I don’t have much to say about this case, simply because not much needs to be said.
In United States v. Gentges (USDC SDNY Dkt. 7:18-cv-07910), the Government is bringing a lawsuit to collect a “willful” FBAR penalty for the tax year 2007 in an amount close to USD904,000. The penalties relate to two Swiss bank accounts initially maintained at UBS by Mr. Gentges, a New York resident. The Government complaint is here, from which I have extracted choice portions to illustrate that the course of action chosen by the taxpayer was, shall we say, not too smart.
The Complaint states that the UBS accounts were set up in 2001 and were “numbered” accounts, rather than “name” accounts. (As an aside, I understand from a Swiss banker that this should not be relevant as numbered accounts or name accounts were treated equally. Of course, it is possible Mr. Gentges did not know this and believed that a numbered account provided more anonymity and protection from IRS detection).
Mr. 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 investments in US securities….” He gave instructions to UBS to retain his mail (e.g., bank statements) at the bank rather than mailing anything to his New York home. Mr. Gentges would visit the bank in Switzerland from time to time and retrieve his mail, authorizing the bank to destroy the mail that he did not take with him.
In September 2008, Mr. 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. Instead of filing an IRS form W-9 and/or making a voluntary disclosure at that time, Mr. Gentges instructed UBS in September and October 2008, to transfer assets from his UBS accounts to another Swiss bank, Migros Bank.
After seeing the Swiss bank fiasco heat up, I guess Mr. Gentges got scared, and rightfully so. I imagine, in a moment of clarity he then applied for voluntary disclosure to the IRS in June 2010. In September 2011, Mr. Gentges belatedly filed certain FBARs which included both of the numbered accounts. In addition, his representative had signed consents extending the FBAR statute of limitations.
In 2013, in what I imagine must have been a moment of some type of frenzied madness, Mr. Gentges opted out of the voluntary disclosure program. Goodness knows why, as his facts appear to be pretty terrible! Could it be that his representative gave ill advice?
In October 2016, the IRS assessed penalties totaling $903,853.00 against Mr. Gentges for 2007 for his willful failure to comply with the FBAR filing requirements for the two UBS accounts.
I don’t think anyone will be surprised by an IRS win in this case.
Published September 9, 2018
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