FBAR Debt Transferee Liability Denied in Recent Case of U.S. v. Park

Oct 27, 2017

The FBAR Wiz brings you another Court decision hot off the presses in this post, and explores an important decision affecting how FBAR-related debt may or may not transfer to other family members upon death of the debtor. In U.S. v. Park, Case No. 16C10787, the U.S. District Court for the Northern District of Illinois concluded that the government failed to adequately plead claims for fraudulent transfer and transferee liability against the children of a deceased taxpayer. According to the Court’s distilled factual description, the taxpayer, Que Te Park, filed an FBAR form in 2008, reporting multiple foreign bank accounts for the first time. As a result of this filing, the U.S. government assessed a tax penalty of nearly $4 million against him - yikes! The government did not successfully collect this penalty during the taxpayer’s lifetime, so after the taxpayer's death in 2012, the government sought to collect the penalty from his estate instead. This is where things got interesting. The deceased taxpayer did not leave any probate estate within the United States at his death from which to collect, he likely did not leave property in the United States either. The pleadings describe his estate without specificity, referring to the possibility of assets in South Korea that may have been held in an Illinois trust or may have passed to his surviving spouse and children through South Korean probate proceedings. The government attempted to collect its unpaid debt from Park’s surviving spouse and children on the grounds of fraudulent transfer, common-law transferee liability and fiduciary liability. In response to the government’s complaint, the deceased taxpayer's children filed a motion to dismiss the claims against the estate. The taxpayer's children raised various defenses and counterclaims, several of which the Court rejected. However, the Court did grant their request for a motion to dismiss because the government had failed to allege particular facts adequate to support its claims of fraudulent transfer and transferee liability. In fact, the Court found that “the factual allegations [did] not raise a right to relief above the speculative level,” and therefore the government’s complaint failed to state a claim against Park’s children. Significant of This Court Case The dismissal of the transferee liability claim is particularly important because such claims do not need to meet the stringent standard applied to claims of fraud. Transferee liability claims must merely satisfy the liberal requirements of Rule 8 of the Federal Rules of Civil Procedure. In this case, the government provided only “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements.” On a similar note, the Court found that the factual allegations in the complaint were so inadequate that the Court also dismissed the government’s claim against the taxpayer's children for an accounting. While the Court confirmed that the liberal standard of the FRCP Rule 8 applies to claims for an accounting, the government’s allegations still needed to rise to a higher level than mere speculation. This new court decision may provide a valuable reference for taxpayers who face claims containing few alleged facts, but its direct application likely will be limited, since this particular opinion is non-binding, fact specific and not a final judgment. The claims against the taxpayer's children were dismissed without prejudice, granting leave for the government to file an amended complaint by Nov. 7, 2017. If the government can gather information sufficient to demonstrate actual transfers to or control by Park’s children, then it might still be able to bring suit against them. This is very important information to know if you are currently exploring FBAR compliance and/or estate planning issues. For a related blog post exploring the nuances of what it means to "wilfully" fail to file the FBAR form, check out this related blog post. If you suspect that you may need to report foreign assets and/or foreign accounts to the IRS, find out for sure by completing the free FBAR Wiz app. The FBAR Wiz app will tell you if you have to report foreign assets/accounts to the IRS, and what forms that you may need to file. Be in the know and stay current with the FBAR Wiz!