It’s no secret that spouses, particularly in bad times, may hide things from one another. In fact, there are bodies of cases involving such marital behavior. However, we’ve gotten another recent reminder that such attempts can land you in hot water with the IRS, even if you were never out to hide anything from them per se.
“There is no carve-out from willfulness” for a taxpayer who conceded that he intended to mislead his spouse, the government said in its latest brief filed with the U.S. District Court for the Southern District of California in United States v. Mahmood. The government argues that Salam Mahmood’s admission about purposefully obscuring his foreign accounts and assets, which carried over to the couple’s joint tax returns, weighs in favor of penalties as his actions were clearly willful. “His admitted intent to conceal the foreign accounts from his spouse supports that he acted knowingly, and therefore willfully, in failing to file the FBARs,” it said.
Mahmood had financial interests in accounts with UBS and Ahli United Bank between 2008 and 2010 and, according to the government, failed to file required FBARs. Mahmood claimed the UBS account was created in 1997 during a time of “serious marital problems,” which continued through 2010, when his family court matters were settled. He stated in an earlier brief that the UBS account was created to make sure his wife didn’t know about those funds. “[Mahmood] was relentless in making sure she did not know about the account which meant not disclosing the name ‘UBS’ on any documents she may have access [to],” the brief says.
Mahmood cited to United States v. DeMauro, 540 F.Supp.3d 157 (D.N.H. 2021), in which the court considered the taxpayer to have had good reasons to hide her assets from an abusive spouse. Annette DeMauro similarly set up a UBS account to protect assets during a contentious divorce and claimed to have disclosed the account to her accountant, who wasn’t initially aware of FBAR requirements. However, as the court still found DeMauro liable for FBAR penalties, the government argues it offers little to no help to Mahmood’s case.
As this case reaches conclusion, it will be worth watching to see how the court decides. One preliminary takeaway is that seeking proper tax reporting advice, and knowledgeable tax planning, can once again serve as an added protection, particularly when divorce is foreseeable or already on the table. Unfortunately, in the reality of a contentious divorce, aggressive tax planning or one-sided financial maneuvers by your spouse may keep some things hidden unless you are familiar with typical reporting dodges or pitfalls. Like Mahmood and DeMauro, opening offshore accounts, moving cash, and transferring assets may happen and potentially have tax or reporting ramifications. On the other hand, oftentimes even a collaborative divorce could benefit from a level of tax review and analysis in the event joint liabilities or risks can be reduced and or avoided.
This blog post was adapted from “Marital Discord Is No Defense To FBAR Penalties, U.S. Says” by Amanda Athanasiou, TAX NOTES FEDERAL, Volume 188, August 25, 2025. The case is United States v. Mahmood, No. 3:24-cv-00039.
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