Most people would view a $500,000 penalty for missing federal tax payments of under $30,000 as excessive. The disbelief would rise further once it becomes clear the slip arose from a paperwork issue, with no proof of intentional evasion. Yet a federal judge approved the amount, saying she deferred to the IRS in concluding the punishment was “not excessive.” Now, 88-year-old retiree Tuncay Saydam hopes the Ninth Circuit Court of Appeals will reach a more reasonable assessment.

Running Afoul of an ‘Obscure and Seemingly Benign Tax Form’

The Internal Revenue Service explains that, under the Bank Secrecy Act, filers must every year disclose specific foreign financial holdings—such as bank and brokerage accounts or mutual funds—to the Treasury Department and maintain precise records for those accounts. The mechanism for reporting is the Report of Foreign Bank and Financial Accounts (FBAR) filed on FinCEN Form 114.

Tuncay Saydam, born in Turkey and holding dual U.S. and Turkish citizenship, managed overseas accounts for years, including in Turkey where he resided until 1980 before moving to the United States to teach computer science at the University of Delaware. Those overseas accounts grew substantial as he funneled payments received for European consulting work into them, at one point exceeding $875,000.

Legally, Saydam should have filed FBARs for accounts above the $10,000 threshold—but like many Americans, he was unaware of this requirement. “The FBAR is among a slate of obscure and seemingly harmless tax forms that can trip up otherwise compliant taxpayers,” Brown Advisory notes on its site. The firm adds that “tax penalties are typically imposed for filing errors or failures, regardless of whether those mistakes were intentional or accidental.”

The IRS uncovered this “tax loss” during an audit. “When the government audited Tuncay, it determined that he owed roughly $29,000 in back taxes, for which it levied an additional $11,000 in late penalties,” according to the Institute for Justice (I.J.), which backs Saydam’s challenge against the federal government. But the IRS also penalized him for not filing FBARs.

A $544,933 Fine for Failing To File Paperwork

The court explained that “the penalties were computed by taking the total balance reaching its peak during the period—Saydam’s 2014 foreign holdings tallying $875,127. That amount was halved to $437,564 and then allocated across the five years in proportion,” resulting in a total of $544,933 when interest is included.

“No fraud, no evasion, no criminal charges. Merely five years of paperwork neglect punished as if he’d stashed millions in the Caymans and erased the records,” remarked Andrew Leahey, a law professor at Drexel University, in Forbes. “When did reporting of Foreign Bank and Financial Accounts (FBAR) stop being about transparency and start resembling a fiscal firing squad?”

Leahey pointed out that FBAR penalties originated as tools to combat “serious financial crimes…such as money laundering, tax evasion, and organized fraud schemes,” but have evolved into a device to penalize anyone who maintains a financial presence abroad without keeping Uncle Sam informed. A failure to file can, in effect, become a financial death sentence for unlucky taxpayers, even without any intent to defraud.

“What the Saydam case demonstrates, perhaps more clearly than most FBAR cases recently, is that the regime now punishes technical missteps more harshly than some actual frauds,” he added.

Criminal Penalties Would Have Been Less

In Saydam’s situation, Judge Donna M. Ryu agreed that the penalty was punitive and far exceeded the fines deemed excessive in other cases. She also conceded, as did the government, that a criminal charge would have carried a lighter sanction: “Saydam’s total FBAR penalty of $437,564 is 3.1 times larger than the maximum $139,000 fine permitted under the Sentencing Guidelines.” Yet she added that “the fact that the penalty surpasses the Guidelines maximum is not dispositive.”

Ryu argued that “it is not the court’s role to legislate or second-guess the wisdom of the FBAR penalty scheme.” She invoked earlier rulings stating that “so long as the government provides an unrebutted commonsense explanation or some—even if relatively weak—evidence justifying its fine, it will likely prevail against an Excessive Fines Clause challenge.” Never mind that the Excessive Fines Clause resides in the Eighth Amendment and prevails over laws and administrative interpretations.

In other words, anyone could offer a “relatively weak” justification for almost anything, making a successful challenge to excessive fines unlikely under this judge. That effectively grants officials broad latitude—within Congress’s wide framework—to sanction people harshly for navigating byzantine financial paperwork. The judge’s remarks imply that for her and many peers, the Eighth Amendment is essentially nonfunctional beyond criminal cases.

Consequently, fines become, in effect, a means of compelling obedience rather than a measured response to actual harm caused.

To this point, Leahey adds, “when civil penalties detach from any link to real harm, the tax system ceases to resemble a regulatory framework and turns into a revenue-collection machine—directed, in this instance, at immigrant households.”

A Continuing Fight Against Excessive Fines

With backing from the Institute for Justice, Tuncay Saydam continues his challenge to the IRS’s draconian penalties.

“The Eighth Amendment’s Excessive Fines Clause seals a timeless principle: the punishment must fit the offense,” notes I.J. attorney Mike Greenberg. “A runaway civil penalty for a minor reporting lapse is precisely the kind of constraint the Framers designed that provision to enforce.”

The central question now is whether the Ninth Circuit Court of Appeals will treat the Eighth Amendment’s ban on excessive fines with seriousness. Too many courts have treated it as largely moot.