Tax-Averting Widow Must Make IRS Whole

(CN) - The widow of a South Florida businessman can no longer shelter her offshore accounts from attempts by the United States to collect $36 million in taxes, a federal judge ruled.

In the early 1980s, Raymond Grant established two offshore accounts - one in Bermuda and the other one in Jersey, off the coast of England - benefitting himself and his wife, Arline. After the U.S. Internal Revenue Service assessed millions of dollars in back taxes against the couple, the Grants agreed to pay $3,000 a month until their income tax liability was paid in full.

The United States sued the Grants in 2000 for breaching the installment agreement. In March 2003, a federal judge entered a $36 million final judgment against the couple.

After Raymond Grant's death, the court ordered his wife to appoint a U.S. trustee for the offshore accounts, or repatriate the assets held in those trusts to satisfy the 2003 judgment.

Though Arline Grant failed to comply with the repatriation order, the court declined to hold her in contempt after finding that she had made significant efforts to repatriate the money.

The United States renewed its motion in January 2012 upon learning that Mrs. Grant had received more than $221,000 from the trusts, but had deposited such funds in the accounts of her children rather than paying off the IRS judgment.

This time the court held Mrs. Grant in contempt, but the government still failed to recover any of the assets.

Uncle Sam sought a permanent injunction to keep Mrs. Grant and her family from diverting any more money from the offshore accounts. Mrs. Grant countered that ordering the repatriation of offshore assets would violate the laws of the countries in which the trusts are held.

U.S. District Judge Cecilia Altonaga disagreed, finding that any property belonging to the Grants is subject to a lien by the United States. And since Mrs. Grant has sufficient power to repatriate funds from the offshore trusts, foreign law no longer applies once the money is in the United States, according to the ruling.

The Federal Debt Collection Procedure Act and other federal procedure rules do not limit the government's right to collect on the unpaid taxes, so long as the injunction sought is "necessary or appropriate" to enforce internal revenue laws, the 12-page ruling states.

Altonaga found that the government had demonstrated irreparable injury and that stopping Mrs. Grant from further dissipating assets was "appropriate and necessary," and served the public interest.

"During and since the pendency of the plaintiff's prior post-judgment motions, Mrs. Grant has engaged in a scheme to avoid collection of her liabilities by having trust funds directly deposited into accounts in her children's names," Altonaga wrote. "Altogether, since Dec. 22, 2005 when the court ordered Mrs. Grant to repatriate the assets of the trusts, no money has been paid toward the judgment against her while $506,630 has been transferred from the trusts into accounts held in the names of her children and used to pay expenses at her direction. Through this scheme, Mrs. Grant has dissipated hundreds of thousands of dollars of assets to which federal tax liens attach. Thus, for the following reasons, the court finds that plaintiff has demonstrated all four elements required for a permanent injunction."

Mrs. Grant had also argued that an injunction would require her to lie to the trustees by hiding that she would hand over to the government all the money coming from the trusts.

Altonaga disagreed, noting that Arline Grant had the right to withdraw up to 10 percent of the fair market value of the entire Jersey trust estate every year, without accounting for its use.

But the judge prohibited Mrs. Grant from telling the offshore trustees that her requests for money are being compelled, to prevent them from circumventing the court's order.

"That Mrs. Grant is ill, is eighty-four years old, and will no longer be able to use trust funds to 'pay for her immediate living expenses and attorneys' fees' or 'provide for [herself] in a very modest fashion' means little with respect to either factor - the record shows Mrs. Grant continues to receive the exempt portion of her Social Security benefits, and that she has children who care for her, or at the very least, follow her instruction," Altonaga concluded.

She ordered Mrs. Grant to turn over to the United States all the money she received from the trusts, including all future distributions, and to request quarterly transfers from the offshore accounts.

The injunction also bars Arline Grant and her children from spending or transferring money they received from the trusts.

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