Can tax penalties apply to the dead? In some cases, yes.

Benjamin Franklin is credited with saying that only two things are certain in life, death and taxes. Unfortunately, in some cases, it appears that in addition to being two certainties in life, the relationship can extend beyond death.

How can tax obligations extend beyond death?

Two recent court cases provide an example. The cases involve application of the Bank Secrecy Act (BSA). the BSA requires financial institutions to file various Internal Revenue Service (IRS) information returns for currency transactions exceeding $10,000, requires certain persons to disclose their foreign accounts and prohibits avoidance of the reporting requirements. Two federal courts recently heard cases involving a decedent who failed to comply with the BSA when the individuals chose not to file a Report of Foreign Bank and Financial Accounts (FBAR).

This left the surviving heirs with a tough decision: report the foreign assets or not? In these cases, the heirs reported the foreign assets and the IRS required the estates to address their tax obligations.

In another separate case, the heirs decided not to report the assets. The surviving family members attempted to continue to hide the assets and slowly incorporated the assets into their own estates. The government ultimately discovered the attempt and moved forward with criminal charges. The court chose to sentence four adult children to prison time as a result of this attempt to continue to hide the assets.

What can taxpayers in similar situations learn from these cases? 

Dealing with tax compliance issues that come with an estate after a loved one passes is not an easy task. In cases that involve foreign asset compliance, the government often requires a personal representative to file amended tax forms. In some cases, streamlined procedures for compliance may be available. In either case, it is generally wise to seek legal counsel experienced in foreign account tax matters to help better ensure the estate is compliance.

If you have questions or concerns regarding tax compliance issues following the death of a loved one, contact Frost & Associates, LLC at 410-497-5947.

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