New heightened reporting requirements for foreign financial activities: What every fiduciary should know about a decedent's unfulfilled compliance obligations

Given that reporting requirements for foreign transactions are at the highest level in history and the government's own figures estimate that 98.7 percent of tax revenue lost to offshore sheltering is not recouped through Offshore Voluntary Disclosure Initiative (OVDI) programs, it can be deduced that the vast majority of cross-border transactions remain undisclosed. This paper explores whether, upon the death of a taxpayer, his/her unfulfilled obligation to file certain information returns with respect to foreign financial activities survives him/her. To the extent that another taxpayer, as fiduciary, inherits the decedent's burden to file delinquent information returns, this paper outlines the ambiguity regarding the statutory authority of the Internal Revenue Service (IRS) to collect the liability for related civil penalties personally against the fiduciary. While the IRS believes it has the authority to do so, this paper suggests otherwise. Through a factual scenario focused on Section 6048 of the Internal Revenue Code, this paper concludes that a taxpayer's obligation to file information returns with respect to certain foreign financial activities survives him/her. The estate inherits this filing obligation as well as the liability for civil penalties due to the late filing. However, to the extent that the estate's assets are prematurely distributed, there remains a genuine doubt about the IRS's ability to use Section 6901 of the Internal Revenue Code in order to collect against a fiduciary, even in cases where the executor had notice of the claim before making a distribution. It is important to understand that this paper specifically discusses the authority of the IRS under Title 26 to collect certain penalties against fiduciaries. This paper does not suggest that the U.S. Government at large, through another agency or pursuant to the authority of another title of the US Code, would not have the authority to so collect.