Articles Posted in Tax Fraud

Failure to file a Foreign Bank Account Report (FBAR) on TDF 90-22.1 is crime under the Bank Secrecy Act punishable by up to 5 years in jail. Failure to file an FBAR usually goes hand in hand with tax fraud, and other tax problems. There is a common belief that if a person is a senior citizen he is safe from criminal prosecution. While that may have been true in the past, current FBAR and tax evasion prosecutions are breaking that pattern. Seventy six year old Leonid Zaltsberg pled guilty to charges of tax evasion and failing to file an FBAR on July 1, 2010. According to news reports he failed to report $60,000 in income over a six year period on an account with a maximum balance of $2.6 million.

Just in case you read that too quickly let me repeat. Over a six year period Zaltsberg, age 76, failed to report $60,000; that’s $10,000 per year! Granted it’s not pocket change, but we’re hardly talking about a big-time tax evader. According to his daughter as reported by David Voreacos, in Bloomberg News Zaltsberg has bladder and prostate cancer.

This case is a stark reminder to tax lawyers, and CPAs that they can not assume that because the amount of unreported tax is relative small their clients do not have criminal tax exposure. Clients need to be informed of the risks, and the way those risks can be minimized through a voluntary disclosure.

Foreign Bank Account Reports (FBAR) on Form TDF 90-22.1 are due in Detroit, Michigan on June 30th. Some CPAs and tax attorneys seem to be relying on an exception contained in IRS Notice 2010-23 which provides that persons who have signature authority, but no financial interest in a foreign bank account do not need to file an FBAR until June 30, 2011. The expectation is that the IRS may publish rules which would permanently exempt such persons from filing an FBAR. That’s fine, but some CPAs and even some tax lawyers believe that persons who are holding money for a foreign resident are allowed to use this exception to avoid filing an FBAR.

So for example, John opens an account in Israel for his father, Sam, who lives in Iraq. John is a U.S. citizen. Sam has never even been to the U.S. for a visit. The funds in the offshore account belong to Sam, but because the Israeli bank wouldn’t open up an account in Sam’s name unless he comes to Israel, John opens it in his own name, and puts Sam’s funds in the offshore bank account.

The assumption that John falls under IRS Notice 2010-23 is incorrect. John has a financial interest in the account. The definition of financial interest is set forth in the instructions to the FBAR, Form TDF 90-22.1 which states:

The Swiss Parliament has decided to allow UBS to turn over the names of its Swiss bank account customers to the IRS. This means that the names of 4,450 UBS customers who are suspected of committing tax fraud, and FBAR (Foreign Bank Account Reports, TDF 90-22.1) violations will be turned over to the IRS by the August deadline. For a recap of the UBS John Doe summons litigation, and the subsequent twists and turns through the Swiss court system look here and here.

For owners of UBS Swiss bank accounts this may be the last chance to make a voluntary disclosure to the IRS, thereby greatly reducing the chances of criminal tax evasion, tax fraud, and willful non-filing of FBARs charges being filed. Making a voluntary disclosure at this point after the tax amnesty deadline has passed will not by itself eliminate harsh civil tax penalties, but is one step in the right direction.

Once the IRS has received an individual’s name from UBS it will be too late to make a voluntary disclosure, and a criminal tax investigation is almost a sure thing.

According to Kevin Downing, a seniortax fraud through offshore bank accounts, in addition to the UBS cases.

According to Reuters, Downing made the announcement in a lecture in Singapore last week. Along with a DOJ team, he is currently touring a number of Asian cities including Singapore, Hong Kong, Beijing and Shanghai, meeting with financial and tax regulatory bodies and bankers to discuss cross-border tax evasion, money has moved from Switzerland to the Caribbean and Asia. In addition, some clients with offshore financial accounts are choosing to take cash from Swiss Bank accounts and carry it by hand back to the United States, in an attempt to avoid an electronic trail, only to be caught by U.S. law enforcement officers . Of course if your bring back more than $10,000 in cash into the U.S. it must be declared on Treasury Form 4790. Civil and criminal tax penalties for failure to make the declaration can run to $500,000 not to mention imprisonment for ten years.

“When they go in and close their accounts, they are picking up brand new $100 bills…that are coming in $100,000 shrink-wrapped bundles. Guess what? We can trace that money,” Downing said, adding such cash would be forfeited.

Last week I blogged about 7 UBS clients with Swiss bank accounts who were indicted by the Department of Justice for a variety of criminal tax offenses including failure to file Foreign Bank Account Reports (FBARs) and tax evasion. On the same day, Mauricio and Leon Cohen, father and son real estate developers were also arrested in New York. (Proving the old adage that the family that commits tax fraud together stays together) .The government alleged the two evaded taxes and failed to account for $45 million.

The difference is, these two were not clients of UBS, but instead had offshore financial accounts with HSBC, Europe’s largest bank, according to a source with knowledge of the case. This could signal the shift that many tax attorneys have suspected was coming. Up until now all the FBAR indictments had been of UBS clients, but there are U.S. citizens with unreported offshore accounts all over the world. I fully expect the IRS to go after other Swiss banks, and then expand to other countries. The IRS is currently sifting through all of the information they received as part of last year’s tax amnesty program for offshore account holders, looking for patterns that implicate other offshore banks and financial institutions. It’s only a matter of time before there are more tax evasion prosecutions of offshore bank account owners at a variety of financial institutions.

If you would like information about whether or not making a voluntary disclosure of your offshore bank account is a wise choice, contact the tax attorneys at Brager Tax Law Group, A P.C.

The FBAR indictments just keep coming. The Department of Justice announced April 15th the filing of charges against seven individuals who collectively hid more than $100 million from the IRS by using sham companies to conceal their ownership of secret Swiss bank accounts held at UBS AG.

The defendants are variously charged with conspiracy, tax fraud, criminal tax offenses, and/or willful failure to file a Foreign Bank Account Report, Form TDF 90-22.1 (FBAR). Those defendants charged with willful failure to file FBARs may be subject to a civil penalty of up to 50 percent of the value of the accounts for each year the accounts were not disclosed.

Two defendants, Jules Robbins and Federico Hernandez, pleaded guilty to separate criminal charges and agreed to pay civil penalties of $20.8 million and $4.4 million, respectively.