FBAR Collection Suit Where Taxpayer Put in Writing to UBS That He Wanted to Avoid Disclosure to IRS and Opted Out of OVDP (9/5/18)

The Government brought the following FBAR collection suit:  United States v. Gentges (USDC SDNY Dkt. 7:18-cv-07910), complaint here and Court Listener docket here.  Excerpts that I think are interesting from the complaint are:

15. In November 2001, Gentges signed documents to open the 4959 Account, choosing to open it as a numbered account rather than a “name account.” He identified himself as the beneficial owner of the 4959 Account and listed his address in Hawthorne, New York. 

16. Gentges instructed UBS not to invest in U.S. securities, and signed an instruction to UBS stating, “I would like to avoid disclosure of my identity to the US Internal Revenue Service under the new tax regulations. To this end, I declare that I expressly agree that my account shall be frozen for all new investments in US securities as from 1 November 2000.” 

17. Gentges instructed UBS to retain his mail at the bank, for a fee, rather than mailing it to his address in New York. Subsequently, when Gentges would visit the bank in Switzerland—including three instances in 2007 alone—he retrieved his mail and then authorized UBS to destroy the mail that he did not take with him. 

 * * * * 

C. Subsequent Dealings with UBS and Closure of the Accounts 

32. In September 2008, Gentges was informed by UBS personnel that he had to either file an IRS form W-9 or close his UBS accounts by the end of the year. 

33. Instead of filing an IRS form W-9 and/or making a voluntary disclosure at that time, in September and October 2008, Gentges instructed UBS to transfer securities from his UBS accounts to Migros Bank, another financial institution based in Switzerland. 

34. In November 2008, Gentges instructed UBS to transfer all remaining funds in the 4959 Account and the 4337 Account to accounts at Migros Bank. 

35. In November 2008, Gentges instructed that his retained UBS mail be sent to an
address in Lyss, Switzerland. 

* * * * 

D. Examination and Assessment of Civil Penalties

36. Gentges applied for informal voluntary disclosure to the IRS in June 2010.  

37. In September 2011, Gentges belatedly filed certain FBARs for years including 2007, which included both the 4959 Account and the 4337 Account. 

38. In 2013, Gentges opted out of the voluntary disclosure program. 

39. On several occasions between December 2013 and August 2016, Gentges’s representative agreed in writing to extend the time within which the Secretary of the Treasury may assess an FBAR penalty for calendar year 2007, ultimately extending the deadline for assessment until December 31, 2017. 

40. On October 7, 2016, the IRS assessed penalties totaling $903,853.00 (the “FBAR Penalties”) against Gentges for his willful failure to comply with the FBAR filing requirements with respect to his two UBS accounts for calendar year 2007.

 JAT Comments:  None.  Well, see paragraph 38.  What was he thinking?  And, see paragraph 39.  And then there is paragraph 16; I suspect there is more there than meets the eye.

Addendum 9/6/18 8:30pm:  More on paragraph 16.  I understand that UBS's QI agreement form during some time period had language like the language in paragraph 16.  During that period it was typed form language that U.S. taxpayer had to sign although he or she may not have actually read the key language.  (Something like the foreign account question on Schedule B where, prior to 2009, it was not uncommon for the preparer to answer no almost as a default and the taxpayer then really not reading the question or the answer proffered by the preparer on the form; indeed, preparers was so used to answering the question no that, early in the 2009 OVDP process an accountant prepared the OVDP package of delinquent returns reporting the foreign account income and the FBARs but still answered the Schedule B question "no"!)  The argument, I suppose, is that the client just signed documents without reading them.  But then the expansive definition of willfulness for FBAR willful penalty purposes may be a real problem, particularly in jurisdictions where, by analogy, affirmatively answering the Schedule B question no is a strong negative fact.