How FBAR Penalty Violations Survive After Death (New 2025)

How FBAR Violations Survive After Death 2025 (Update)

How FBAR Violations Survive After Death 2025 (New Update)

One of the most difficult aspects about dealing with the IRS on international information reporting (FBAR, Form 8938, Form 3520, etc.) is the penalty component of offshore non-compliance. For example, if a person passes away before penalties were assessed against them, one would think that the IRS would lose the opportunity to penalize the Taxpayer for the non-compliance. Unfortunately, even after a person passes away, the IRS may still be able to assess FBAR penalties. When it comes to FBAR penalties — and the fact that these types of penalties can be exorbitant — there has been a steady uptick in litigation over the past several years on whether FBAR penalties survive death. And with FBAR, there is an added level of complexity since the FBAR is not technically an IRS form. There was a recent case (Hendler) that provided a good explanation about how FBAR penalties survive death. Let’s take a brief look at how the court ruled in Hendler.

*Golding & Golding previously authored the articles: Do FBAR Penalties Survive Death of Taxpayer? (2021) and Court Holds FBAR Penalty Liability Survives Death (2024). This article focuses specifically on the court’s ruling in Hendler.

The Decedent Filed Late FBARs Before Passing Away

Here, the decedent filed several years of late FBARs. The FBARs were filed in March of 2015 for tax years 2004 through 2010. The IRS was aware of the late filings, and the Taxpayer found himself under examination.

Taxpayer’s Representative Extended the FBAR Statute of Limitations 

In this case, the representatives for the taxpayer had agreed to extend the statute of limitations to enforce the FBAR. Sometimes this is done because the taxpayer is part of the Voluntary Disclosure Program — and doing so is ‘required’ to satisfy the cooperation component of VDP. Alternatively, it can be because the taxpayer’s representatives were concerned that if they did not extend the statute, their client would have lost the opportunity to prove non-willfulness — and the IRS would have assessed willful penalties before they had all the facts.

Death and FBAR Penalty Assessments

The decedent passed away on January 6th, 2021. On April 21st, 2021, the IRS assessed $250,000 in penalties against the decedent (This amount was later reduced in accordance with the Supreme Court ruling in Bittner that limits non-willful FBAR penalties to a per-form penalty and not a per-account penalty).

In October of 2023, the outstanding liability of the estate was close to $82,000.

• • • So, how was the IRS able to assess penalties against the decedent?

FBAR Penalties Accrued Before Death and are Remedial in Nature

As courts before it have also ruled, this court takes the position that the FBAR liability accrues on the date that the FBAR was due and not on the date that the FBAR penalty was assessed. In other words, even though the penalty was not assessed until after the taxpayer passed away, since the ‘bad’ behavior (filing the late FBAR) occurred before the taxpayer passed away, the IRS took the position that the statute of limitations had not expired (and the court agreed). In addition, the court agreed with the decisions that found that FBAR penalties are remedial in nature and therefore survive the death of the taxpayer.

Extended Statute of Limitations

The taxpayer’s representatives had extended the statute of limitations (and had done so more than once). As mentioned above, there are various reasons why the representatives may have extended the statute, but ultimately, it results in the fact that the statute of limitations has not yet expired.

Hendler argues that the consents are invalid because the statute of limitations had already expired — at least on some of the FBAR penalty years — before the consents were entered into, but the court rejects these arguments and finds that the government was still within the statute of limitations.

Court Rejected Decedent’s Constitutional Arguments 

Finally, the defendants take the position that the FBAR penalty assessments violated both the 5th Amendment Due Process Clause and the 8th Amendment Excessive Fine Clause, but the court rejects both of these arguments as well.

What does this Mean for Taxpayers?

Since FBAR penalties can follow a person after death, it can put a decedent’s beneficiaries, estate administrators, and others into a precarious position when it comes to future filings, penalty avoidance, and distributions. Taxpayers should consider all the different amnesty options to try to minimize or avoid penalties before filing any additional returns for the decedent or estate.