IRS Eclipses Record FBAR Penalties in New Tax Fraud Lawsuit
A recent federal court tax fraud lawsuit against a woman and her deceased husband’s estate has set a new record for FBAR penalties exceeding over $119.6 million. Find out what the IRS says she and her husband did to deserve such a steep penalty.
Husband and Wife Create International Manufacturing Companies
Margelus Burga and his wife Francis Burga were intelligent and industrious people. While they were both naturalized citizens, the Burgas came from Romania and the Philippines, respectively. Francis Burga was originally a nurse before entering the manufacturing field, eventually becoming the Vice President and Director of Manufacturing and Sales for a computer parts manufacturer in the 1980s. Her husband was a mechanical engineer.
In 1988 (before the couple got married), Mr. Burga founded Marburg Technologies Inc., which also does business as Glide/Write USA, designing and manufacturing computer components and assemblies for the data storage industry. Two years later, Francis joined the company as Vice President of Manufacturing and Sales. The couple were married 5 years later, in 1995.
In the meantime, Mr. Burga was developing Marburg as an international manufacturing entity. In October 1993, the couple opened their first international bank account at the Swiss Bank Corporation (which would later become UBS). The next year, they created Accipitor Trading LTD, in the British Virgin Islands. According to the IRS’s tax fraud lawsuit, over the next few years, the couple created 25 international entities in Liechtenstein, Switzerland, Singapore, and other countries in Europe and Asia.
Complaint Says Failure to File FBAR was Evidence of Complex Tax Fraud
So far, the Burgas are examples of how immigrants can come to America and make better lives for themselves on an international scale. But the IRS says what they did next made them tax evaders. Shortly after the couple got married, the IRS claims they met with a financial advisor in Liechtenstein named Peter Meier. He helped them to establish a Liechtenstein stiftung -- a legal entity that translates as “foundation” but is treated as a trust under U.S. tax law. Stiftung entities are often treated as evidence of tax evasion by the IRS.
From the founding of that stiftung, the IRS’s complaint says that Mr. and Ms. Burga created a “complex structure that grew to include at least 25 tiered entities” all designed to let Glide/Write USA do business overseas without reporting the income. Here’s how the tax fraud lawsuit claims it worked:
- Ms. Burga would make deals with international companies in Asia.
- The Asian companies would send purchase orders to Gilde/Write Singapore or Glide/Write Japan.
- Gilde/Write Japan would then translate the purchase orders to English and send them to Glide/Write USA and Glide/Write Singapore.
- At the same time, Glide/Write Japan would create dummy purchase orders for Glide/Write USA for a customer Ingenieurburo Koch Anstalt (IKA) (owned by a friend) for the same materials at a fraction of the cost of the original purchase order. Glide/Write USA would use this amount in calculating its U.S. taxes.
- Glide/Write USA would create the products and ship them directly to the international customer.
- Customers would pay Glide/Write Japan or Glide/Write Singapore for the products, which would then forward 99% of those payments to IKA.
- IKA would pay Glide/Write USA the reduced purchase order amount and pay the rest to one of the stiftung trusts as “commission.”
The whole time, the IRS claimed that Mr. and Ms. Burga never disclosed their international assets on their tax returns or filed the necessary Foreign Bank Account Reports (FBARs). Because of limits on how far back the IRS can go, the federal tax fraud lawsuit filed on June 10, 2019, sought to collect the taxes, interest and penalties on all those accounts between 2004 and 2009.
IRS Imposes Record Highest FBAR Penalties for Willful Failure to File Reports
That lawsuit has set a new record for the highest FBAR penalties ever imposed. The Burgas’ case is set to eclipse that record. In calculating the penalty, the IRS first determined that their failure to file FBARs was willful. It said in its complaint that during an interview on August 7, 2007, Mr. Burga claimed that he and Ms. Burga, “did not have any foreign bank accounts, that they did not own any foreign corporations, and that they did not have any trusts. Mr. Burga even went so far as to say that he understood that trusts were used to avoid paying taxes.” According to the IRS, Mr. Burga turned around that same day and transferred $6 million out of the parties’ UBS account and into yet another stiftung entity.
That willful determination allowed the IRS to impose penalties up to $100,000 or 50% of the balance of the account, whichever is higher, for each undisclosed account with a balance of at least $10,000 against each account holder, for each year the account went undisclosed. All together, that added up to FBAR penalties of $52,581,605 against each person. Mr. Burga died in 2010, so his tax liability will pass through to his estate. That means if the court finds the IRS’s claims to be true, Ms. Burga will be responsible for $119,603,703.38 in FBAR penalties.
The previous record was for $100 million in November 2016. That FBAR penalty was assessed against Dan Horsky, an emeritus professor at the University of Rochester. He ended up serving 7 months in federal prison for tax evasion after the court found he had used Swiss accounts to hide $220 million from the IRS. So far, there are no claims that Francis Burga should go to prison like Mr. Horsky, but she still faces the possibility of the steepest willful FBAR penalties ever imposed in IRS history.
Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 30 years experience. If you have questions regarding willful FBAR penalties, contact Joe Viola to schedule a free consultation.