In early 2025, a federal appeals court did something no US court had done before: it ruled that penalties for not filing a foreign-account disclosure form can be unconstitutionally excessive.

The taxpayer who won that ruling still owes more than $12 million.

That’s the Schwarzbaum case in one sentence, and it’s worth understanding even if — especially if — your accounts hold thousands rather than millions. Because the legal standards it cemented apply to everyone.

The facts

Isac Schwarzbaum is a naturalized US citizen, born in Germany, with bank accounts in Switzerland and Costa Rica. For 2007 through 2009, he failed to report those accounts on the FBAR — the disclosure form the US requires for foreign financial accounts.

He hadn’t hidden in ignorance: the court record showed he had read the FBAR instructions and used accountants for his filings. When the case went to trial, the court found he had acted recklessly — and under the FBAR rules, reckless is enough to count as willful, the designation that unlocks the most severe penalty tier.

Willful FBAR penalties are calculated from account balances, not tax owed. The numbers got enormous fast.

Seven years of litigation, in brief

The case bounced through the courts for years: a trial, a penalty calculation, an appeal, a recalculation by the IRS, and a second appeal. Along the way the willfulness finding was tested and affirmed — recklessness held up as willful at every stage.

The second appeal produced the headline. In January 2025, the Eleventh Circuit ruled, for the first time anywhere at the appellate level in the taxpayer’s favor on this question, that FBAR penalties are “fines” under the Eighth Amendment’s Excessive Fines Clause — meaning courts can strike them down when they’re grossly disproportional to the offense.

What the constitutional “win” was actually worth

The court examined the penalties account by account. On one small account — with balances around $15,000 — the government had assessed $100,000 per year, three years running. Three hundred thousand dollars in penalties on an account that never held more than about sixteen thousand. That, the court said, was excessive.

The penalties on the large accounts — hundreds of thousands to millions in balance? Proportional. They stood.

Final judgment: $12,255,813. The constitutional victory reduced the bill by about 2%.

Why this matters if your accounts are ordinary

Four takeaways travel well beyond this case:

“Willful” doesn’t require intent. You don’t need to have deliberately hidden anything. Recklessness — having reason to know and not following up — qualifies. Courts have looked at things like answering “no” to the foreign-accounts question on a tax return, or never raising foreign accounts with your own accountant, as evidence pointing that way.

Penalties key off account balances, not tax dodged. In many FBAR cases, little or no tax was ever avoided. The penalty punishes the missing form. That’s the structural feature that produces numbers like these.

The courts are split, and the fight isn’t over. Another appeals court ruled the opposite way in 2022 — that the Excessive Fines Clause doesn’t apply to FBAR penalties at all. Some courts have since followed Schwarzbaum; others haven’t. Where you litigate could decide whether you even get the constitutional argument. That uncertainty is not a plan.

Even the winning argument is a terrible strategy. Schwarzbaum’s partial win took roughly seven years of federal litigation and left an eight-figure judgment intact. Compare that to the position of someone who used a catch-up program before the government came calling — programs built specifically for people whose failures were innocent, which frequently resolve with modest or no penalties.

The honest summary

Schwarzbaum is being celebrated in tax-law circles as a taxpayer-rights breakthrough, and as a legal precedent it genuinely is one: there is now a constitutional ceiling, at least in some courts, on the most disproportionate penalties.

But read as a practical lesson, it points the other way. The penalty system survived almost entirely intact, “willful” remains a low bar, and the one reliable way to avoid being a case name is the unglamorous one: know whether the disclosure rules apply to you, and if you’re behind, get current voluntarily — while the choice is still yours to make.