U.S. Citizens who have a financial interest in or signature authority over foreign bank accounts…
Unfiled FBAR Penalties Survive Death
Do FBAR penalties survive death? According to a new court ruling, the answer is clearly yes (unfortunately).
In United States v. Gill, 2021 U.S. Dist. LEXIS 12203 (S.D. Tex. 6/30/21), the court ultimately held that an FBAR nonwillful penalty survives the death of the person subject to the penalty. In the case, the United States filed a complaint against Jagmail Gill, asserting that Mr. Gill, who became a green card holder and later a citizen of the United States, failed to report any of his foreign income on his originally filed U.S. income tax returns for 2005 through 2010. He also did not file an FBAR to report that he had signature authority, control or authority over, or an interest in numerous foreign bank accounts that had an aggregate balance of more than $10,000. The Government asserted that the failures to file were non-willful, but assessed FBAR Penalties of $740,848 for Mr. Gill’s non-willful failure to timely file FBARs reporting his financial interest in the foreign bank accounts.
While the case was pending, Mr. Gill passed away. In response, the government filed a motion to appoint and substitute a personal representative for Mr. Gill’s estate. Mr. Gill’s counsel filed an opposition, arguing that the Government’s claims did not survive death, so no representative was needed.
The decision turned on whether the FBAR nonwillful penalty was remedial or penal in nature. The general rule is that remedial liabilities survive death, but penal liabilities do not. Where the cause of action is not clearly in these categories, the decision is made by “primary purpose of the statute.” Applying these tests, the Court determined that the FBAR civil nonwillful penalty was remedial, which survives death and becomes an estate liability. Many cases in the past have held that the FBAR willful penalty, which typically produces larger penalties than would have applied under the nonwillful penalty was remedial, thus permitting the penalty to survive death.
The court ruling is one more ugly reminder that FBARs must be filed to avoid possible penalties in the future (and after death). Furthermore, estate executors must vigilantly review FBAR filing obligations of the decedent to see if any FBARs were missed. If any FBARs are unfiled it would be wise to file them under one of the IRS’ voluntary/amnesty disclosure programs to correct errors and become compliant before any penalties accrue.
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