Foreign bank account reporting penalties survive death
Even in death, you cannot escape your IRS reporting requirements, including FBAR reporting and penalties.
In U.S. v. Wolin, 126 AFTR 2d 2020-XXXX (DC NY, 09/28/2020), Leo Ziegel owned a Swiss bank account. He had signature authority over the account and wrote checks and made withdrawals from the account for his benefit between 1999-2008. Ziegel did not disclose this account to his accountant or the IRS and did not file a Foreign Bank Account Reporting (FBAR) form. He also did not report the interest and dividend income earned in this account on his individual tax return.
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Ziegel died on April 4, 2014. On May 15, 2015, the IRS discovered the account and assessed a penalty against Ziegel’s estate in the amount of $1,435,235 for the willful failure to disclose the foreign account. On May 12, 2017, they brought a case to recover the FBAR penalties from Ziegel’s estate. The IRS later added his two daughters to the case because they were identified as co-beneficiaries of the foreign account.
One of the daughters asked the court to dismiss the case claiming that FBAR penalties do not survive death – basically, that since Ziegel had died, the IRS shouldn’t be able to collect the penalties from Ziegel’s estate or his beneficiaries. Her argument was that under federal common law, a claim survives death if it is “remedial’ rather than “punitive” and that the FBAR penalties were punitive.
The court disagreed. It reviewed numerous other cases, which all concluded that FBAR penalties were remedial in nature and not designed to be punitive. The court cited language stating, “the estate of a taxpayer who fraudulently concealed a portion of his income during life, but died before he personally filed a fraudulent return, cannot thereby avoid liability [he] himself could not have avoided if his conduct had been uncovered while he was alive.” Since the court refused to dismiss the case, it will be going back to the district court for trial on other issues and claims.
Each year when your tax preparer asks if you have any foreign accounts, he or she is trying to determine if you have an FBAR filing requirement. Our goal is to ensure that you complete the proper disclosure forms and avoid large penalties that you can’t even escape by dying. If you have any questions or concerns about FBAR reporting or any other international or estate issues, please contact your CPA at Henry+Horne.
Jennifer King
