A Florida jury awarded the estate of Texaco heiress Lavern N. Gaynor an $18 million Valentine's Day award, ruling that her failure to timely file bank and account statements foreign financial (FBAR) for three years was not intentional. 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 more than $30 million each. year. In 2012, through a series of “quiet returns,” in which she did not follow any simple disclosure procedures, she made all required FBAR disclosures and filed tax returns for prior years reporting the foreign accounts. . By 2013, she was fully compliant, filing all FBARs late and correctly filing her tax returns for prior years. Lavern died in 2021. The Internal Revenue Service sought penalties for failure to timely file FBARs from the estate and from a private trust. After years of government proceedings, in a trial that ended on February 14, 2023, a jury ruled that Lavern's estate is not liable for the $18 million fine for failing to file FBAR reports.
FBAR requirements
Lavern maintained various accounts in Switzerland which were managed through Gery Trading Corporation. The IRS said she moved her accounts to different locations to avoid detection. The Bank Secrecy Act requires all US persons, including citizens, trusts and estates, and residents to file an FBAR to report financial interest or signing authority in foreign bank accounts when the aggregate amount of values exceeds $10,000 in any calendar year certain. The FBAR is an annual report due by April 15 in the year following the calendar year reported. While the decision does not state why Lavern's failure to timely file FBARs was found to be involuntary, IRS Guidelines on the FBAR indicates that the taxpayer “should file the late FBAR as soon as possible to keep potential penalties to a minimum”). Therefore, filing late FBARs for 2009, 2010 and 2011 through a quiet disclosure in 2013, before it was audited. Lavern agreed with the aforementioned section. Additionally, death does not waive the FBAR compliance requirement. Although Lavern's estate and private trust could not prove the decedent's will or state of mind, the jury appears to have decided that FBAR penalties may not be punitive in nature. Instead, the purpose of imposing FBAR obligations on the decedent's estate and obtaining penalties against the estate is part of the compliance examination process for estate tax attorneys under IRM 4.25.4.4. IRS estate tax return examiners are required to look for tax compliance records in the taxpayer's foreign account and pursue any non-compliance 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 estate's pending FBAR filing directly to determine whether penalties for willful neglect of the FBAR rules applied, the court considered Lavern's statements -it in front of her. death and during the time of her quiet discoveries. Although the purpose of FBAR compliance may be to prevent unjustified underreporting of foreign assets, the estate tax examination process ensures compliance and that the estate does not experience a windfall simply because the taxpayer on whom the penalty would have been assessed is dead Therefore, had the jury determined that Lavern's failure to file FBARs for the years in question was willful, the estate would have been entitled to $18 million plus interest in penalties.
Willful failure to appear Difficult to prove
Although, at first glance, it appears that Lavern tried to avoid FBAR disclosures by switching Swiss accounts through her management company and filed “quiet disclosures” once she was audited, she told the government she didn't know about the offshore. accounts until she amended her tax returns in 2013 for the years she failed to file FBARs, which were 2009, 2010 and 2011. Managing the accounts included secret meetings in Naples, Fla. and with Swiss bankers. The ruling supports that proving a willful failure to file an FBAR can be difficult and require more evidence of willfulness for such a penalty to be assessed.