Dewees v. United States, 272 F. Supp. 3d 96

Dewees, a U.S. citizen residing in Canada, failed to file Form 5471 for a foreign corporation he controlled for many years and failed to file FBARs for certain years.
After voluntarily disclosing, the IRS assessed a $185,862 FBAR penalty (which Dewees refused) and later a $120,000 penalty under 26 U.S.C. § 6038(c) ($10,000 per missed Form 5471 filing for twelve years).
Dewees sought administrative abatement and appealed; both were denied. He left the OVDP before later Streamlined Filing Compliance Procedures (SFCP) became available.
Under the U.S.–Canada Tax Convention, the Canadian tax authority held Dewees’ Canadian refund until the IRS penalty was paid; Dewees paid $134,116.34 (penalty plus interest) and then sought refund in the U.S. courts.
Dewees sued the United States claiming (1) the §6038 penalty violated the Excessive Fines Clause (Eighth Amendment), (2) violation of procedural due process (Fifth Amendment), and (3) violation of equal protection (Fifth Amendment). The Government moved to dismiss.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the §6038 Form 5471 penalty is an "excessive fine" under the Eighth Amendment	Dewees: $120,000 is punitive and excessive relative to the government interest	Gov: Tax penalties are remedial (protect revenue/reimburse costs) and thus outside Excessive Fines Clause	Court: Penalty is remedial, authorized by Congress, not a fine for Eighth Amendment purposes — claim dismissed
Whether collection without prepayment administrative review violated Due Process	Dewees: He had no pre-collection administrative or Tax Court avenue to contest the penalty	Gov: Post-payment refund suit in district court under 28 U.S.C. §1346(a)(1) provides adequate process; delay is not unconstitutional	Court: Procedures available (pay then sue for refund) satisfy Mathews balancing — due process claim dismissed
Whether Dewees was denied equal protection by being excluded from SFCP	Dewees: Other similarly situated taxpayers received SFCP benefits; he was denied that opportunity	Gov: Dewees never pled that he applied to SFCP or was denied; his own withdrawal from OVDP made him ineligible	Court: Dewees lacks standing (no concrete injury traceable to Gov.) — court lacks jurisdiction; claim dismissed

United States v. Bajakajian, 524 U.S. 321 (Sup. Ct. 1998) (distinguishes punitive fines from remedial measures for Eighth Amendment analysis)
Helvering v. Mitchell, 303 U.S. 391 (Sup. Ct. 1938) (tax penalties are remedial to protect revenue and reimburse government)
Austin v. United States, 509 U.S. 602 (Sup. Ct. 1993) (forfeiture may be punitive; discussion of remedial vs. punitive sanctions)
Mathews v. Eldridge, 424 U.S. 319 (Sup. Ct. 1976) (three-factor test for procedural due process balancing)
Lujan v. Defenders of Wildlife, 504 U.S. 555 (Sup. Ct. 1992) (standing requires concrete injury, causation, redressability)
Phillips v. Commissioner, 283 U.S. 589 (Sup. Ct. 1931) (taxes may be challenged after payment by refund suit)
Bob Jones Univ. v. Simon, 416 U.S. 725 (Sup. Ct. 1974) (delay in tax disputes is not necessarily unconstitutional)
Wheaton v. United States, 888 F. Supp. 622 (D.N.J. 1995) (district court refund suit is proper for challenging §6038 penalties)
McNichols v. Commissioner, 13 F.3d 432 (1st Cir. 1993) (civil tax penalties not subject to Excessive Fines Clause)
Little v. Commissioner, 106 F.3d 1445 (9th Cir. 1997) (tax additions related to revenue function are remedial)
Thomas v. Commissioner, 62 F.3d 97 (4th Cir. 1995) (similar holding that tax penalties are not punitive)