When Are Tax Penalties Excessive? / Does a $3.5 million fine on a secret $1.7 million Swiss account violate the Eighth Amendment's prohibition of excessive fines?

Laura Saunders for the Wall St Journal writes: U.S. officials are getting even tougher in their crackdown on offshore accounts.  In a civil lawsuit that has attracted notice among tax experts, the government wants to collect nearly $3.5 million in penalties from a taxpayer who had a secret Swiss account, although the account balance was never higher than $1.7 million. The lawsuit, U.S. v. Carl R. Zwerner , was filed in federal court in Miami last month.

"This is the most aggressive step taken by the U.S. government to seek offshore-account penalties larger than the account balance," says Jeffrey Neiman, a former federal prosecutor now in private practice in Fort Lauderdale, Fla., who specializes in criminal tax cases.

Spokesmen for the Justice Department and Internal Revenue Service declined to comment on the case. A decision isn't expected until at least 2014.

Mr. Zwerner, 86 years old, is a retired specialty-glass importer living in Coral Gables, Fla. The U.S. government alleges he had an undeclared account at an ABN Amro bank in Switzerland from 2004 through 2007.

The account was held in the name of two foundations, structures that are often used to conceal ownership of offshore accounts, according to the filing.

Mr. Zwerner allegedly reported the account to the government in October 2008, a few months before the IRS set up a special limited-amnesty program for U.S. taxpayers with undeclared offshore accounts.

Through his lawyer, Lu-Ann Dominguez of the Gunster Law Firm in Fort Lauderdale, Mr. Zwerner declined to comment.

"We believe this is a garden-variety offshore case and Mr. Zwerner is no more culpable than others in his position," Ms. Dominguez says.

Since 2009, the Justice Department has filed more than 75 criminal cases against U.S. taxpayers involving the alleged failure to declare offshore financial accounts. In many of them, prosecutors have sought a single penalty of 50% of the account's maximum balance as punishment for willful failure to file a foreign-account report.

"As far as I know, the government has never asked for more than one 50% penalty in offshore-account cases," says Jack Townsend, a lawyer at Townsend & Jones in Houston who tracks federal tax-crime data.

Still, U.S. law allows the government to assert multiple 50% penalties. Mr. Zwerner is being pursued for four such penalties—or about twice the highest balance in his account—although the suit doesn't say why.

Bryan Skarlatos, a lawyer at Kostelanetz & Fink in New York who has handled hundreds of offshore-account cases, said he is aware of at least one other case in which government is seeking penalties larger than the account balance. "I expect we will see more," he says.

Messrs. Neiman and Skarlatos say the Zwerner case raises constitutional issues. The Eighth Amendment prohibits "excessive fines."

In 1998, the U.S. Supreme Court cited this constitutional prohibition in U.S. v. Bajakajian, a case involving the failure to report an international currency transaction of $357,144 by Hosep Bajakajian, a naturalized U.S. citizen. The court ruled against the government.

U.S. officials had sought forfeiture of the entire amount, which Mr. Bajakajian intended to use to pay a debt abroad. Instead, the court ordered him to pay $20,000, concluding that forfeiture of all the money would be "grossly disproportionate to the gravity of the offense."

Mr. Skarlatos said this case resembles the Zwerner case because the violation by Mr. Bajakajian involved the failure to file an information form with the government. Still, Mr. Bajakajian "didn't break any other laws, such as not paying taxes," Mr. Skarlatos adds.