Estate FBAR Penalties – Foreign Assets | IRS Estate FBAR Penalties
IRS can Collect FBAR Penalty From Estate: Recently in a District Court in Florida, the issue of FBAR penalties and Estates was presented. The issue was that if the U.S. Government has already issued FBAR penalties against an individual, and the individual dies – who is responsible for the penalties:
Estate FBAR Penalties
The analysis is a bit complicated, but that is the unfortunate result of having to deal with the IRS.
In the case of Schoenfeld, the government initiated an action in U.S. District Court for FBAR penalties that resulted from willful violations that occurred several years prior.
A suit was filed against the Taxpayer for failing to pay nearly $700,000 in FBAR penalties as a result of Taxpayer’s willful failure to report his UBS account (noting the U.S. entered into settlement agreement with UBS, and UBS was a notorious Offshore Tax Haven institution).
Schoenfeld’s Son Seeks to Dismiss the Suit
The son made a strong plea to the court, based on the fact that his father:
- Survived a concentration camp during World War II
- Had an elementary school education
- Worked a blue collar job as a machinist
- He had received legal advice to invest the money in Switzerland.
FBAR Penalty Recovery is a Remedial Action
Here is the kicker: Since the recovery of FBAR penalties is remedial in nature, it survives the death of the party. In addition, the court went on to explain that the purpose of the FBAR is to protect revenue that may be lost as a result of Fraud.
As a result, the Government and since the amended complaint properly related back to the initial action and may proceed for collection of penalties agains the son, not the estate (timing issue of when the suit was filed).
Is the Personal Representative or Executor Liable?
In general, when a personal representative overseas distributions from an estate, they have to be careful to follow rules. A main component for the personal rep is to ensure that any creditor claims are handled properly before distributing any assets to the heirs or beneficiaries.
If the personal representative was to distribute money that would otherwise be used to make payment for FBAR Penalties, the personal representative can be liable.
Here, since the court determined that the penalties survive the state. If the Personal Representative distributes the funds from the decedent to the beneficiaries prematurely and the estate has insufficient funds – the personal representative can presumably be liable.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.