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Sunday, November 08, 2020

FBAR Penalties Survive Death

The IRS may assess penalties for a person’s failure to file a required FBAR. If the person’s failure to file was willful, the IRS can impose a penalty equal to 50% of the account balance or $100,000, whichever is greater.  If an individual dies, can the IRS assess and collect an FBAR penalty for failing to disclose a foreign account?

Absent some specific direction by Congress, whether an action created by federal statutory law survives the death of the plaintiff is a matter of federal common law. Generally, under federal common law, a claim survives death and can be enforced if it is remedial and not punitiveSharp v Ally Fin., Inc., 328 F.Supp 3d 81, 88-89 (E.D.N.Y. 2018). Tax penalties are typically considered remedial and not punitive because their purpose is to reimburse the government for the costs of investigation and enforcement. Estate of Kahr, 24 AFTR 2d 69-5332 (CA 2 1969).

A potential 50% penalty looks to many as being punitive. However, in a Federal District Court case, the court ruled that FBAR penalties come under these general rules and are remedial and can be assessed and collected post death.

Taxpayers who are not disclosing their foreign accounts should take this liability into account - that is, the risk of penalty is not just on them but will be on their heirs as to their inheritances if a penalty is imposed before or after death.

Wolin, 126 AFTR 2d ¶2020-6348 (DC NY 9/28/2020) 

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