District Court Holds That Large FBAR Penalty Is Appropriate

(Parker Tax Publishing December 2025)

A district court held that a taxpayer, who failed to file numerous Reports of Foreign Bank and Financial Accounts (FBARs), was liable for penalties and interest exceeding $500,000. The court rejected the taxpayer's motion to reduce the amount of the penalty on the basis that it violated the Excessive Fines Clause of the Eighth Amendment after determining that (1) the government suffered a significant tax loss by having to investigate the taxpayer's unlawful conduct, and (2) the penalty was not grossly disproportionate to the taxpayer's offense. U.S. v. Saydam, 2025 PTC 377 (N.D. Cal. 2025).

Background

Tuncay Saydam was born in Turkey and maintains dual citizenship in Turkey and the United States. From 2013 to 2017, Saydam had multiple bank accounts in Turkey with balances over $10,000. In 2021, the IRS assessed a penalty of approximately $438,000 against Saydam for willfully failing to report those foreign bank accounts in violation of Section 5314 of the Bank Secrecy Act (BSA).

The BSA requires an individual to file a Report of Foreign Bank and Financial Accounts (FBAR) with the IRS for each calendar year that the individual has more than $10,000 in a foreign bank account. In the event of a failure to file an FBAR, 31 U.S.C. Sec. 5321(a)(5)(B) authorizes the IRS to impose a civil penalty of up to $10,000 for each violation. If an individual willfully fails to file an FBAR, 31 U.S.C. Sec. 5321(a)(5)(C)-(D) authorizes the IRS to impose a civil penalty of up to the greater of either $100,000 or 50 percent of the value in the account at the time of the violation. Saydam refused to pay the $438,000 penalty and in 2022 the government filed a lawsuit to collect the fine. With interest, the total amount owed grew to $544,933.

A jury trial was held and in 2024 the jury agreed that Saydam willfully failed to file FBARs for years 2013 to 2017. Saydam then filed a motion in district court to reduce the amount of the penalty citing the Excessive Fines Clause of the Eighth Amendment which states that "Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted."

The government opposed the motion, arguing that (1) Saydam waived or forfeited his Eighth Amendment challenge when he stipulated to the penalty amount in a pretrial statement and then didn't raise the issue until after the trial; (2) the Excessive Fines Clause did not apply; and (3) even if the Excessive Fines Clause did apply, Saydam's penalty was not excessive.

For the Excessive Fines Clause to apply to Saydam's penalty under 31 U.S.C. Sec. 5321(a)(5), the district court said that Saydam must demonstrate that (1) the statutory provision was a fine (i.e., it imposed punishment); and (2) the fine was excessive.

Analysis

The district court held that the $437,564 penalty imposed on Saydam is a fine under the Eighth Amendment but that the amount was not grossly disproportionate to Saydam's offense and thus denied the motion to reduce the penalty.

With respect to the government's claim that Saydam waived his Eighth Amendment challenge when stipulating to the penalty amount in a pretrial statement, the court noted that when Saydam agreed that the penalties were correctly calculated, he also stipulated that "the final amount of any judgment should be determined post-trial through stipulation and/or briefing." This, the court said, supported the conclusion that Saydam did not intend to relinquish his right to challenge the final amount of the judgment.

The court also rejected the government's argument that if Saydam stipulated that the penalties were correctly calculated, then by implication, he was agreeing that the penalties were not disproportionate under the Eighth Amendment. The court said this was stretching the plain language of the stipulation too far and concluded that the language of Saydam's stipulation could reasonably be interpreted to have not waived his Eighth Amendment challenge.

The court then addressed the question of whether the FBAR penalty meets the definition of a "fine" under the Eighth Amendment and noted that there is a circuit court split on that question and that the Ninth Circuit, to which this case is appealable, has yet to squarely rule on the issue.

In U.S. v. Toth, 2022 PTC 121 (1st Cir. 2022), the First Circuit considered whether a $2 million willful FBAR penalty violated the Eighth Amendment and concluded that it did not because the penalty reimburses the government for the harm stemming from the concealment of funds to which it is entitled. However, the district court noted, in U.S. v. Schwarzbaum, 2024 PTC 309 (11th Cir. 2024), the Eleventh Circuit declined to follow the First Circuit's holding in Toth and instead concluded that FBAR penalties are in substantial measure punitive in nature and are therefore subject to review under the Eighth Amendment's Excessive Fines Clause. The Eleventh Circuit went on to find that a $300,000 FBAR penalty imposed on a taxpayer for willfully failing to report a foreign bank account - the balance of which never exceeded $16,000 in the three years to which the penalties applied - was grossly disproportional to the gravity of the offense.

The district court agreed with the reasoning of the Eleventh Circuit and concluded that the FBAR penalty serves as a deterrent or has a punitive purpose at least in part, which makes it a fine for purposes of the Eighth Amendment.

In examining whether an FBAR fine is excessive and grossly disproportional to the underlying offense, the district court looked to the four factors used by the Ninth Circuit in its decision in Pimentel v. City of Los Angeles, 2020 PTC 411 (9th Cir. 2020): (1) the nature and extent of the underlying offense; (2) whether the underlying offense related to other illegal activities; (3) whether other penalties may be imposed for the offense; and (4) the extent of the harm caused by the offense.

Considering the Pimentel factors, the court determined that Saydam's $437,564 fine was not excessive. Because Saydam was found to have at least recklessly violated the FBAR statute, the court concluded that Saydam had more than minimal culpability. The court noted that, while it was true that Saydam had not engaged in other illegal conduct, such as money laundering, the amount of his fine was not grossly disproportional to the maximum fine and sentence that U.S. Sentencing Guidelines would have mandated for a comparable criminal charge. Additionally, the court observed that the government suffered a significant tax loss that was compounded by the need to expend government resources to investigate Saydam's unlawful conduct, which only came to light after the government engaged in the considerable time and expense of an IRS audit. The court rejected Saydam's argument that such a harsh FBAR penalty was "simply not intended for defendants like him." Although the penalty was steep, the court concluded that Saydam's conduct was precisely the type of willful conduct Congress meant to deter when it set the current penalty amounts.

For a discussion of individuals required to file FBARs and the penalties for failing to do so, see Parker Tax ¶203,170.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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