Friday, June 6, 2014

Will the FBAR Willful Penalty Survive Death (6/6/14)

A frequent commenter on this blog, Global Capitalism (a nom de plume), posted a comment just a short time ago raising the hypothetical issue of whether, given Mr. Zwerner's age (87), the mutli-year aggregate 150+% willful FBAR penalty would not survive his death.  The comment is here.  As it happens, Leslie Book of the Procedurally Taxing blog (the premier tax procedure blog) had just posted today an Death, Taxes and Civil Penalties: Does the Taxpayer’s Death End IRS’s Ability to Collect Penalties? (6/1/14), here.

I strongly encourage readers interested in this issue to read the blog.  It is about other types of penalties, but lays out well the legal background for analyzing penalties that survive and do not survive death.  The blog then ends with the following:
In reading the case though I am mindful of the recent Zwerner decision allowing for a civil penalty for willfully failing to file an FBAR of about $2.2 million on just under $1.7 million of account value. (Coverage of that has been widespread; see for example Robert Woods’ piece in Forbes Court Upholds Record FBAR Penalties, Exceeding Offshore Account Balance). Zwerner is 87 years old. I wish no ill-health on him but this issue may be of great importance to his family. While I have not researched this issue, it seems to me that the extent of the FBAR penalties push the scale towards nonsurvivability under Reiserer and Hudson. Woods’ Forbes post notes that the Zwerner court will likely be considering an 8th Amendment challenge based upon the penalties being excessive and disproportionate to the conduct. Even if it withstands constitutional scrutiny, Title 31 FBAR penalties are of a different kind than other penalties that taxpayers face. The excessive penalty and punitive aspect that triggers payment potentially well in excess of the balance in the account will likely in my view contribute to this penalty not surviving death. The Hudson standard is far from clear, however, and I would not be surprised if this issue pops up in FBAR cases.
I have not researched the issue either, but my researches in other areas, including Excessive Fines, gives me some understanding of the issue.  It seems to me that some of the considerations in resolving the survivability / nonsurvivability issue are the same as presented in the Eighth Amendment issue.  If I have more thoughts on that, I will post them, but, for now, in my view Leslie Book's blog posting is the best current introduction to the issue.

The same analysis of determining whether the penalty is really punitive and thus subject to analysis under these tests seems to me to also arise in the context of the burden of proof the Government must meet to obtain judgment on the FBAR assessment.  That issue was presented in Zwerner, and the Court instructed the jury to apply the preponderance of the evidence test.  The issue arise in two prior cases, Williams and McBride, but my recollection is that there were issues in those cases as to whether the courts' application of the penalty was dicta, in the sense that it may not have controlled the outcome of the cases when the other findings and holdings are considered.

1 comment:

  1. So applying to 8th Amendment analysis (via Bajakajian), the Hudson/Reiserer test could be used to determine whether the FBAR civil fine is punitive (something that was clear in Bajakajian since he was actually convicted of a crime). But I am not sure I see how it could go to the more important test of whether it is excessive for 8th amendment purposes.


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