According to Law360, a logger failed to report more than $3 million he kept in foreign accounts, then fraudulently transferred the bulk of it to his wife when he learned he was being audited by the IRS, a Colorado federal judge said in upholding $1.7 million in penalties.
George Harrington, who died last year, had argued that he didn't control the accounts and therefore wasn't required to report them, but his argument was undercut by amended tax filings in which he had reported the accounts to the Internal Revenue Service, U.S. District Judge S. Kato Crews said in an order.
"But a signed tax return is an admission," Judge Crews said in an order upholding the government's request for $1.7 million in penalties from Harrington's estate for failing to report foreign bank accounts to the IRS.
Harrington told the court in 2022 that, following an IRS audit in 2012, he had mistakenly allowed his attorney and an IRS examiner to convince him to submit amended returns that included foreign bank account reports for the two accounts in question. One was a type of foundation held in Switzerland and the other contained two life insurance policies held by a company in Lichtenstein, according to court documents.
The attorney advised Harrington that it would be less expensive to disclose the accounts and settle the tax liabilities than to fight the audit, Harrington said in a filing in the case in November 2022. However, Harrington argued, federal rules and regulations pertaining to beneficiaries of foreign annuities applied to his relationships with the foreign accounts and should have excluded him from the reporting requirement.
Harrington's failure to file FBARs for the four-year period was willful because he knew about the filing requirement, Judge Crews determined. During a similar time period, Harrington filed the reports disclosing his interest in accounts at Bank of New Zealand, according to the order. Harrington also used multiple foreign bankers and attorneys to help him manage his investments, the judge said.
Harrington worked as a logger in Washington state before logging as an independent contractor for Eastern Wood Harvesters in Canada, according to the order. Early in his career with EWH, around 1986, Harrington sold his house and gave the $350,000 in proceeds to a company attorney. In 2002, another attorney contacted Harrington and told him to come to the Cayman Islands because the EWH account "was being wound down," according to the order.
In the Caymans, Harrington and his wife became powers of attorney for a UBS AG account in Switzerland, from which Harrington transferred funds to a Liechtenstein entity known as a stiftung. The stiftung, a type of foundation, then opened an account at UBS Switzerland.
When UBS closed the account in 2009, Harrington rolled its contents into $3.1 million in life insurance policies with a Liechtenstein company, ValorLife, according to the order.
Judge Crews agreed with the government's claim that Harrington had cashed out the insurance policies and transferred $2.8 million in proceeds to his wife, saying the timing of the transfer showed evidence of fraud. The proceeds of the policies were transferred into a Swiss account at Vontobel Holding AG in Harrington's wife's name the day after Harrington and his tax attorney had their first interview with the IRS, according to the order.
However, Judge Crews declined to force Harrington's wife to repatriate funds to cover her husband's FBAR penalties on behalf of his estate, instead taking the government's request under advisement and asking for more information about its legality.
The government argued that the $2.8 million deposited into Harrington's wife's account was actually money she shared with her husband by way of the originating life insurance policies, and that the law in Washington state, where the couple lived, determines that co-owned property can satisfy the liability. But the relevant law, U.S. Code Title 28, Section 3010, requires examining the laws of the foreign country where the property is being held, in this case Switzerland or Liechtenstein, to determine whether it can be used to satisfy the liability, Judge Crews said.
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