We have previously written about the requirements to file a Report of Foreign Bank and Financial Accounts (“FBAR”) for foreign bank accounts held by US taxpayers pursuant to the Bank Secrecy Act.[1] In a recent case out of the United States District Court for the District of Idaho, the Court ruled that a decedent’s widow was not liable for FBAR penalties owed by her late husband for unreported foreign accounts he held.[2] While her late husband, Richard Leeds, was deemed to have willfully failed to file multiple FBARs, and the penalties imposed for such failure were deemed to survive his death and be a claim against his estate, the Court determined that his wife Patricia Leeds was not culpable in the failure and thus not liable for the penalties in her individual capacity.[3]
During his career, Richard worked for numerous overseas contractors providing services to the military and NASA including setting up satellite communications and securing government contracts to construct military installations in the Middle East. As part of this, he had many high-level contacts in the United States government including generals and political figures. At some point, Richard also did some secretive work for the Central Intelligence Agency though Patricia did not know about this until well after the fact.
In 1984, during one of Richard’s trips to Saudi Arabia, his plane was hijacked by Yemeni terrorists and flown to Tehran, Iran, where Richard was held and questioned extensively by Iranian authorities. He was eventually released. According to Patricia, this is the reason Richard opened the bank accounts, although he opened the first bank account in 1980, four years before this happened. Richard also opened a second account under a false name, both with a bank in Switzerland. Richard was the only signatory authority and had the accounts set up to prevent the US taxing authorities from getting wind of them, including a hold mail provision where no mail was sent, using code names for the banks, and several other methods the bank provided. In 2012, the bank notified Richard that it was complying with US authorities under the Foreign Account Tax Compliance Act and US customers were no longer welcome. Accordingly, he needed to close his accounts, which he did. He also entered the Offshore Voluntary Disclosure Program but later withdrew, thus starting a full-scale investigation into Richard’s foreign accounts.
During the years at issue, 2006 to 2012, Richard’s CPA provided him with a questionnaire asking if he had any foreign accounts, to which he always checked no. Based on this and several other items, it became clear that Richard knew or should have known of his FBAR requirements. The Court concluded he willfully failed to file the FBARs. However, there was no evidence presented that Patricia knew or had reason to know the foreign accounts even existed until the IRS began their investigation.
Despite Patricia’s role, or really the lack thereof, with the foreign accounts, the IRS sought to enforce the penalties against her. She maintained her innocence and the record at trial backed this up. She never had signatory authority on the accounts and claimed no knowledge of them, facts which were not disputed by the IRS. Based on this, Patricia argued that levying the penalties on her would be excessive and “grossly disproportional” to her culpability, and therefore she should be relieved from the penalties under US v. Bajakajian, 523 US 321 (1998).
In determining whether the penalties are grossly disproportionate, the Court considered three factors: (1) the nature of the conduct, (2) the resulting harm, and (3) whether other penalties may be imposed. The Court noted that Bajakajian did not mandate a set of rigid factors in making the determination of whether a fine is grossly disproportional to the gravity of the offense. Due to Patricia’s situation where she had no knowledge of the accounts and had never participated in any of the foreign account activities done by her late husband, the Court concluded that imposing the penalties on her was excessive and thus she was not liable for the FBAR penalties, at least in her individual capacity.
Nevertheless, Richard was clearly culpable and the fines were not excessive as to him. Thus, he was liable, and under prior case law[4], FBAR penalties have been held not to be punitive and therefore survive death. Accordingly, Richard’s estate was held liable for the penalties. Patricia, as his personal representative, may remain liable to the extent she has received assets from his Estate. However, her personal assets are safe.
[1] https://esapllc.com/mendu-fbar2021/ .
[2] US v. Leeds, 135 AFTR 2d (D. Idaho 2025).
[3] ID.
[4] US v. Wolin, 489 F. Supp 3d 21 (E.D.N.Y. 2020).
