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Can the IRS Civilly or Criminally Target Your Estate after You’re Dead Over Undeclared Foreign Accounts and Nonreported Offshore Income?

If You Have a Secret Account with Bank of Butterfield, You May Be Under Criminal Tax Investigation by the IRS Criminal Division
September 10, 2021

Can the IRS Civilly or Criminally Target Your Estate after You’re Dead Over Undeclared Foreign Accounts and Nonreported Offshore Income?

 

The IRS, tax watchdog of the federal government, has a number of ways to come after American taxpayers if they believe they have strayed from compliance. However, what about taxpayers who have passed away? Surely the IRS loses some of its bite once the target is no longer breathing.

However, this is far from the case. While it’s true the IRS will not ordinarily seek to put a corpse in jail, the IRS will target the estate of the deceased if it believes that the deceased violated the internal revenue code. The federal government will not hesitate to bring enforcement actions whether the deceased’s violations were found to be willful or non-willful. The government has successfully prosecuted several such cases. This may land the potential heirs of the estate in a world of trouble if they are found to be a willing participant in the decedent’s noncompliance or in covering up the noncompliance. Additionally, the IRS and State taxing authorities are creditors of the estate that most be satisfied before distributions can be made to the heirs of the estate that will not create a personal liability for the estate executor. The estate administrator’s personal assets can be at risk if the taxing authorities are not satisfied before assets are distributed. There are options at your disposal for defending against these type of problems, however you would be well served to hire a dually licensed Tax Attorney and CPA to receive counsel on all of your options.

The best way to defend against the insatiable appetite of the federal government is to enlist the help of the dual licensed Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing. Our team has built our reputation on going to battle against the federal and State government for our clients and consistently achieving effective damage control. To hear what we can offer you, call us today at (800) 681-1295 or schedule a reduced rate initial consultation online.

Gill: FBAR Non-Willful Penalties Extend to Estate Even After Defendant’s Death

In a recent case heard in federal district court in the Southern District of Texas, the federal government won a major decision that sets the precedent for hunting down penalties even after a tax code violator has died. In U.S. v. Gill (No. 18-cv-04020 (S.D. Tex. 2021)), the court dismissed the estate’s motion to dismiss roughly $800,000 in penalties levied by the IRS for FBAR reporting violations.

It is important to note two key aspects of the Southern District’s decision. First, these penalties were assessed for what were found to be non-willful violations. A non-willful violation, as evidenced by the name, is one that the government attributes to a simple mistake or other unknowing failure on the part of the taxpayer. Though substantial, penalties for non-willful violations are much lighter than their willful counterparts. Still, the court deemed that these penalties should apply to the estate even after the violator was no longer alive to answer for them, indicating clearly that willful penalties would carry over as well.

Second, the distinction between unpaid taxes owed and penalties is important here. Imposing an order to pay back funds in the amount of unpaid taxes would seem to be in the interest of restoring equity and justice. But penalties, which are assessed to taxpayers in addition to unpaid taxes, are meant to punish the behavior incentivize future compliance. These reasonings don’t really apply to someone who isn’t alive. Yet, the court determined that assessing the penalties from the estate was proper because it served a “remedial” purpose.

How to Defend Against the IRS Targeting Your Estate After You Have Died

Not surprisingly, in tax violation cases, the odds are stacked against the taxpayer. In order to defend against a non-willful penalty for a tax violation such as a failure to meet FBAR reporting guidelines, you have limited options.

One such option in the face of such penalties is asserting a defense of reasonable cause. The reasonable cause defense is essentially the argument that the taxpayer reasonably believed that they were acting in compliance with the tax code. Because the tax code is so complicated and changes fairly frequently, this defense can make sense in many circumstances.

However, it is the burden of the taxpayer to prove their reasonable cause. How the federal government will evaluate reasonable cause depends on the nature of the violation and the penalty assessed. You will also likely have to show that your failure to remain compliant wasn’t due to “willful neglect,” or consciously choosing to ignore or avoid learning about the correct law that applied to your tax reporting requirements.

Can Voluntary Disclosure Help Prevent the IRS from Targeting Your Estate?

Another measure of defense that you may choose to employ against potential penalties for non-willful tax code violations is voluntary disclosure. The voluntary disclosure program was created to allow for people who realize that they had previously purposefully or unwittingly violated the tax code to amend previous filings and receive a pass on criminal tax prosecution. This cooperation makes the IRS’ job easier, as they are saved the time and money of a criminal tax investigation or an audit. As such, voluntary disclosers ordinarily received advantageous penalty provisions related to their past transgressions.

Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosurebefore the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply. 

It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.

Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!

Voluntary disclosure is a delicate process. You should know that voluntary disclosure is a preventative measure, not a direct defense to penalties already assessed. If you hope to use voluntary disclosure to your advantage, you should be sure that the IRS is not already aware of your past noncompliance. Disclosing incorrectly or at the wrong time can make matters even worse for the honest taxpayer just trying to limit the damage for a mistake.

For this reason, you should always have the assistance of a dual Licensed International Tax Attorney and CPA. Only an Attorney can assess your criminal tax exposure. Tax attorneys can communicate with the IRS on your behalf to make safe and helpful cooperation work to your advantage instead of against you. Fortunately, the professionals at the Tax Law Offices of David W. Klasing have dual licensing and are ready willing and able to assist you throughout the process. Whether you are already facing IRS penalties or fear that the federal government may target you or a loved one’s estate once they are already gone, we can help today.

We Can Help You Avoid IRS Penalties Assessed on Your Death

Our dual licensed Tax Attorneys and CPAs are ready and willing to defend you against the relentless efforts of the IRS. No matter what your situation may be, you deserve the help of the professionals. Call us today at (800) 681-1295.

See our 2011 OVDI Q and A Library

See our FBAR Compliance and Disclosure Q and A Library

See our Foreign Audit Q and A Library