United States v. Hendler

1

UNITED STATES OF AMERICA, Plaintiff, v. HANNA HENDLER, as Administrator and as Distributee of the Estate of David Benishai, et al., Defendants.

No. 23 Civ. 3280 (DEH)

United States District Court, S.D. New York

September 17, 2024

OPINION AND ORDER

DALE E. HO, United States District Judge:

In this action, Plaintiff United States of America (the “Government”) sues Defendants Hanna Hendler and Danielle Benishai, the wife and daughter, respectively, of David Benishai, who died in 2021.^[1] See Compl. ¶¶ 9, 10, ECF No. 1. The Government brings this action against Defendants in their capacities as distributees (and, in the case of Hendler, as administrator) of Benishai's estate, seeking unpaid tax assessments. The parties cross-move for summary judgment. See ECF Nos. 25, 29. For the reasons given below, the Government's motion is GRANTED and Defendants' motion is DENIED.

BACKGROUND

The following facts are drawn from the parties' evidentiary submissions in connection with the cross-motions. See N.Y. State Teamsters Conf. Pension & Ret. Fund v. C &amp S Wholesale Grocers, Inc., 24 F.4th 163, 170 (2d Cir. 2022).^[2] Because Defendants do not submit evidence or a response to the Government's statement of material facts (“SMF”), see ECF No. 28 the Court treats those facts as undisputed. See Horn v Medical Marijuana, Inc., 80 F.4th 130, 135 (2d Cir. 2023).

Benishai was a United States citizen. SMF ¶ 1. During the seven calendar years 2004 through 2010, he had a financial interest or signature authority over nine bank accounts in Israel. Id. Three of these accounts were personal; the remaining six were in the name of two corporate entities, and Benishai had signature authority over these accounts. Id. ¶ 2. In the years in question, the accounts had combined balances of at least $10,000 in U.S. dollars. Id. ¶¶ 3-4. Benishai did not timely file Forms TD F 90-22.1, Report of Foreign Bank and Financial Accounts (“FBARs”) for the accounts in question during these years as required. Id. ¶ 5.

On or around March 18, 2015, Benishai filed untimely FBARs, noting his ownership of the accounts and their combined balances of more than $10,000 from 2004 to 2010. Id. ¶ 6. The Internal Revenue Service (the “IRS”) initiated an examination of Benishai's FBARs in October 2015, and in connection with this examination, Benishai and his representatives agreed in writing several times to extend the time period in which the Government could assess FBAR penalties, ultimately through June 30, 2021. Id. ¶¶ 7-9.

Benishai died on January 6, 2021. Id. ¶ 10. On April 21, 2021, the IRS assessed FBAR penalties totaling $250,000 against Benishai. Id. ¶ 11. On April 27, 2021, the IRS sent a letter regarding these penalties to the last known address of Benishai's estate, and the letter was returned as undeliverable. Id. ¶ 12. Following the United States Supreme Court's decision in Bittner v. United States, 598 U.S. 85 (2023), which helding as a matter of statutory interpretation that $10,000 penalties for non-willful failure to file FBARs accrue on a per-report, not a peraccount, basis, see 598 U.S. at 103-04, the IRS reduced the penalties against Benishai to $70,000-$10,000 for each of the seven years of unreported FBARs-plus additional statutory penalties and interest. SMF ¶ 13. As of October 3, 2023, Benishai's estate owed a total of $81,934.53, including additional penalties and interest. Id. ¶ 14.

LEGAL STANDARDS

Summary judgment is appropriate when a moving party “shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “An issue of fact is genuine if the evidence is such that a reasonable jury could return a verdict for a nonmoving party.” Frost v. N.Y.C. Police Dep't, 980 F.3d 231, 242 (2d Cir. 2020). A party opposing summary judgment must establish a genuine issue of fact by citing to particular parts of materials in the record. See Fed.R.Civ.P. 56(c)(1)(A). “A party opposing summary judgment normally does not show the existence of a genuine issue of fact to be tried merely by making assertions that are based on speculation or are conclusory.” S. Katzman Produce Inc. v. Yadid, 999 F.3d 867, 877 (2d Cir. 2021). “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986); accord Saleem v. Corp. Transp. Grp., 854 F.3d 131, 148 (2d Cir. 2017). In evaluating a motion for summary judgment, a court must “construe the record evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in its favor.” Torcivia v. Suffolk Cnty., 17 F.4th 342, 354 (2d Cir. 2021). On cross-motions for summary judgment, “the court evaluates each party's motion on its own merits and all reasonable inferences are drawn against the party whose motion is under consideration.” Roberts v. Genting New York LLC, 68 F.4th 81, 88 (2d Cir. 2023).

DISCUSSION

The Government's motion is GRANTED and Defendants' motion is DENIED for the reasons given below.

A. Effect of Benishai's Death on Government's FBAR Claim

First, the Government's claims accrued prior to Benishai's death and are not abated by it, meaning they may be collected against his estate. Benishai died on January 6, 2021, and the IRS assessed penalties related to the FBARs on April 21, 2021. See SMF ¶¶ 10-11. Defendants make two related arguments: first, that the Government lacks the ability to assess FBAR penalties against a taxpayer's estate (rather than against the taxpayer him- or herself); and second, that to the extent that the Government had any claim against Benishai prior to the April 2021 assessments relating to FBARs, that claim was extinguished by Benishai's death. See Defs.' Br. Supp. Mot. Summ. Judgment (“Defs.' Br.”) 14-19, ECF No. 30. Both of these arguments fail.

Defendants' first argument is essentially as follows: the FBAR penalties accrued at the time they were assessed in 2021-but this was after Benishai had passed away, and such penalties cannot be assessed against a decedent. But Defendant's premise is incorrect, because the penalties at issue accrued before Benishai died. FBARs must be filed by June 30 of the year following a calendar year in which a taxpayer held interests in foreign accounts over $10,000. See 31 C.F.R. § 103.27(c). The FBARs at issue in this lawsuit concern accounts Benishai maintained in 2004 through 2010, meaning the Government's right to levy an assessment regarding Benishai's failure to file FBARs for the final year in question accrued on June 30, 2011, (while Benishai was still alive)-not in 2021, when the assessments were actually assessed (and after he had already passed away).

Now that Benishai is deceased, the Government may pursue its claims against his estate. The Second Circuit has stated that:

It seems impermissible for the estate of a deceased taxpayer, who during his lifetime established a pattern of conduct by which he fraudulently avoided taxes, to avoid a liability that the taxpayer himself could not have avoided if his conduct had been uncovered while he was alive. If [the taxpayer] were still living he would be liable for the civil fraud addition. Also, if the tax fraud were committed and a fraudulent return filed before the taxpayer's death but the fraud was not discovered until after his death, liability for a civil fraud addition imposed as a result of the taxpayer's tax evasion activities during his lifetime would survive his death and be borne by his estate.

Kahr v. Comm'r of Internal Rev., 414 F.2d 621, 626 (2d Cir. 1969). A district court outside of this Circuit has applied Kahr to hold that FBAR liability accrues on the date the FBAR form is due, not on the date of the assessment. See United States v. Park, 389 F.Supp.3d 561, 575 (N.D. Ill. 2019) (relying on United States v. Drachenberg, 623 F.3d 122, 125 (2d Cir. 2010) (“A tax deficiency arises by operation of law on the date a tax return is due but not filed; no formal demand or assessment is required.”). Cf. Bedrosian v. United States, 912 F.3d 144, 150-51 (3d Cir. 2018) (noting that the Bank Secrecy Act (“BSA”), which contains the provisions regarding FBAR violations, “was intended to promote, among other things, the collection of federal taxes” and is “part of the IRS's machinery for the collection of federal taxes” and should therefore be treated as a tax for purposes of determining when liability accrues).^[3] The Court agrees with Park's reasoning and finds that liability here accrued no later than June 30, 2011- approximately ten years before Benishai's death.

As to Defendants' second argument, this liability survives Benishai's death. “Whether a claim survives or is ‘extinguished' upon the death of a party is determined by ‘the nature of the cause of action for which the suit is brought.'” U.S. ex rel. Colucci v. Beth Israel Med. Ctr., 603 F.Supp.2d 677, 680 (S.D.N.Y. 2009) (quoting Ex parte Schreiber, 110 U.S. 76, 80 (1884)). “Unless a statute directly addresses the issue, courts are generally guided by principles of federal common law, which prescribe that claims characterized as ‘penal' abate upon a party's death, while claims characterized as ‘remedial' survive.” Id.

While the parties do not identify and the Court has not found binding case law with respect to the FBAR penalties at issue in this case, persuasive authority indicates that a claim for FBAR-related penalties is remedial, and therefore is not extinguished upon the death of the taxpayer. In Kahr, discussed above, the Second Circuit held that liability under anti-fraud provisions of the Tax Code survived the death of a taxpayer, in part because “[a] purpose” of...