A Florida jury handed the estate of a Texaco heiress, Lavern N. Gaynor, an $18 million Valentine’s Day boon by deciding that her failure to timely file report of foreign bank and financial accounts (FBAR) reports for three years wasn’t willful. Lavern inherited her late husband’s Swiss bank accounts and various other offshore accounts. The government noted that she actively worked with the bank and managed the accounts since her husband’s death in 2003, but failed to file FBAR reports for 2009, 2010 and 2011 despite the accounts holding over $30 million in each year. In 2012, through a series of “quiet disclosures,” in which she didn’t follow any streamlined disclosure procedures, she made all necessary FBAR disclosures, and she filed tax returns for prior years reporting foreign accounts. By 2013, she was fully compliant, had filed all delinquent FBARs and correctly filed her tax returns for prior years. Lavern died in 2021. The Internal Revenue Service sought penalties for the failure to timely file FBAR from the estate and from a private trust. After years of proceedings by the government, at a trial ending on Feb. 14, 2023, a jury decided that Lavern’s estate isn’t liable for the $18 million penalty for failing to file the FBAR reports.
FBAR Requirements
Lavern held various accounts in Switzerland, which were managed through Gery Trading Corporation. The IRS said she moved her accounts to various locations to avoid disclosure. The Bank Secrecy Act requires all U.S. persons, including citizens, trusts and estate and residents to file a FBAR to report financial interest or signatory authority in foreign bank accounts when the aggregate of the values exceeds $10,000 in any given calendar year. The FBAR is an annual report due by April 15 in the year following the calendar year reported. While the decision doesn’t indicate the reason that Lavern’s failure to timely file FBARs were found non-willful, the IRS guidance on FBARs indicates that the taxpayer “should file late FBARs as soon as possible to keep potential penalties to a minimum”). Accordingly, by filing delinquent FBARs for 2009, 2010 and 2011 through a quiet disclosure in 2013, before she was audited. Lavern complied with the aforementioned section. Additionally, death doesn’t exclude the compliance requirement of the FBAR. Even through Lavern’s estate and private trust couldn’t attest to the willfulness or state of mind of the decedent, the jury appears to have decided that FBAR penalties may not be punitive in nature. Instead, the intent of imposing FBAR obligations on the estate of the deceased and accessing penalties against the estate is part of the examination compliance process for Estate Tax Attorneys under IRM 4.25.4.4. Examiners of estate tax returns in the IRS are required to request the taxpayer’s Foreign Account Tax Compliance Data and pursue any noncompliance issues against the estate and its representatives. Therefore, even though Lavern died in 2021 and her noncompliance dated back to 2010, and the IRS could pursue the pending FBAR filing from the estate directly to determine whether penalties for willful neglect of the FBAR rules applied, the court considered Lavern’s statements from before her death and during the time of her quiet disclosures. Although the goal of the FBAR compliance may be to prevent unwarranted nondisclosure of foreign assets, the estate tax examination process ensures compliance and that the estate doesn’t experience a windfall merely because the taxpayer on whom the penalty would have been assessed is dead. Accordingly, in the event the jury had decided that Lavern’s failure to file FBARs for the years in question were willful, the estate would have owned the $18 million plus interest in penalties.
Willful Failure to File Difficult to Prove
Although, at first glance, it appears the Lavern tried to thwart FBAR disclosures by switching Swiss accounts through her management company and submitted “quiet disclosures” once she was beginning to be audited, she told the government that she didn’t know about the offshore accounts until she amended tax returns in 2013 for the years where she failed to file the FBARs, which were in 2009, 2010 and 2011. Management of the accounts included secret meetings in Naples, Fla. and with Swiss bankers. The decision supports that proving a willful failure to file FBARs may be difficult and require more proof of willfulness for such a penalty to be assessed.
