Court Dismisses Fraudulent Transfer Claims for FBAR Willful Penalty For Failure to State Claims with Particularity But Grants Leave to Amend (10/5/2017)

In United States v. Park, 2017 U.S. Dist. LEXIS 165173 (N.D. Ill. 10/5/17), here, the Government sued to collect an FBAR willful penalty (erroneously called a tax penalty) assessed against a taxpayer, deceased, and joined the taxpayer's family members on various transferee liability provisions.  The Court granted the children's motion to dismiss for failure to lead the cause of actions properly, but granted the Government leave to file an amended complaint resolving the deficiencies.  For context, the original complaint is here.

The Government's claims against the children were under the Illinois Uniform Fraudulent Transfer Act ("IUFTA"), 740 ILCS 160/5.  The children asserted that, because that claim sounds in fraud, the Government was required to assert the elements with particularity under FRCP 9(b).  The court discussed the elements and judicial interpretations and then concluded:

The government has not come close to describing with particularity the precise circumstances of the alleged transfers in the way that these decisions have required. The complaint contains no particularized description of the events surrounding the conveyance of Mr. Park's assets or the Trust to the Park children; in fact, it makes no particularized allegations of any such conveyance or conveyances at all. Particularized facts concerning "what (or how much) was transferred, when the transfer was made, how it was made, who made it, who received it, and under what circumstances," are largely missing; the government only pleads who received the alleged transfers (the Park children). The government has not met its pleading burden under Rule 9(b) on Counts V and VI.

The Court also rejected the Government's claims that, as to Illinois common law for tracing asset transfers, the more liberal Rule 8 pleading standard applied and was met.  The Court rejected the claim.

Finally, for additional flavor, readers should review the complaint which I link above.

The Court did give the Government leave to amend to correct the deficiencies if it can.

JAT Comment:  There was an issue floating around at one time as to whether the FBAR penalty was the type that abated upon the penalized party's death.  I suppose that issue, to the extent that it is still alive, might be presented in the case.  I did research that issue at one time and concluded that it was a long shot at best.