One golden goose would be a miracle, but the U.S. economy has a remarkable flock of them.

This is one of many undesirable features of the so-called Inflation Reduction Act, which could very well turn out to be the Investment Reduction Act. We’d prefer to see a simpler tax code that produces more revenue than compliance costs, but, then, we’d also recommend against trying to fight inflation by detonating a new $370 billion money bomb in the middle of an already cash-flooded economy. Stupid policy ideas do not get less stupid when you bundle them all together in a single bill, but that is what Democrats apparently mean to do.

 

[swordfish]

[swordfish]

Actually the IRS would most likely be issued a fully automatic M4 - that I thought was only available to the military.......Oh wait a minute....

Edited August 15, 2022 by swordfish

[DanteEstonia]

On 8/15/2022 at 10:45 AM, swordfish said:

Actually the IRS would most likely be issued a fully automatic M4 - that I thought was only available to the military.......Oh wait a minute....

Are you suggesting that we... defund police?

[swordfish]

9 hours ago, DanteEstonia said:

Are you suggesting that we... defund police?

No.  Are you suggesting the IRS is "the police"?  

Surely you can see my inference to the current administration potentially considering the IRS as another branch of the military......

[Impartial_Observer]

44 minutes ago, swordfish said:

No.  Are you suggesting the IRS is "the police"?  

Surely you can see my inference to the current administration potentially considering the IRS as another branch of the military......

Just another ignorant statement from someone who’s never signed the front of a check in their life. 

[DanteEstonia]

2 hours ago, swordfish said:

Are you suggesting the IRS is "the police"?

If it walks like a duck, quacks like a duck, and swims like a duck, it's a duck.

1 hour ago, Impartial_Observer said:

Just another ignorant statement from someone who’s never signed the front of a check in their life. 

My car was made in this decade, and TSLA is over $900/share. 

[DanteEstonia]

And @Impartial_Observer were I ever to start a business venture, it would last far longer than anything you or your family ever did. 

[Impartial_Observer]

1 hour ago, DanteEstonia said:

And @Impartial_Observer were I ever to start a business venture, it would last far longer than anything you or your family ever did. 

So in other words:

2 hours ago, Impartial_Observer said:

Just another ignorant statement from someone who’s never signed the front of a check in their life. 

 

[DanteEstonia]

50 minutes ago, Impartial_Observer said:

So in other words:

But you didn't say anything about TSLA. And, my family's business is still operational. I wonder if you can say the same thing about yours. 

4 hours ago, swordfish said:

Are you suggesting the IRS is "the police"?  

Wasn't Al Capone brought down on tax evasion?

[swordfish]

3 hours ago, DanteEstonia said:

Wasn't Al Capone brought down on tax evasion?

Yes, his conviction/trial was on tax evasion and prohibition charges, but Elliot Ness wasn't the IRS......BUT read this little history, it's kind of interesting.

https://www.fbi.gov/history/famous-cases/al-capone 

[Muda69]

This Grandmother Didn't Submit the Proper Banking Form. Now the IRS Wants $2.1 Million From Her.: https://reason.com/2022/08/30/this-grandmother-didnt-submit-the-proper-banking-form-now-the-irs-wants-2-1-million-from-her/

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The IRS wants to seize more than $2 million from an elderly woman, whose family fled from Nazi Germany, for failing to report her father's endowment to her. Now, she's petitioning the Supreme Court to consider whether this is an unconstitutionally excessive fine.

The Institute for Justice, representing Monica Toth, an 82-year-old grandmother living in the Boston area, filed a petition with the Supreme Court on Friday asking them to determine whether federal "civil penalties" imposed by the federal government for violating regulations count as "fines." While a reasonable person might assume "penalties" and "fines" are the same thing, the federal government's position is that they are not, and, therefore, the IRS can demand millions in such penalties from people without triggering the Excessive Fines Clause of the Eighth Amendment.

Monica Toth's family fled Germany in the 1930s to escape rising fascism and antisemitism. Her family landed in Argentina, where she was born in 1940. Toth immigrated to the U.S. when she was 22 and established a family. She became a U.S. citizen in the 1980s.

Her father, who had in the meantime become a successful businessman, gifted Toth several million dollars in a Swiss bank account shortly before dying in 1999. The federal Bank Secrecy Act, passed in 1970, requires citizens to report various banking records and information to the government. It also requires any citizen with more than $10,000 in foreign bank accounts to fill out a Report of Foreign Bank and Financial Accounts (FBAR) annually.

Toth had not been filing these FBARs until 2010, which is when she says she discovered the requirement. According to the Institute for Justice, she had previously been filing her taxes by hand using forms from the local library. Once she knew of the requirement, she disclosed the existence of the account to the IRS and told them she hoped her filings would put her back into compliance with the law.

Things didn't go well for her. According to the Institute for Justice's filing, the IRS launched an audit in 2011. The agency determined that she underpaid her taxes in some years and overpaid in others. She paid $40,000 in penalties for her tax mistakes. Everything was settled. Her taxes were up to date.

But then the IRS came for her again because of her failure to file her FBARs. Under federal law, the maximum penalty for failing to file this record is either $100,000 or half the balance of the reported account, whichever is greater. The IRS declared that her failure to file the FBAR documentation was "reckless" and filed for half the money of the account, a civil penalty of more than $2.1 million. It doesn't matter whether Toth's failure to file the form deprived the IRS of taxes it was owed or whether she was actively trying to deceive the government. All that mattered was that she didn't file a proper record of the bank account that the IRS contends she should have known she needed to file.

The fight here is not over whether the federal government and the IRS have the power to penalize people for trying to conceal bank accounts from tax collectors. Rather, it's about whether taking $2.1 million from a citizen for simply not annually completing a one-page form can be considered an excessive fine that violates the Eighth Amendment of the Constitution's Bill of Rights.

The United States argues that it cannot because it does not believe that taking Toth's money should count as a "fine" at all. It is, instead, a "civil penalty" that is immune to scrutiny under the Eighth Amendment. The U.S. Court of Appeals for the First Circuit has agreed with the federal government and refused to even consider whether taking $2.1 million from Toth was "excessive." The Institute for Justice counters that this is clearly a type of fine.

"The Eighth Amendment's Excessive Fines Clause is a key check on the government's power to punish," said Institute for Justice Attorney Sam Gedge in a prepared statement. "That is why the Excessive Fines Clause is part of the Bill of Rights, and that is why the federal courts need to take it seriously."

The Institute for Justice has previously and successfully turned to the Supreme Court to set limits on the government's ability to seize people's assets and property. In Timbs v. Indiana (2019), the Court ruled unanimously that the Eighth Amendment applied to state-level asset forfeitures in a case where the state of Indiana seized an SUV from a man arrested for selling heroin and attempted to keep it. In that ruling, Justice Ruth Bader Ginsburg noted that one of the purposes of the Eighth Amendment is to prevent the government from using fines not as a punishment but "as a source of revenue."

Toth has already made amends and paid fines for her mistakes with her IRS filings. In absence of evidence of deliberate fraud, it's hard not to see this grasping as anything other than an attempt by the IRS and the Department of Treasury to bring in some money. The Institute for Justice notes that Toth is far from alone here. There's been a recent escalation in the use of civil penalties by the federal government over FBAR filings: "Over the past decade, the government has expanded its FBAR enforcement relentlessly. Between 2012 and 2020, it assessed nearly $1.5 billion in FBAR penalties. This Term, it is asking the Court to ratify a still more aggressive regime."

Whenever you read about how the IRS needs more and better enforcers and will only target wealthy people who are deliberately trying to conceal their money, think about Toth's case. The IRS is looking for reasons to take huge sums of money from people without showing that these citizens have been engaging in actual misconduct. Worse still, this agency is also attempting to argue that seizing people's money and assets doesn't count as a fine and, therefore, the Eighth Amendment doesn't protect citizens against it.

The term "civil penalty" is BS.  It's a fine, plain and simple.