Deceased Individual & Successor Liability for FBAR Penalties

When it comes to the IRS, death does not mean the person is off the hook; it means the next person in line (aka the successor) may be subject to the FBAR penalties .

There have been a few recent cases, (which Golding & Golding has already summarized previously) which result in potential liability to the distributee.

The two main cases are Schoenfeld and Park (the latter which relies in part of the former)

Let’s explore.

The FBAR falls under the Bank Secrecy Act (BSA)

As provided by the Office of the Comptroller of Currency:

The Bank Secrecy Act (BSA), 31 USC 5311 et seq establishes program, recordkeeping and reporting requirements for national banks, federal savings associations, federal branches and agencies of foreign banks.

The OCC’s implementing regulations are found at 12 CFR 21.11 and 12 CFR 21.21. The BSA was amended to incorporate the provisions of the USA PATRIOT Act which requires every bank to adopt a customer identification program as part of its BSA compliance program.

FBAR Penalties do Not Originate with the IRS

The collection of FBAR penalties by the IRS is a bit different than other “taxes.” That is because the FBAR does not originate with the IRS, and the FBAR penalty is not based on “taxes.”

Rather, it originates with FinCEN (Financial Crimes Enforcement Network), and non-compliance of foreign account reporting.

Since 2003, the IRS is responsible for enforcement of penalties.

Case 1: U.S. v. Estate of Schoenfeld (344 F.Supp.3d 1354)

This is a case that originates in Florida.

In this case, the FBAR had issued penalties against the decedent (who is the person that died). His name is Mr. Steven Schoenfeld.

The chronological dates are important in order to give you an idea of how the FBAR penalty manifested.

September 30, 2014: FBAR “willful” penalties were assessed against Mr. Steven Schoenfeld The penalty was form $614,300, which represented 50% maximum value of the accounts

August 21, 2015: Steven Schoenfeld died testate, and had appointed a personal representative.

September 29, 2016: The IRS initiated the case to reduce the penalty to judgment.

Important takeaway – Post-Death Judgment

The IRS assessed penalties before Steven Schoenfeld died.

The IRS tries to collect the penalties, but since he had passed away, the IRS initiated a COURT action to reduce the penalty to judgment.

Florida Law re: Suing a Decedent

As provided by the court, a decedent lacks the ability to be sued.

*There was a timing issue in that the IRS filed the complaint against Steven (the decedent) after he died. The IRS argued (unconvincingly) that the complaint was valid against Steven, since it was filed before they knew he died – but the court did not buy it.

Therefore, the IRS cannot proceed against decedent, Steven Schoenfeld, individually — because he was dead before the lawsuit against him was filed.

What does the Court Say About Estate or Representative Liability?

The court found that the Governments’ claim survives Steven Schoenfeld’s death. As a result, the court also found that the tax penalty survives.

But, the Court Limits Enforcement

The court takes the position that the U.S. cannot pursue a claim directly against the estate. Rather, the government can pursue a claim against the personal representative/distribute of the estate – Robert Schoenfeld.

As provided by the court:

Death may be an avenue to escape from many of the woes of life, but it is not escape from taxes.

Case 2: U.S. v. Park, 389 F.Supp.3d 561

This is a case that originates in Michigan.

In U.S. vs. Park, the defendant (Jung Joo Park) is the surviving spouse, and trustsee of her husband’s trust.

Pre-Summary review of Park

The Parks are no strangers to running afoul of the law and the IRS.

It seems that Defendant and her husband were falsely marketing certain items in their business. These issues did not involve Foreign Bank Accounts and Reporting.

Throughout their career, the Parks were audited and investigated. More recently during an audit, the IRS discovered information involving previously unreported foreign accounts, and sought to issue penalties.

Decedent and FBAR Penalties

The Parks had foreign accounts. They did not report the foreign accounts on the FBAR, and misstated their ownership or signature authority over foreign accounts.

Court Case Issues involving FBAR

Here are the two (2) major FBAR issues from the case:

Is the IRS limited by the non-Updated FBAR Willful Regulation?

No.

A few courts at the district court level held that the IRS is limited to issuing $100,000 in Willful FBAR penalties, since the regulation was not updated to match the statute. Like most courts, this court disagrees, and does not limit the penalty to $100,000.

Rather, the IRS can pursue the assessed penalty of 50% maximum value.

Reducing the FBAR Civil Penalties to Judgment

The defendants claim the IRS missed their chance to issue FBAR penalties.

Why?

Because the penalties were issued against Mr. Park on November 21, 2014 – which was more than two-years after his death. It was also after the estate had already been distributed.

The IRS argues the penalty accrued on June 30, 2009 – the date the 2008 FBAR was due (noting that since then, the due date has been changed).

The court in Park relies on Schoenfeld. By doing so, the Court alleges while the decedent may not be the proper defendant, the government can pursue the personal representative (here, Charles Park).

As provided in Schoenfeld:

The Court stated that the estate itself was not a proper party to that action, but the government could proceed against the defendant’s son as a distributee of the estate or against some recognizable representative such as “an appointed executor or administrator of the deceased party’s estate.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.

Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.

*Please beware of copycat tax and law firms misleading the public about their credentials and experience.

Less than 1% of Tax Attorneys Nationwide Are Certified Specialists

Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.

Recent Golding & Golding Case Highlights

We represented a client in an 8-figure disclosure that spanned 7 countries.
We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.

How to Hire Experienced Streamlined Counsel?

How to Hire Experienced FBAR Counsel?

Generally, experienced attorneys in this field will have the following credentials/experience:

Board Certified Tax Law Specialist credential
Master’s of Tax Law (LL.M.)
Dually Licensed as an EA (Enrolled Agent) or CPA
20-years experience as a practicing attorney
Extensive litigation, high-stakes audit and trial experience

Interested in Learning More about Golding & Golding?

No matter where in the world you reside, our international tax team can get you IRS offshore compliant.

Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.