Tax Byte
Government Secures $1.9 Million FBAR Penalty Judgment Against Estate (US v. Patricia Leeds, DC Idaho, No. 1:22-CV-00379 (Mar. 7, 2025))
In a recent decision, the court granted summary judgment to the government in a case seeking FBAR penalties against the Estate of Richard Leeds. The court ruled that Richard Leeds willfully failed to file Reports of Foreign Bank and Financial Accounts (FBARs) for tax years 2006 through 2012.
Case Background:
Richard Leeds maintained two foreign bank accounts with EFG Bank in Switzerland for over three decades. The first account (Account One) was opened in 1980, while the second account (Account Two) was opened in 1997 under the name of Asian Group for International Studies (AGIST), which Leeds admitted was his alter ego. The highest aggregate maximum account value was over $3 million.
Leeds utilized various practices offered by EFG to conceal these accounts, including:
- Using pseudonyms “Washington,” “WashingtonOne,” and “WashingtonTwo” for the accounts
- Implementing “hold mail” instructions to avoid receiving documentation
- Having account statements destroyed after in-person viewing
- Withdrawing hundreds of thousands of dollars in cash over the years
Key Court Determinations:
1. Willfulness finding: The court found Leeds’ violations were willful under the objective recklessness standard recently adopted by the Ninth Circuit in United States v. Hughes. The evidence showed Leeds:
- Consistently denied having foreign accounts on tax organizers and tax returns
- Used pseudonyms and “hold mail” instructions to conceal the accounts
- Maintained a significant portion of his total income in these accounts
- Failed to investigate his tax obligations despite being advised to seek legal advice
2. Survival of penalties: The court concluded that FBAR penalties survive death, finding them remedial in nature for purposes of survival.
3. Eighth Amendment claim: The court determined that FBAR penalties are subject to the Eighth Amendment’s Excessive Fines Clause, following the Eleventh Circuit’s reasoning in United States v. Schwarzbaum.
4. Spousal liability: Significantly, the court ruled that while the government was entitled to summary judgment against the Estate, Patricia Leeds could not be held personally liable nor could the penalties be recovered against her property. The court found the penalties would be grossly disproportional to Patricia’s culpability, as she had no knowledge of or access to the accounts.
Tax Practitioner Planning:
This case highlights several important considerations:
- The Ninth Circuit has joined other circuits in adopting an objective recklessness standard for determining willfulness in FBAR cases
- FBAR penalties survive a taxpayer’s death and can be assessed against their estate
- Courts may apply the Excessive Fines Clause to FBAR penalties
- Innocent spouses may be protected from FBAR penalties assessed against their deceased spouse