Florida Doctor Sentenced in Criminal Tax Case for Concealing Assets and Filing False Individual Income Tax Returns

September 16, 2014,


Individuals using offshore bank accounts to conceal assets and facilitate tax fraud continue to be prosecuted by the Department of Justice. Under the Bank Secrecy Act, citizens and lawful permanent residents (i.e. "Green Card" holders) that have an interest in or signature authority over a financial account in a foreign country with assets in excess of $10,000 at any time during the year are required to disclose the accounts on their individual income tax returns, both on Schedule B, and if the accounts are large enough on Form 8938. They must also file a FBAR (Report of Foreign Bank and Financial Accounts) on FINCen Form 114 disclosing any financial account in a foreign country with assets in excess of $10,000. Dr. Patricia Lynn Hough was recently convicted of conspiracy to defraud the IRS by keeping money in offshore bank accounts and filing false individual income tax returns that failed to report the income received by her on the foreign bank accounts. Hough was sentenced to 24 months in jail and ordered to pay over $15 million in restitution in addition to paying over $40,000 in prosecution costs.

Hough, a United States resident and the owner of 2 medical schools in the Caribbean, created nominee entities and used undeclared foreign bank accounts to conceal assets from the IRS. Upon selling the medical schools for over $35 million, the entire proceeds from the sale were deposited into undeclared accounts in the names of the nominee entities. The majority of the sale proceeds were not reported on her tax returns. The unpaid taxes totaled over $15 million. In addition to the proceeds received from the sale of the medical schools, Hough also failed to report a large amount of interest and investment income and failed to report that she had an interest in bank securities or other financial accounts located in foreign countries.

The money in the accounts, though, didn't go untouched. Through evidence including e-mails, telephone calls and in-person meetings, the IRS was able to establish that Hough and her husband had asset managers that made investments and transferred funds from the offshore accounts in the names of the entities and medical schools to offshore accounts in their own names. The funds were later used to fund what the Justice Department referred to as "their lavish lifestyle."

Tax evasion through the use of offshore bank account continues to be a high priority for the IRS, and taxpayers may face high penalties and possible jail time if they are caught prior to making a voluntary disclosure.

If you have any offshore bank accounts and you want to discuss your options in light of the harsh penalties given out by the U.S. government, contact the tax controversy attorneys at Brager Tax Law Group, A P.C. for a confidential consultation.

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Business Owners Get Jail Time for Tax Evasion

September 3, 2014,


Sometimes understating income is just carelessness. Sometimes its tax fraud or tax evasion. People don't always realize that tax fraud or tax evasion can lead to time in jail.

Convincing judges to sentence defendants to prison for criminal tax evasion continues to be a priority for the Department of Justice where taxpayers have willfully underreported their income or made false statements to the IRS revenue agents regarding their tax liabilities, as shown by unrelated decisions handed down against Abdelhamid M. Horany and Robert C. Sathre.

Horany, a business owner, admitted to underreporting his income by approximately $175,000, which resulted in his underreporting his tax due and owing by over $60,000 in 2007 alone. In total, Horany underreported his tax due by more than $145,000; he was sentenced to 12 months in prison for his actions. Sometimes taxpayers try to convince themselves that the IRS won't go after them because they are "minnows." This case is a warning that it is not necessary to evade millions of dollars in taxes in order to be prosecuted for tax evasion.

Sathre, also a business owner, was a much bigger fish; he pled guilty to charges of tax evasion and was sentenced to 36 months in prison and was ordered to pay $3,113,882 in restitution for willfully evading payment of his taxes for 1995 and 1996. According to the Department of Justice press release, Sathre concealed income from a property he sold, for which he received over $3 million in installment payments. Sathre compounded the problem by sending over $500,000 during 2005 and 2006 to an offshore bank account in the Caribbean, and later wired $900,000 from the sale of another property to the same offshore account in an attempt keep the funds out of the reach of the IRS. In addition, Sathre supplied the Caribbean bank with false declarations and false promissory notes and also claimed he was neither a citizen nor a resident of the United States. Although not mentioned in the press release, one would assume that Sathre also failed to file Foreign Bank Account Reports (FBARs) on TD-F 90-22.1 (now known as FinCEN Form 114). These criminal tax cases (among many others) demonstrate that the IRS takes the issue of underreporting income very seriously and will not hesitate to press for a prison sentence in cases involving tax evasion.

Call our experienced criminal tax attorneys at 1-800 Tax Litigator (1-800-208-6200) for a confidential consultation to discuss available options if you have been contacted by the IRS in connection with civil or criminal tax fraud or tax evasion, or any other high stakes tax problem.

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Expect Increased Assessment and Collection of Trust Fund Recovery Penalties

August 22, 2014,


Enforcement of The Trust Fund Recovery Penalty (TFRP) is a source of potential government revenue that, according to the Treasury Inspector General for Tax Administration (TIGTA), needs to be revamped to become more efficient. Under existing law, employers are required to withhold from their employees' salaries amounts to cover Federal income, Social Security, and Medicare taxes. These are referred to as "trust fund taxes." When the employer fails to pay these taxes, the IRS can collect them from "responsible persons," who have willfully failed to pay them. In determining who is a responsible person, the critical test is whether the person has the effective power to pay the taxes owed.

As the taxes get older, the possibility of collection by the IRS continues to decrease. As of June 2012, employers owed the United States government approximately $14.1 billion in delinquent employment taxes. That's one big employment tax problem! In their study of 265 statistically valid cases, TIGTA found that TFRP actions were not always timely or adequate in 99 cases. Sixty-five cases had untimely TFRP actions, twenty cases had TFRPs that could not be assessed because assessment statutes had expired, ten did not have adequate support for collectability determinations when the TFRP was not assessed, and nine cases with incomplete TFRP investigations were closed with an installment agreement or considered "currently not collectible" before determining whether a TFRP should be assessed.

TIGTA set forth a list of recommendations for the IRS with respect to the TFRP, which were all accepted and agreed to be implemented in the coming year. Many of the suggestions emphasized the responsibility of the group managers; for example, one recommendation was to emphasize to managers their responsibility to use the Automated Trust Fund Recovery System (ATFR) monthly and to increase the level of training offered.

There are also a number of technical improvements that TIGTA recommended. For example, components would be added to review and measure the timeliness of actions, systemic messages will be used to remind revenue officers about functions already in place to facilitate timely TFRP actions, and there will be an updated checklist box for installment agreements. TIGTA also encouraged an increased amount of cooperation between different groups. For example, revenue officers and managers were encouraged to work more closely with the IRS Information Technology organization to ensure the completion and adequacy of the improvements listed above. Also, revenue officers should coordinate with Collection Policy to revise the Internal Revenue Manual (IRM), to hold group managers more accountable.

Contact our experienced former IRS tax attorneys at 1-800 Tax Litigator (1-800- 380.8295) for a confidential consultation to discuss available options if you have employment tax problems

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Big Changes to IRS Offshore Voluntary Disclosure Program (OVDP) for FBAR Non-Filers

June 19, 2014,


Massive change is coming to the IRS Offshore Voluntary Disclosure Program (OVDP). These changes will affect different groups of taxpayers differently, and it will be at least a few days before tax attorneys have had an opportunity to make sense of it all. One group of FBAR non-filers that have a very short time frame to get into OVDP is those individuals who have offshore bank accounts with a foreign financial institution which has been publicly identified as being under investigation, or is cooperating with a government investigation. The same goes for taxpayers who worked with a "facilitator" who helped the taxpayer establish or maintain an offshore arrangement if the facilitator has been publicly identified as being under investigation or as cooperating with a government investigation.

Those individuals have until August 3, 2014 to enter the OVDP. If they do not enter the OVDP by that date then they will still be eligible to enter the OVDP, but they will be subject to a 50 percent offshore penalty rather than the existing 27.5 percent penalty. Of course if the IRS already has a particular taxpayer's name, then that person will not be eligible to enter the OVDP, and could be subject to multiple FBAR penalties.

The IRS has published a list of those foreign financial institutions or facilitators. The complete list is as follows:

2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
3. Wegelin & Co.
4. Liechtensteinische Landesbank AG
5. Zurcher Kantonalbank
6. swisspartners
7. CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
8. Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
9. HSBC India
10. The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield).

Of course, the IRS may add names to that list at any time, and whole groups of taxpayers will then be cut-off from OVDP without prior notice.

For those taxpayers whose conduct was non-willful, however, they may be able to escape with only a one-time five percent offshore penalty, or perhaps no penalty. The IRS has greatly expanded its streamlined procedures, and created two streamlined programs for those taxpayers whose conduct was non-willful. One is for non-resident persons; the other is for U.S. residents. Qualifying non-residents will not pay any penalty. Qualifying residents will pay a five percent offshore penalty. This penalty will be assessed on the highest aggregate balance/value of the taxpayer's foreign financial assets, generally over the previous six years. The IRS will not assess any FBAR penalties, nor will it assess a 20 percent accuracy penalty under IRC Section 6661.

In order to be eligible, taxpayers must certify under penalty of perjury that the failure to report all income, pay all tax, and submit all required information returns, including FBARs, was due to non-willful conduct. Non-willful conduct is defined by the IRS as conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

Taxpayers who enter the streamlined programs are not automatically subject to audit, but may be audited under existing IRS procedures. The IRS warns that if the submissions are inaccurate, taxpayers could be subject to additional liabilities, and even criminal tax prosecution. That is because taxpayers who enter the streamlined programs, unlike those who enter the OVDP, are not insulated from criminal prosecution if the IRS later determines that the failure to file FBARs was willful. The IRS points out that individuals who are concerned that their behavior may be deemed to be willful, and want assurances that they will not be criminally prosecuted or subjected to additional penalties, should enter the OVDP.

Those taxpayers who already signed closing agreements, and paid substantially greater penalties will not be able to reopen their cases and obtain refunds. On the other hand, individuals who are currently in OVDP, but who have do not have countersigned closing agreements may be eligible to enter the streamlined programs if they otherwise qualify, but are subject to additional strictures under transitional rules announced by the IRS.

If you have any offshore bank accounts or other tax problems, call the tax litigation attorneys at Brager Tax Law Group, A P.C.

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Swisspartners Group Entered Into NPA to Avoid Criminal Tax Prosecution But Must Pay $4.4 Million in Forfeiture and Restitution for Assisting U.S. Tax Evasion

June 13, 2014,


To avoid prosecution for tax evasion and other alleged crimes, the Swisspartners Investment Network AG, a Swiss-based asset management firm, and three of its wholly-owned subsidiaries (collectively, the Swisspartners Group) entered into a non-prosecution agreement (NPA) with the U.S. Attorney's Office. Although many taxpayers have been entering the IRS Offshore Voluntary Disclosure Program (OVDP), for some taxpayers it is now too late as the Swisspartners Group has already disclosed to the U.S. Attorney's Office the names of 110 U.S. taxpayers who may have failed to file Foreign Bank Account Reports (FBARs) and/or been engaged in tax fraud.

Although the Swisspartners Group avoided criminal prosecution for assisting U.S. taxpayers in opening and maintaining undeclared foreign bank accounts from about 2001 to 2011, it couldn't avoid paying large sums of money for its wrongdoing. Swisspartners Group agreed to pay $4.4 million in forfeiture and restitution. Of the $4.4 million, $3.5 million represents fees that Swisspartners Group earned by assisting U.S. taxpayers in opening and maintaining undeclared accounts, and $900,000 represents the approximate amount of unpaid taxes arising from the Swisspartners Group involvement in tax evasion.

There are several factors that led to the NPA between the U.S. Attorney's Office and Swisspartners Group: (1) beginning around May 2008, the Swisspartners Group voluntarily implemented remedial measures against offshore tax evasion; (2) without any pressure from the U.S. authorities or obligation under a criminal investigation or prosecution, the Swisspartners Group reported criminal conduct by its clients; (3) the Swisspartners Group produced 110 account files that identified U.S. taxpayers who evaded taxes; (4) the Swisspartners Group's willingness and ongoing cooperation with the U.S. authorities to combat tax evasion; and (5) the Swisspartners Group, when investigated by outside counsel, made true representations of the misconduct that was under investigation.

The Swisspartners Group admitted, as part of the NPA, that it knew certain U.S. taxpayers maintained undeclared foreign bank accounts with the intent to evade U.S. taxes. Swisspartners Group also admitted that it helped certain U.S. taxpayers conceal beneficial ownership of undeclared assets from the IRS by, among other things: (1) creating sham foundations or other sham entities that operated as the nominal account holders; (2) using non-U.S. nationals on accounts or insurance policies; (3) facilitating the transportation of large amounts of cash into the U.S. for the benefit of U.S. taxpayers; and (4) arranging large cash deposits in Swiss financial institutions for the benefit of U.S. taxpayers.

Under the NPA, the Swisspartners Group must continue to cooperate with the U.S. tax authorities for at least three years from the date of the agreement; otherwise, the U.S. Attorney's Office may prosecute the Swisspartners Group.

Continue reading "Swisspartners Group Entered Into NPA to Avoid Criminal Tax Prosecution But Must Pay $4.4 Million in Forfeiture and Restitution for Assisting U.S. Tax Evasion " »

Grim Outlook for Congressman Michael Grimm after 20-Count Indictment Alleging Tax Fraud

May 22, 2014,


Congressman Michael Grimm faces a 20-count indictment in federal court for allegedly committing tax fraud, and evading taxes by concealing more than $1million in sales and understating wages. He is charged with five counts of mail fraud, five counts of wire fraud, three counts of aiding and assisting in the preparation of false federal tax returns, one count of conspiring to defraud the United States, one count of impeding the IRS, one count of health care fraud, one count of engaging in a pattern or practice of hiring and continuing to employ unauthorized aliens, two counts of perjury, and one count of obstructing an official proceeding.

If convicted, Grimm faces up to 20 years for each mail and wire fraud charge and for the obstruction charge, up to 10 years of imprisonment for the health care fraud charge, and up to five years of imprisonment for the charge of conspiring to defraud the U.S. and for each perjury charge. Furthermore, he faces a term of imprisonment of up to three years for each charge of aiding and assisting in the preparation of false and fraudulent tax returns and for the charge of obstructing and impeding the due administration of the tax laws. Finally, he faces up to six months of imprisonment for engaging in a pattern or practice of hiring and continuing to employ unauthorized aliens, as well as forfeiture, restitution, and fines.

It is ironic that Congressman Grimm would be involved in such actions given that as a former FBI agent he was investigating fraud. The former Marine, FBI agent, accountant, attorney, and small business owner might now be able to add tax evasion and fraud to his otherwise impressive and distinguished resume.

According to the indictment, Grimm was one of the owners and managing member of "Healthalicious," a fast food restaurant located in Manhattan. From 2007 through 2010, Grimm oversaw the day-to-day operations of the restaurant and also managed the restaurant's payroll. Allegedly, he fraudulently under-reported wages he paid his workers and under-reported the true amount of money the restaurant earned to both federal and New York State tax and insurance authorities. Because many of his workers did not have legal status to work in the United States, he paid a large portion of payroll in cash, which in turn, lowered the company's payroll tax expense. Moreover, a lower payroll reported to the New York State Insurance Fund (NYSIF) allowed him to receive lower monthly worker's compensation premiums. He also lowered his income tax liability to the federal and state governments by under-reporting the amount of gross receipts the company earned.

To make matters worse, when confronted in a deposition about his duties as owner and manager of the company, he attempted to conceal his illegal actions. He allegedly lied about several material matters in connection with the lawsuit such as: (1) whether he paid his employees in cash; (2) whether he had interacted with the payroll processing companies; (3) whether he corresponded regarding Healthalicious business through e-mail; and (4) whether he still had access to such an email account.

Contact our experienced criminal tax attorneys at 1-800 Tax Litigator (1-800-208-6200) for a confidential consultation to discuss available options if you have been contacted by the IRS in connection with civil or criminal tax fraud or tax evasion, or any other high stakes tax problem.

Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.

Offshore Bahamian Vacation Comes To An End

May 13, 2014,

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An alleged tax fraud scheme by Victor Lipukhin, the former president of a large Russian steel company resulted in a recent grand jury indictment. According to court papers, he hid between $4 million and $7.5 million dollars in Swiss bank accounts at UBS from 2002 through 2007. If convicted, he faces a potential maximum sentence of three years imprisonment on each count. Presumably, Lipukhin's name was one of the more than 4,000 names that were turned over to the IRS several years ago in response to a John Doe summons served on UBS. In 2013, the IRS used similar tactics to obtain names of customers of Wegelin & Co., Switzerland's oldest bank.

Lipukhin, a Russian national, became a lawful permanent U.S. resident in 2002. He served as the president of Severstal, Inc. (USA), which is a subsidiary of AO Severstal, the largest steel producer in Russia. Allegedly, he used shell companies based in the Bahamas to conduct transactions in his offshore accounts. He was later able to bring funds to the U.S. to purchase real estate, pay for personal expenses, and to withdraw cash for personal use.

In 2002, he and another individual, opened a UBS bank account, in the name of sham Bahamian entities (Old Orchard and Lone Star) transferring over $47 million from previous UBS accounts. In 2003, Lipukhin became the sole owner and signatory on the account. He was able to control all transactions in the accounts with the help of a Bahamian national, who served as the nominee director. He also used the services of a Canadian attorney to create fictitious mortgages, through an entity called Dapaul Management, to conceal his purchases of real estate in the U.S. with the funds from the offshore accounts. In addition, he had the Canadian attorney transfer funds to a domestic entity, Charlestal, LLC, to purchase real estate in the U.S., which included a historic building in Illinois for $900,000. He also used the domestic entity to withdraw cash for personal use and to pay for his personal expenses.

Although Lipukhin reported income and paid tax in 2002, his reported income consisted primarily of W-2 wages and not the money earned from his foreign bank accounts. Lipukhin failed to file a tax return in 2003, and, surprisingly, he showed a loss on his tax returns from 2004 through 2006. He also failed to disclose his offshore bank accounts to the IRS by failing to file Foreign Bank Account Reports (FBARs) or to report the existence of the offshore accounts on Schedule B, Part III of his individual tax returns. The disclosure of the offshore accounts was required because he had over $10,000 in assets and had authority over the accounts. The fact that he was a non-citizen didn't change anything since lawful permanent residents, i.e. green card holders, as well as "tax residents," also have an FBAR filing requirement.

Lipukhin was also charged with obstructing the tax laws by attempting to prevent an automobile dealer from filing a Form 8300 (Report of Cash Payments Over $10,000 Received in a Trade or Business).

If you have any offshore bank accounts or other tax problems, call the tax litigation attorneys at Brager Tax Law Group, A P.C.

Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.

Bank of Israel Orders FACTA Implementation

April 24, 2014,

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To help prevent tax evasion through the use of offshore accounts, the U.S. Treasury Department, enacted regulations under the Foreign Account Tax Compliance Act (FATCA), that go into effect July 1, 2014. At the end of March, the Bank of Israel released draft guidance for Israeli banks to prepare for the implementation of FATCA, whether or not an Intergovernmental Agreement (IGA) is signed before July 1, 2014. The Israeli supervisor of banks, David Zaken, announced that he is ordering Israeli banks to prepare for the implementation of FACTA even though the agreement between Israel and the U.S. has not yet been signed.

Under FATCA, every foreign financial institution (FFI) must notify the IRS about its U.S. customers. This means that banks around the world, including Israel banks, must report to the IRS the existence of "foreign" bank accounts belonging to U.S. citizens, as well as accounts belonging to Israelis on which U.S persons have signatory authority. The IGA when signed will supersede the U.S. government's demand that the Israeli banks report directly to the U.S. authorities. Instead, the banks will send the information about U.S. customers to the Israel Tax Authority, which in turn will send it to the IRS. Israeli banks were given instructions on:

1) Corporate governance processes (appointing a person responsible for the issue, appointing a work team, establishing policies and procedures, reports to the management and to the board of directors).

2) Examining the need for registering and signing an agreement with U.S. authorities, in line with the timetables set in the provisions.

3) The manner of conduct vis-à-vis customers, particularly the possibility of refusing to provide banking services to a customer that does not cooperate with the Israeli banks in the manner required for implementation of the provisions.

This last requirement suggests that U.S. persons including dual U.S. Israeli citizens can expect their accounts to be closed if they do not provide Form W-9 to the bank. Failure to comply with FACTA will lead to harsh sanctions for those banks that do not cooperate. A foreign financial institution that does not cooperate with the IRS will be subject to 30 percent withholding on all U.S. source payments. According to media reports although the Israeli government intends to fully comply with FATCA, there is still some resistance from bankers. The effect of FATCA could cause the banks to lose money from customers who will withdraw their money and close their accounts. However, the severe 30 percent penalty could have even a harsher effect, and as one bank officer in Tel Aviv stated, "the penalties would put us out of business." This severe penalty for non-compliance should effectively persuade Israeli banks to comply, notwithstanding the fact that Israel has yet to formally sign an agreement with the U.S.

If you have any offshore bank accounts in Israel or any other country and you want to discuss your options in light of this new implementation, contact the tax controversy attorneys at Brager Tax Law Group, A P.C. for a confidential consultation.

Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.

The rules regarding innocent spouse relief are complicated. The Brager Tax Law Group has developed an Innocent Spouse Relief Flowchart to help guide you through the maze of possible choices. Please check out our Flowchart and let us know if you find it helpful. We're always interested in hearing from you.

IRS Criminal Tax Investigation Interesting Facts

April 18, 2014,

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Criminal tax cases generally start out in the IRS' Criminal Investigation (CI) division. It is therefore instructive to look at CI's annual report that was issued earlier this year for the 2013 fiscal year. To some extent, there were no surprises. International tax evasion and the voluntary disclosure program were among Criminal Investigation's top priorities. Also included on the list was the tax fraud referral program, and Bank Secrecy Act (BSA) and Suspicious Activity Report (SAR) review teams.

The criminal tax folks also touted an increase in prosecution recommendations of 17.9% over the previous fiscal year. The Criminal Investigation division also trumpeted a conviction rate of 93.1%! It is this high conviction rate which drives the strategy of most criminal tax lawyers which is generally to seek to avoid indictment in the first place. Of course, that's easier said than done, but at a minimum it requires understanding all of the facts, good and bad, as early as possible.

Here are just a few of the tax evasion cases highlighted by Criminal Investigation in its annual report.

• 27 months in prison, and restitution of over $429,000. An Idaho general contractor concealed his business receipts from 2005 through 2008 by, among other things, instructing his customers to make checks payable to him personally rather than his business, and then failed to deposit those checks into the business' main bank account.

• 63 months in prison, and restitution of over 1.7 million dollars. A Chicago accountant embezzled millions of dollars from a family that owned a chain of plumbing wholesale supply companies. Believe it or not he had the sole authority to sign checks, transfer funds, and sign tax returns for the trusts he was managing. Apparently, the temptation was too much. Of course he didn't report the embezzled income; hence the tax fraud conviction.

• 36 months in prison, and over $2 million in restitution for a Santa Monica California lawyer. He pled guilty to willfully subscribing and filing false tax returns. The court filings indicated he used shell entities and trust to hide almost 1 million dollars in client fees and assets from the IRS. On top of that, he submitted a false offer in compromise to the IRS.

There is an urban myth that it is better to file no tax return than a fraudulent tax return. Like all urban myths it has a grain of truth. Failure to file a tax return is punishable by "only" one year in jail. Tax fraud or tax evasion is punishable by up to 5 years in jail. However, it is sometimes possible for federal tax prosecutors to charge a failure to file a tax return as tax evasion. This occurs where, in addition to failing to file the tax return, the person commits "overt acts" in furtherance of hiding the failure to file. Just ask the Nevada physician Robert David Forsyth who according to court documents was sentenced to 27 months in prison and ordered to pay over $306,000. In addition to failing to file tax returns, he closed all of his personal bank accounts and used a third party business to cash his paychecks. He also used cash to pay his expenses. That was sufficient to support a tax fraud conviction with the higher sentence.

If you have been contacted by the Criminal Investigation division you should immediately contact a criminal tax lawyer before you speak to the IRS.

If you have any offshore bank account or other tax problems call the tax litigation attorneys at Brager Tax Law Group, A P.C.

Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.

Will the Justice Department Seek Extradition of Swiss Bankers Charged With Aiding and Abetting Tax Evasion by U.S. Citizens?

April 5, 2014,


According to two U.S. Senators, Switzerland has not sought extradition of a single Swiss national charged with criminal conduct that was related to aiding and abetting U.S. tax evasion for more than five years. In a recent letter authored by Senator Carl Levin and Senator John McCain, they urged that the IRS and Department of Justice (DOJ) act more aggressively to prosecute Swiss nationals aiding and abetting tax evasion and other crimes. Of course, if more Swiss bankers were prosecuted it would likely result in more names of U.S. taxpayers being disclosed so that the Swiss bankers could avoid stiff prison sentences.

The DOJ confirmed that it has charged 35 Swiss bankers and 25 financial advisors with helping U.S. taxpayers hide their undisclosed offshore bank accounts. However, of those charged, only six have been convicted or pled guilty while the majority live openly in Switzerland without standing trial. The Justice Department official said extradition proceedings would be a poor use of resources because aiding and abetting tax evasion is not considered a crime in Switzerland, which means the country is unlikely to pursue and prosecute such cases or to extradite its citizens. According to the Senators, however, the treaty between the U.S. and Switzerland does not preclude the cooperation of the Swiss government in extradition requests for tax fraud cases. Even if the extradition request is denied, the Senators' letter states "it will inform both Switzerland and its current citizens that the United States is ready to make full use of available legal tools to stop facilitation of U.S. tax evasion and hold alleged wrongdoers accountable." The Senators also stated in the letter that it was time to "test the Swiss government's professed willingness to cooperate with intentional tax enforcement efforts and put an end to its nationals participating in criminal tax offenses.

Despite the DOJ's resistance to fully investigate Swiss banks and to extradite Swiss nationals pursuant to the U.S. and Switzerland treaty, there are signs that the Justice Department is putting pressure on Swiss banks to comply with the treaty. Last week, for example, former Credit Suisse banker Andreas Bachmann returned to the U.S. to face a 2011 tax evasion indictment. Mr. Bachmann admitted to helping Americans hide their assets in exchange for leniency and being allowed to return to Switzerland before sentencing. This suggests that the IRS and DOJ may continue to take more aggressive measures to use the treaty to extradite Swiss nationals for aiding and abetting tax fraud by U.S. citizens.

Taxpayers who haven't filed foreign bank account reports (FBARs) and have significant foreign accounts, foreign companies or offshore trusts, may wish to come forward and disclose before it is too late. Taxpayers could enter into the IRS Offshore Voluntary Disclosure Program (OVDP) to settle their tax issues in order to avoid the risk of confiscatory penalties and possible criminal prosecution. There are other potential solutions, however, and anyone with significant offshore tax issues would be wise to consult with a tax litigation attorney.

If you have any offshore bank account or other tax problems call the tax litigation attorneys at Brager Tax Law Group, A P.C.

Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.

I'll be on the Morgan King Company TeleConference on Friday, April 11th from 12PM to 1PM speaking about Offshore Accounts & Offshore Tax Evasion. If you'd like to listen in sign up here.

A Tale of Two FBAR Doctors and Why Even a Quiet Voluntary Disclosure May be Valuable

March 7, 2014,


The tax evasion conviction of Dr. Edward Picardi was upheld by the Eighth Circuit last month. Also upheld was his conviction for failure to file Foreign Bank Account Reports (FBARs), Form TDF 90-22.1. Picardi was sentenced to five years in jail. According to the Department of Justice press release and various press reports, Picardi was advised by attorney and CPA Anthony Kritt on setting up an "employee leasing program." Picardi entered into a contract with an offshore corporation to lease his services as a physician. That company in turn contracted with Professional Leasing Services, Inc. a Nevada corporation that was operated by Kritt to provide Picardi's services to Professional Leasing Services (PLS). In turn, PLS contracted with Picardi's medical group to lease Picardi's services to it.

A large portion of the "leasing fee" was transferred into offshore bank accounts set up by Picardi. Picardi didn't report this fee as income on his tax returns on the theory that he should have been unable to access it until he retired or turned 70 years old. It appears that Picardi's defense at trial was that he believed the transaction was legitimate based upon the advice he received from Kritt. Apparently the jury didn't buy it because he was convicted.

The interesting part is the IRS also brought criminal tax charges against another physician, Dr. Randy Brodnik, and Kritt arising out of a series of similar transactions involving employee leasing and the use of offshore bank accounts. Kritt and Brodnik were, however, acquitted of all charges. Without having been at the trial it is hard to say why Brodnik and Kritt were acquitted and Picardi was not. However, our tax litigation attorneys found an interesting footnote.

At Picardi's trial he called Brodnik as a witness, and it turned out that Brodnik had filed a quiet voluntary disclosure reporting all of the income. Our tax lawyers don't know whether the quiet voluntary disclosure was filed in a timely manner. However, it is certainly possible that the jury considered this fact as significant in its deliberations.

The lesson here is that a quiet voluntary disclosure may not protect against the IRS bringing criminal tax prosecutions, but it may turn out to be a factor that keeps someone out of jail.

If you have any offshore bank account or other tax problems call the tax litigation attorneys at Brager Tax Law Group, A P.C.

Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.

I'll be on Money Talk 101 on KFWB 980 Radio with Bob McCormick on Wednesday 3/12 from 10AM to 1PM talking about tax problems and fielding questions from the listeners.

Mizrahi Bank of Israel Offshore Account Holder Pleads Guilty to Criminal Tax Violations

February 27, 2014,

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A Mizrahi Bank customer pled guilty to filing a false tax return in connection with an undisclosed offshore Israeli bank account, in violation of IRC Section 7206(1). Mizrahi Bank, located in Israel but with a U.S. affiliate, has been linked to the Department of Justice criminal tax investigation of undisclosed foreign accounts. According to a Department of Justice press release, Monajem Hakimijoo, also known as Manny Hakimi, of Beverly Hills, California and his brother attempted to conceal the ownership of the Israeli bank account by placing it in the name of a Turks and Caicos Islands entity. Then, in order to repatriate the funds, they used the funds in the Israeli bank account as collateral for loans obtained from the Los Angeles branch of Mizrahi Bank. This is a methodology our tax lawyers have seen in the past.

The problem with this scheme is that when uncovered, it provides clear evidence of criminal tax evasion. To add insult to injury, when he filed his tax returns not only did he not report the interest income generated on the Mizrahi Bank account in Israel, he deducted the interest he paid to the Mizrahi Bank branch in Israel as a business deduction. The unreported interest income amounted to approximately $282,000.

Then in March 2013, Hakimijoo was scheduled to be interviewed by Justice Department criminal tax attorneys and IRS special agents from the Criminal Investigation Division. In preparation for the interview Hakimijoo's counsel provided copies of amended income tax returns to the special agents and the Department of Justice attorneys. At the interview Hakimijoo was asked if he filed the amended tax returns, and he responded that he had. Unfortunately for Hakimijoo when the IRS subsequently checked its files it turned out that the returns had not been filed. When the IRS asked for proof that the payments shown on the amended tax returns were actually made, no proof was provided. It's hard to believe that even at the point where it was clear that he was in the IRS' crosshairs he thought that the best tactic was to lie about a fact that was easily verifiable by the IRS. It really makes you wonder!

Hakimijoo faces a maximum prison term of three years and a fine of $250,000. In addition, Hakimijoo agreed to pay a civil FBAR (Foreign Bank Account Report) penalty to the IRS of 50% of the highest balance in his share of the account, amounting to a penalty of approximately 1 million dollars.

It is an open question as to how Hakimijoo's brother who apparently had a ½ interest in the Israeli account will fare since as of yet our tax lawyers have not seen any publicly available information about his fate.

If you have an unreported bank account in Israel, Switzerland or any other country, now is the time to consult an FBAR attorney regarding your options.

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Taxpayer Advocate's 2013 Report to Congress Again Critical of Offshore Voluntary Disclosure Program (OVDP) for Unreported Foreign Bank Accounts (Part I)

January 24, 2014,

The Offshore Voluntary Disclosure Program (OVDP) for taxpayers who have failed to file Foreign Bank Account Reports (FBARS), FINCEN Form 114, (this form was previously designated as TDF 90-22.1), has again been roundly criticized by the Taxpayer Advocate for its draconian penalties, and its one size fits all solution. The 2013 report demonstrates through statistics that were previously unavailable to the public what tax litigation attorneys have known for years: that the OVDP is unfair in both design and application.

In lieu of the OVDP, the Taxpayer Advocate has recommended a disclosure system which divides FBAR non-filers into three categories.

Category 1. Full relief from FBAR and information reporting penalties.

This would be available to those who underreported income by a de minimis amount, defined at least as high as the IRC Section 6662(d) threshold which is the greater of $5,000 in tax or 10% of the tax required to be shown.

Category 2. Taxpayers who have reasonable cause or who acted non-willfully.

Taxpayers who underreported more than the de minimus amount, but who believe they have reasonable cause or who acted non-willfully would be required to file delinquent returns, pay any applicable tax, interest and penalties under Title 26 (unless asserting reasonable cause). Depending on the circumstances and the taxpayer's explanation, these taxpayers should be required to pay either the non-willful FBAR penalty or no penalty under the reasonable cause exception. The IRS would audit some, but not all of these submissions.

Category 3. Taxpayers not included in Category 1 or 2. Taxpayers who do not fall into categories one or two would be penalized under the current OVDP structure which generally provides for a 27.5 percent penalty.

In the opinion of our tax lawyers, while the recommendation is a vast improvement over the current OVDP, it is still problematic. The biggest advance is the addition of Category 1 for taxpayers who only have minimal tax amounts due. Our tax attorneys have met with many taxpayers since 2009 who were not good candidates for the existing OVDP, because after the application of foreign tax credits or expenses from the rental of real estate, the tax due was a few hundred dollars or even a few thousand dollars. Yet, these taxpayers are exposed to penalties ranging from $100,000 to several million dollars if they were to enter the OVDP and not opt-out.

The problem with Category 2 is that it provides for tax audits of some percentage that elect this category. What will happen to those who file under Category 2, but are determined by the IRS to have acted willfully? Will they be able to fall back into Category 3 or will they be subjected to possible multiple 50 percent willfulness penalties? Also for those taxpayers who are non-willful, but who have made many accounts, will they be subjected to a $10,000 non-willful penalty for each year and each account? That is the IRS' current position for OVDP opt-outs.

There is no indication that the IRS is ready to adopt the Taxpayer Advocate's recommendation, so in the meantime, if you have an unreported foreign bank account, contact the tax controversy attorneys at Brager Tax Law Group, A P.C. for a confidential consultation about all of your options.

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Collection Due Process (CDP) Hearing Requests Sent to the Wrong IRS Office Creates Tax Problems

January 17, 2014,

For the IRS to issue a tax levy to garnish bank accounts, wages or other assets it, generally, must first issue a Collection Due Process or CDP Notice. The CDP Notice is required by Internal Revenue Code Section 6330. The CDP notice is generally issued by the IRS on either Form LT-11 or Letter 1058, and it is titled "Notice of Intent to Levy and Right to Request A Hearing." These letters give a taxpayer, who owes the IRS money, 30 days to file a request for a hearing with the Internal Revenue Service's Appeals Division. More on this in a moment.

If the taxpayer doesn't request a Collection Due Process hearing IN WRITING within the 30-day period, then the IRS may immediately begin seizure of bank accounts, accounts receivable, or any other assets. The IRS may even seize someone's home, although this requires a lot more paperwork, and the approval of a federal district court judge.

An IRS internal document known as an IRS Program Manager Technical Assistance recently provided information on what will happen if the request for a CDP hearing is mailed timely to an incorrect office. The short answer is that the CDP hearing will be denied, and the IRS is legally free to begin levies and seizures. However, a taxpayer in this situation is, generally, permitted an "equivalent" CDP hearing; however, an equivalent CDP hearing does not carry with it the right to appeal to the United States Tax Court. It is only a timely filed request for a CDP hearing that will be appealable to the Tax Court if the IRS Appeals decision is not to the taxpayer's liking.

In order for a CDP hearing request to be timely it must either be received by the correct IRS office within 30 days of the date of the CDP notice, OR be mailed timely to the correct office. In order to prove that the request has been mailed timely the best practice is to mail it by certified mail, return receipt requested, and obtain a stamp from the Postal Service showing the date on which the CDP request was mailed. Alternative delivery services such as FedEx may be used also, but the rules are a bit tricky.

Typically the CDP hearing requests must be sent to one of the four automated collection sites (ACS) maintained by the IRS around the country. However, cases assigned to an IRS revenue officer require that the request be sent to the Revenue Officer. In any event, the letter itself will explain where the CDP request should be sent, and if those instructions are followed, there won't be a problem.

A CDP hearing is a valuable right which should almost never be waived. At a CDP hearing the Appeals Officer will consider:

• Collection alternatives such as installment agreement or offers in compromise.
• Whether the IRS has followed all laws and procedures
• Subordination or discharge of a lien.
• Withdrawal of Notice of Federal Tax Lien.
• Innocent Spouse defenses
• In limited situations, the correctness of the tax liability.

So if you receive a Notice of Intent to Levy and Right to Request a Hearing, make sure that you request a hearing within the 30-day time frame.

Contact our experienced criminal tax attorneys at 1- 800 Tax Litigator for a confidential consultation to discuss available options if you have been contacted by the IRS in connection with civil or criminal tax fraud or tax evasion, or any other high stakes tax problem.

Click here to Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.

Foreign Bank Account Owner at Julius Baer Wins Round One

January 10, 2014,

The Swiss Federal Administrative Court has blocked Swiss Bank Julius Baer from turning over one of its client's offshore bank account information to the Internal Revenue Service according to a report in Bloomberg News.

On April 17, 2013 the IRS had submitted a request for administrative assistance to the Swiss Federal Tax Authority (SFTA) requesting that it order Julius Baer to turn over information on accounts "owned through a domiciliary company" and held at any time between the beginning of 2002 and the end of 2012. The SFTA granted the request, and ordered Julius Baer to turn over the Swiss bank account data. At least two clients appealed the SFTA order. The news was not good for one of the account holders, because the court ruled that his appeal had been filed late and, therefore, the original SFTA order was valid. Presumably that individual's information will be on its way to the IRS in due course with a criminal tax prosecution soon to follow.

As to the timely filed appeal, the Swiss Federal Administrative Court held that the request was invalid under the 1996 double taxation treaty between the U.S. and Switzerland since the IRS request didn't provide evidence of "tax fraud and the like." Under Swiss law there is a distinction between "mere tax evasion" and tax fraud. The Swiss court held that the mere failure to report bank accounts is not tax fraud or the like.

According to the Bloomberg article the January 6, 2014 decision is appealable to the Swiss Federal Supreme Court within 10 days. It is probably safe to assume that the decision will be appealed.

In 2009, the United States and Switzerland signed a protocol revising the 1996 double taxation treaty which allow for so-called "group requests" where the IRS can request information about a group of individuals who engaged in specific conduct. That protocol though has never been ratified by the U.S. Senate where it is being blocked by Senator Rand Paul. Once that protocol is ratified by the Senate, it will become easier for the IRS to obtain Swiss bank account information.

What does all of this mean for the typical individual who has an interest in a foreign bank account for which no Foreign Bank Account Report (FBAR) has been filed?

It does not mean that their tax problems are over. First, this ruling may yet be reversed, but more importantly, it has no application to foreign bank account holders in countries other than Switzerland; so anyone who hasn't filed FBARs for foreign bank accounts in India, Israel, the Caribbean or any other country is still at risk. Even for those who have accounts in Switzerland, the weakness with the IRS request may be overcome in future requests if the IRS is able to piece together more detailed information. It will soon have an excellent source of such information since, as detailed in our previous blog post, many Swiss Banks will be turning over information about their account holders in order to avoid being indicted in the U.S.

Swiss banks had until December 31, 2013 to notify the Department of Justice that they wished to enter its voluntary disclosure program in order to avoid prosecution. Although the Swiss banks are not required to publicly announce whether they are entering the program, some news reports have suggested that as many as 60 banks had signed up by late December.

Another problem for foreign bank account owners who wish to attempt to block IRS efforts is that they are required under U.S. law to notify the U.S. Attorney General about any such efforts. Of course, the notification would defeat the entire idea. By not notifying the Attorney General, anyone who takes this route is raising the stakes if, for any reason, the attempt to block the information transfer is unsuccessful.

If you have an offshore account anywhere in the world, and want to discuss all of your options including the IRS Offshore Voluntary Disclosure Program contact the tax litigation lawyers at Brager Tax Law.

Click here to Subscribe to the Free Online Publication, The Tax Terminator. It will keep you abreast of events that are making the news and perhaps affecting you or your business.

For information regarding The Innocent Spouse defense, join us for a webinar on January 16th.

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