Tuesday, November 3, 2020

DC Ruled That FBAR Penalty Survives Death of Taxpayer

A federal district court has held in Wolin, No. 17-CV-2927 (RRM) (CLP) (E.D.N.Y. Sept. 28, 2020) that the IRS could collect a failure to file foreign bank account reports (FBAR) penalty from a decedent’s estate because the penalty survived the decedent’s death.

Generally, under federal common law, a claim survives a party’s death if it is "remedial" rather than "punitive.'" (Sharp v Ally Fin., Inc., (DC NY 2018) 328 FSupp 3d 81)

Generally, actions to recover tax penalties are remedial because the purpose of such penalties is to reimburse the government for the heavy cost of investigating violations of the tax law. (Estate of Kahr, (CA 2 1969) 24 AFTR 2d 69-5332)

In 1983, Leo Ziegel, a U.S. citizen, engaged the services of a Swiss company to set up a foundation in Lichtenstein. The foundation's trustee opened a bank account with the Union Bank of Switzerland (UBS). Ziegel signed a UBS signature card for the account

During 2008, Ziegel made cash withdrawals and wrote checks on the UBS account, deposited earned interest and dividend income, and received investment sales proceeds from that account.

Ziegel did not disclose this account to IRS on his 2008 return or at any other time. He also failed to file an FBAR for 2008. 

Ziegel died on April 4, 2014, and on May 15, 2015, the IRS assessed against his estate a failure to file an FBAR penalty ("FBAR penalty") in the amount of $1.4 million.

When the estate failed to pay the FBAR penalty, IRS initiated an action to recover the FBAR penalty from Ziegel’s estate, alleging that the FBAR penalty survived Ziegel’s death and that, therefore, his estate was liable for the penalty.

The District Court Determined That
The FBAR Penalty Survived Ziegel’s Death; 

Therefore, His Estate Was Liable For The Penalty.

The district court noted that, under Estate of Kahr, liability for a tax penalty survives an individual’s death and is borne by their estate if the purpose of the penalty is remedial. The district court determined that the failure to file an FBAR is a “remedial penalty with incidental penal effects” because it is imposed to protect tax revenue and reimburse the government for the public funds expended in investigating and uncovering the individual’s tax malfeasance.

Have You Been Assessed an FBAR Penalty 
or a 
Fraudulent-Failure-To-File Penalty?

Contact the Tax Lawyers at 
Marini & Associates, P.A.
for a FREE Tax Consultation
or Toll Free at 888-8TaxAid (888 882-9243)

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