Benard Gubser is a dual US-Swiss citizen who had a Swiss bank for which he failed to disclose in 2008 on an FBAR Form. The IRS has his case winding through the FBAR penalty assessment procedures, and it was threatening, but had not actually assessed any Foreign Bank Account (FBAR) penalties. Mr. Gubser filed this lawsuit to force the IRS to have to prove a willful FBAR penalty by a clear and convincing standard, and to get a decision on if he should be assessed any penalty.
Ultimately, the court decided that the threat of an FBAR penalty is not an actionable claim enough, and dismissed the claim. Mr. Gubser “loses” the case. But he still has yet to have any FBAR penalty assessed against him, and the clock on assessment on FBAR penalties has either passed or is close to expiring.
A few notes:
Mr. Gubser learned about the 2008 FBAR in 2009. If he wanted to come clean, the only program available at the time was the 2009 Offshore Voluntary Disclosure Initiative (OVDI), and the 2009 OVDI was a one-size fits all. There was no distinctions between those who were willful in non-filing of FBARs and those who were non-willful. He would have had to file amended returns for the last 6 years and and agreed to a then-20% (now 27.5%) miscellaneous offshore penalty.
His other option would be to file a “soft disclosure”, something the puts you in a bad negotiation position with the IRS. But this lawsuit was novel strategy. By forcing the issue and suing the government, Mr. Gubser avoided the exposure of a soft-disclosure, yet made a disclosure…albeit outside of any recognized OVD program.
Can we thank Mr. Gubser for filing this suit so as to force the IRS to come out with the opt-out process and Streamlined Offshore disclosure procedures?
Full Decision below:
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS LAREDO DIVISION
CIVIL ACTION NO. 5:15-CV-298
INTERNAL REVENUE SERVICE, et al.,
MEMORANDUM AND ORDER
This case concerns a foreign bank account that Bernhard Gubser (Plaintiff)
failed to disclose to the Internal Revenue Service (IRS) in 2008 in violation of the
Bank Secrecy Act. After months of engaging in IRS administrative procedures
without any resolution, Plaintiff filed this suit seeking a declaratory judgment
regarding the IRS’s burden of proof to show a willful violation of the Report of
Foreign Banks and Financial Accounts (FBAR) filing requirement. The United
States filed a 12(b)(1) motion to dismiss for lack of subject matter jurisdiction. (Dkt.
No. 11). Having reviewed the parties’ submissions, their arguments at hearing, and
the applicable law, Defendant’s Motion (Dkt. No. 11) is GRANTED for the reasons
Plaintiff is a dual citizen of Switzerland (by birth) and the United States (via
naturalization in 1992). Department of Treasury regulations require U.S. citizens
with foreign bank accounts exceeding $10,000 to file a FBAR annually with the IRS,
disclosing the account information. 31 C.F.R. § 1010.350 (setting forth the reporting
requirements under 31 U.S.C. § 5314). Plaintiff, however, did not file a
FBAR to report his Swiss bank account to the IRS until the 2009 reporting year,
when he alleges he first became aware of the reporting requirement. Since 2009,
Plaintiff has filed a FBAR with the IRS annually.
In March 2015, Plaintiff received a form letter (Letter 3709) from the IRS
concerning his failure to file a FBAR for 2008. The letter proposed assessing a civil
penalty of half the account’s balance ($1,363,336.00) for willful failure to meet
FBAR filing requirements. The letter explained that Plaintiff could either agree to
the proposed penalty and submit payment, or request a conference with the Appeals
Office to contest the proposed penalty. If Plaintiff did neither, the letter stated that
the IRS would assess the penalty and begin collection procedures.
In response to the letter, Plaintiff submitted a written request in May 2015 to
meet with the Appeals Office. Plaintiff’s attorneys met with an appeals officer on
September 10, 2015. At the meeting, the appeals officer stated that the agency’s
burden of proof is by a preponderance of the evidence, and that under this burden
the agency could show a willful violation of FBAR filing requirements by Plaintiff.
Plaintiff also alleges, however, that the appeals officer represented if the burden of
proof was clear and convincing evidence, the agency could not prove willfulness.
Ultimately, the matter was not resolved at the meeting or in the months that
Approximately three months after the Appeals Office conference, Plaintiff
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filed the instant suit against the IRS, United States, and IRS Commissioner in his
official capacity. Plaintiff seeks a declaration that the IRS must prove willful
violations of FBAR filing requirements by clear and convincing evidence.
The United States has now moved for dismissal under Rule 12(b)(1) on
1 First, Defendant claims that the suit is barred by sovereign
immunity. Second, Defendant contends that Plaintiff lacks standing because no
formal penalty assessment has, or is certain to, take place. Finally, Defendant
argues that Plaintiff’s claims are not ripe for consideration.
II. LEGAL STANDARD FOR 12 (B)(1)
A Rule 12(b)(1) motion to dismiss challenges the court’s subject matter
jurisdiction. “Under Rule 12(b)(1), a claim is ‘properly dismissed for lack of subject-
matter jurisdiction when the court lacks the statutory or constitutional power to
adjudicate’ the claim.” In re FEMA Trailer Formaldehyde Products Liab. Litig., 668
F.3d 281, 286 (5th Cir. 2012) (quoting Home Builders Ass’n, Inc. v. City of Madison,
143 F.3d 1006, 1010 (5th Cir. 1998)). On a Rule 12(b)(1) motion, the party asserting
jurisdiction bears the burden of proof, but the court must accept as true the
allegations and facts in the complaint. Life Partners Inc. v. United States, 650 F.3d
1026, 1029 (5th Cir. 2011). The court may find that subject matter jurisdiction is
lacking based on “(1) the complaint alone; (2) the complaint supplemented by
undisputed facts evidenced in the record; or (3) the complaint supplemented by
undisputed facts plus the court’s resolution of disputed facts.” Choice Inc. of Tex. v.
Greenstein, 691 F.3d 710, 714 (5th Cir. 2012) (citation omitted).
Here Plaintiff’s complaint is supplemented by two undisputed documents: the
proposed penalty letter (Letter 3709) and an agreement between the Parties to
extend the statute of limitations period to assess civil FBAR penalties.
Defendant argues that this court lacks subject matter jurisdiction and
Plaintiff’s complaint must be dismissed for the following reasons: (1) Plaintiff’s suit
is barred by sovereign immunity; (2) Plaintiff lacks standing; and (3) Plaintiff’s
claims are not ripe for adjudication. Because the Court concludes that this matter
is not justiciable on standing grounds, the Court does not reach Defendant’s ripeness
and sovereign immunity arguments. See Sinochem Int’l Co. v. Malaysia Int’l. Shipping
Corp., 549 U.S. 422, 431 (2007) (“ federal court has leeway ‘to
choose among threshold grounds for denying audience to case on the merits.’”).
Article III of the Constitution limits the jurisdiction of federal courts to cases
or controversies. Const., Art. III, § 2. Standing is an essential element of Article
III’s case-or-controversy requirement. Lujan v. Defenders of Wildlife, 504 U.S. 555,
560 (1992). The requirements of Article III standing are built on separation-of-
powers principles, and serve “to prevent the judicial process from being used to
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usurp the powers of the political branches.” Clapper v. Amnesty Int’l USA, 133 S.
Ct. 1138, 1146 (2013). “To establish standing, a plaintiff must show: (1)it has suffered,
or imminently will suffer, a concrete and particularized injury-in-fact; (2) the injury is
fairly traceable to the defendant’s conduct; and (3) a favorable judgment is likely to
redress the injury.” Hous. Chronicle Pub. Co. v. City of League City, Tex., 488 F.3d
613, 617 (5th Cir. 2007) (citing Lujan, 504 U.S. at 560–61). “An allegation of future
injury may suffice if the threatened injury is certainly impending, or there is a
substantial risk that the harm will occur.”
Susan B. Anthony List v. Driehaus, 134 S. Ct. 2334, 2341 (2014) (internal quotation marks omitted)
(quoting Clapper, 133 S. Ct. at 1150 n.5); see also Bauer v. Texas, 341 F.3d 352, 357–58 (5th Cir. 2003) (“A
plaintiff can meet the standing requirements when suit is brought under the
Declaratory Judgment Act by establishing actual present harm or a significant
possibility of future harm, even though the injury-in-fact has not yet been
completed.” (citation omitted)). To show redressability, “it must be ‘likely, as
opposed to merely speculative, that a favorable decision will redress the plaintiff’s
injury.’” Dep’t of Tex., Veterans of Foreign Wars of U.S. v. Tex. Lottery Comm’n
, 760 F.3d 427, 432 (5th Cir. 2014) (en banc) (quoting S. Christian Leadership Conference
v. Supreme Court of State of La, 252 F.3d 781, 788 (5th Cir.2001)).
Here, even assuming Plaintiff can establish an injury-in-fact caused by
Defendant’s conduct, he cannot satisfy the redressability requirement of Article III
standing. Plaintiff argues that a declaration that the IRS must prove willful
violations of FBAR filing requirements by clear and convincing evidence would
resolve the threat of a $1.36 million penalty. Plaintiff’s arguments, however, are
highly speculative, and his pleadings cannot support the conclusion that a declaration by this Court would be likely to redress the claimed harmed. Although Plaintiff alleges that an individual appeals officer represented the IRS could not
meet this higher burden, Plaintiff has not claimed that this representation was
legally binding or would preclude the IRS from still assessing a penalty. In fact,
Plaintiff conceded at oral argument that the appeals officer could choose to assess or
not assess the penalty regardless of any declarations by this Court regarding the
burden of proof. In other words, without additional facts, it is far from likely that a
favorable declaration regarding the IRS’s burden of proof would prevent the assessment of a penalty against Plaintiff.
Accordingly, because Plaintiff fails to satisfy the redressability requirement
of standing, Plaintiff cannot meet Article III’s case-or-controversy requirement.
For the reasons explained above, the Court concludes that it lacks subject
matter jurisdiction. Accordingly, Defendant’s Motion to Dismiss (Dkt. No. 11) is
It is so ORDERED.
SIGNED this 4th day of May, 2016.
Marina Garcia Marmolejo
United States District Judge