Court on Summary Judgment Sustains FBAR Liability and Fraudulent Transfer Liability But Orders Further Briefing on Repatriation to Pay Liabilities (3/11/24)

In United States v. Harrington (D. Colo. No. 1:19-CV-02965 Dkt. #111 Order 2/28/24), here, the Government brought an FBAR willful penalty collection suit against George Harrington, later expanded to include his wife, Monica on fraudulent transfer liability.  The Government sought judgment for the FBAR penalties plus interest and costs (Count One), fraudulent transfer liability against Monica (Count Two), and an order for repatriating sufficient funds necessary to pay the respective liabilities (Count Three).  (The CL docket entries are here.)

Count One (FBAR liability) is fairly straightforward with the Court imposing the civil standard for willfulness approved by other circuits because the 10^th Circuit had not spoken on the issue. See pp. 15-24.)

Count Two (fraudulent transfer liability) is also fairly straightforward, with the Court imposing fraudulent transfer liability upon Monica for having received assets from George under the Federal Debt Collections Procedures Act, 28 U.S.C. §3304(b)(1). See pp. 24-30. The FDCP imposes liability for transfers having 11 nonexclusive characteristics called badges of fraud. The Court discusses the presence  or absence of those characteristics and concludes (p. 30):

The Court finds six (out of 11) badges of fraud are present. See Key, 837 F. App’x at 354 (five badges of fraud sufficient to uphold summary judgment for government); Osborne, 807 F. App’x at 524 (six badges of fraud sufficient to affirm summary judgment). As a result, the Court finds a reasonable jury could only determine that George’s transfer of his interest in the ValorLife policies to Monica was a fraudulent transfer under 28 U.S.C. §3304. See Anderson, 477 U.S. at 248. The Motion is granted, therefore, as to Count 2.

JAT Comment: I infer that the 11 characteristics permit some weighting rather than just majority controls the decision (I infer this because 5 was sufficient in the cited Osborne precedent.; I have not otherwise researched the issue of weighting).

Count Three (repatriation) for an order for repatriation, the Court found sufficiently uncertain to resolve on motion for summary judgment (p. 33 footnote omitted):

          But the parties do not address this issue in their briefing. Nor do the parties discuss this Court’s authority (or lack thereof) to order a United States citizen to repatriate funds held in a foreign country. Because the parties fail to discuss these issues — i.e., whose law applies under 28 U.S.C. §3010(a) when the property is located in no "State" because it is located in a foreign country and what the Court’s authority to order repatriation of foreign funds may be — the Court cannot determine what portion of the account at issue is George’s fraudulently transferred funds or what portion the Court should order Monica to repatriate (50%, 100%, or some other amount), if anything. See, e.g., United States v. Silverman, No. 18-cr-00407-PAB, 2019 WL 6799460, at *14 (D. Colo. Dec. 13, 2019) (holding that, based upon Colorado law, only half of a joint account was subject to garnishment).

The Court then (pp. 31-32):

ORDERED that the Parties shall file simultaneous briefs on or before March 20, 2024, not exceeding 10 pages in length, on the issues of whose law applies under 28 U.S.C. §3010(a) when the property is located in no "State" because it is located in a foreign country and this Court’s authority (or lack thereof) to order a United States citizen to repatriate funds held in a foreign country. No response briefs are permitted, absent leave of the Court. Oral argument may be necessary after the Court’s review of the briefs.

Interesting predicate facts are (p. 3 n. 6): Prior to his death, George proceeded pro se in this case. In a prior tax Court case involving a deficiency, George was represented by counsel and lost at both levels. Harrington v. Commissioner, T.C. Memo 2021-95 (Harrington I), GS here, aff’d 2022 WL 17333080 (10th Cir. 2022) (nonprecedential) (Harrington II), GS here. The underlying facts were similar because the Tax Court case involved the income tax consequences of the offshore accounts. George also did not fare well in that proceeding. (See p. 3 n. 6.)