Court Finds that FBAR Penalties Can Be Assessed After Taxpayer’s Death

Can the IRS assess penalties against a deceased taxpayer for previously failing to file an FBAR? And who can the government collect the penalties from after the estate has been settled?

In United States v. Park, No. 1:16-cv-10787 (N.D. Ill. 2019), the government brings suit against the deceased taxpayer’s children who are beneficiaries of taxpayer’s estate, and including a son, who was the executor of the estate.


Que Te Park (“Mr. Park”) was a businessman who lived in Inverness, Illinois.

Through his business entities, QT, Inc., and Q-Ray Company, Mr. Park sold “Q-Ray” bracelets.

A Q-Ray bracelet was an ionized piece of jewelry that purported to relieve pain and arthritis by affecting the wearer’s “chi.” Mr. Park’s businesses sold Q-Ray bracelets via television infomercials, websites, and trade shows, generating net sales figures of approximately $87 million.

After several lawsuits by the FTC against Mr. Park and his entities for false and misleading advertising of the Q-Ray bracelets, Mr. Park filed for Chapter 7 bankruptcy protection in February 2007.

In the midst of subsequent bankruptcy proceedings, Mr. Park fled the country.

Mr. Park timely filed a 2007 FBAR form, disclosing three accounts, but did not timely file a 2008 FBAR form by June 30, 2009.

Following reports that Swiss banks were cooperating with the United States government by revealing information about foreign accounts held by United States residents (and after UBS revealed such information about Mr. Park’s accounts), tax advisors began to counsel taxpayers to file amended tax forms disclosing such accounts for prior years.

In 2011, the IRS initiated an audit of Mr. Park’s tax accounts. During the audit, the government learned that Mr. Park died in July 2012.

On November 21, 2014, the IRS assessed a penalty against Mr. Park of $3,509,429.50, fifty percent of the value of his foreign bank accounts, for his willful failure to file a timely FBAR form for 2008. The penalty remains unpaid.

Defendant’s motion to dismiss

Defendant makes several arguments, some of which are listed here.

  1. That the allegations are not sufficient to support a reasonable inference that Mr. Park acted willfully, based on United States v. Pomerantz.

The government points out that in Pomerantz, the could held that the government’s amended complaint contained sufficient allegations of a willful FBAR violation because the penalized party had properly filed FBAR forms in prior years, so he clearly knew of the requirement and how to satisfy it.

Mr. Park, similarly, timely filed an FBAR in 2007 and therefore knew of his FBAR filing requirement. Yet, he failed to timely file the FBAR in 2008. On June 10, 2010, Mr. Park filed a delinquent 2008 FBAR form disclosing ten foreign bank accounts, some of which he had not previously disclosed, which held more than $7 million.

The court reasons that a reasonable fact-finder could conclude from these facts that Mr. Park knew of the FBAR filing requirement and willfully failed to file on in 2008 to prevent the government from learning of foreign assets and income.

2. The assessed penalty is more than the $100,000 maximum penalty authorized by the Treasury Regulation (following Wadhan and Colliot).

The court finds the reasoning in Garrity and Norman persuasive: that it does not follow from the fact that the Secretary has discretion to establish the reporting requirements that give rise to an FBAR violation that the Secretary also has discretion to “override Congress’s clear directive” with respect to what the applicable penalties “shall” be, once the Secretary “chooses to impose them for a reporting violation.”

3. Timeliness of Government’s FBAR Claim

Defendant argues that no FBAR liability arose until the IRS assessed a penalty against Mr. Park on November 21, 2014, more than two years after his death. Mr. Park’s estate was distributed to the beneficiaries between November 2012 and January 2013.

Defendant argues that Mr. Park could not have paid the FBAR penalty after his death, and that the representative of Mr. Park’s estate could not pay a penalty before it existed.

The government responds that, as an initial matter, its claim for FBAR liability accrued not on the date of the assessment but on June 30, 2009, the date Mr. Park’s 2008 FBAR form was due.

Not only did Mr. Park’s FBAR liability arise before his death, the government argues, it also survives his death, and the FBAR penalty can be collected against his heirs.

The court agrees with the government’s position. The estate of a taxpayer who fraudulently concealed a portion of his income during his lifetime, but died before he personally filed a fraudulent return, cannot thereby avoid a liability the taxpayer himself could not have avoided if his conduct had been uncovered while he was alive.

“Remedial,” rather than punitive, claims typically survive a party’s death, and courts have frequently held that actions to recover tax penalties are remedial, not punitive in part because the purpose of such penalties, among other purposes, is to reimburse the government for the heavy cost of investigating violations of its tax laws.

Who’s responsible for paying the FBAR penalty after a taxpayer is deceased?

The government can collect from a distributee of the estate, or appointed executor or administer of the deceased party’s estate.

That is precisely what the government has done in this case: it has sued the penalized party’s children as distributees and one son who acted as a representative of the estate by overseeing its liquidation and the distribution of its proceeds.

To what extent does an executor or a personal representative of an estate need to investigate the decedent’s tax returns and financial affairs? The government must prove that a representative of an estate made a payment in violation of 31 U.S.C. 3713(b). Specifically the government must show:

  1. The person was a fiduciary of the estate who
  2. Distributed the estate’s assets before paying a claim of the government and
  3. Knew or should have known of the government’s claim

As establish transferee liability against the Park children, the government advances several arguments under 28 U.S.C. 3304 (FDCPA fraudulent transfers), 740 ILCS 160 (fraudulence transfer under Illinois law), and federal common law unjust enrichment.

Voluntary disclosure options for estates

An executor of an estate who discovers unfiled FBARs and unreported foreign income should bring the decedent taxpayer into compliance before settling the estate. Otherwise, the personal representative risks being responsible for taxes and penalties (up to the amount of distribution from the estate).

The amended returns and FBARs can be filed under any one of IRS’ voluntary disclosure options, depending on the facts of the case.

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