Leigh C. Fairbank and Barbara J. Fairbank, T. C. Memo. 2023-19, filed 2/23/23, are enmeshed in the toils of the Foreign Bank Account Registration multiplex reporting whirligig, but it’s Barbara’s story.

Judge Christian N. (“Speedy”) Weiler has the story. Barbara’s loved-once, from whom she split 41 (count ’em, 41) years ago, was a high-rolling CPA who dodged $18 million in tax by shoveling cash from his oil companies to Liechtenstein, Switzerland, and New Zealand, finally fleeing to New Zealand but settling with IRS for a couple years’ (hi, Judge Holmes) worth of his skullduggery. Though Barbara gets innocent spousery for some years, her current problem begins with the divorce settlement

In the course of renegotiating the property split-up, Barbara had cash sent to a Swiss establishment, a trust. She also used a BVI corp, officered by her Swiss bankers, to funnel further moneys to Switzerland, specifically UBS.

You can see where this is going, especially when Judge Speedy Weiler discusses Barbara’s and Leigh’s tax returns.

“For the tax years at issue, petitioners timely filed their joint Forms 1040, which were prepared by RH, a CPA in California. In preparing petitioners’ annual tax returns, Mr. H would send them a tax organizer, on which petitioners generally checked ‘No’ to the question about foreign bank accounts. Consequently, the tax returns contain no information concerning UBS account… or Establishment. Moreover, for the tax years at issue, petitioners did not report any income or deductions relating to UBS account…, make an election under either section 1295 or 1296, file Form 3520, Annual Return To Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, or file Form 3520–A, Annual Information Return of Foreign Trust With a U.S. Owner, with respect to … Establishment. Furthermore, for the tax years at issue, on Forms 1040, Schedules B, Interest and Ordinary Dividends, Part III, petitioners answered ‘No’ to the questions of whether they ‘have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account’ or whether they ‘receive[d] a distribution from, or were . . . the grantor of, or transferor to, a foreign trust.’” T. C. Memo. 2023-19, at p. 11. (Name omitted).

Of course, when the Swiss dished on the nasties they were pulling, Barbara got The Letter (the one UBS sent to their customers with targets on their backs), IRS swooped in, and Barbara spilled the legumes on Switzerland and the BVI.

Barbara then filed Form 5471 and the FBARs, which earned her a bunch SNODs (hi again, Judge Holmes) at no extra charge.

Barbara’s trusty attorneys claim the Establishment is a CFC, but all the Swiss paperwork says “trust.” Form of entity doesn’t matter, function does. And as no US Court had jurisdiction over Establishment (paperwork says all disputes to go Liechtenstein), Establishment is a foreign trust, and subject to FBAR.

While IRS can’t establish that Barbara was the owner of the trust, which her loved-once had set up, she had enough command and control over the corpus to put her under the Section 678 mandate.

Now for SOL: Section 6501(c)(8) says the magic three-year SOL runs from when the taxpayer gives IRS the Section 6038 skinny. Barbara’s trusty attorneys say they gave that to the RA at Exam, which triggers SOL, as no specific form is provided for in the statute.

“Petitioners’ citation of section 6501(c)(8) and their argument on brief that the period of limitations has run is incomplete. Section 6501(c)(8) refers the reader to the requirements under section 6048; therefore, a detailed analysis of a taxpayer’s statutory obligations under section 6048 is necessary. We conclude that Mrs. Fairbank, as the deemed U.S. owner of… Establishment, has failed to provide any written return to respondent setting forth a full and complete accounting of… Establishment’s activities for the years at issue. See I.R.C. § 6048(b)(1). Similarly, we conclude that Mrs. Fairbank, as… Establishment’s U.S. beneficiary, has failed to make any return that includes the name … Establishment and which outlines the aggregate amount of distributions she received during each of the tax years at issue from… Establishment. See I.R.C. § 6048(c)(1).” T. C. Memo. 2023-19, at p. 24. (Footnote omitted).

Besides, clarity is needed here; if Tax Court suggested something less than a full filing would do, the uncertainty would help neither IRS nor taxpayers.

IRS used the partial summary J gambit back in November to establish Boss Hossery, and Barbara’s claim of reliance on Mr. H. goes nowhere, as the tax organizer said nothing.