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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.

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.

Title: Innocent Spouse Relief: Fact or Fiction?
Date: Thursday, January 16, 2014
Time: 11:30am-12:20pm PST

Space is limited.
Reserve your Webinar seat now at:

More Reasons Why Quiet Voluntary Disclosures as an Alternative to the Offshore Voluntary Disclosure Program (OVDP) Have Become Riskier

January 9, 2014,

Based upon anecdotal evidence, foreign bank account owners are opting to enter the Offshore Voluntary Disclosure Program (OVDP) more frequently in the last few months. In November, I blogged about why quiet voluntary disclosures are becoming more risky. As a follow-up, here are a two more reasons why quiet voluntary disclosures may be riskier now than six months ago.

Electronic Filing of Foreign Bank Account Reports (FBARs) is Now Required

As of July 1, 2013 the Financial Crimes Enforcement Network (FINCEN) began requiring that all Foreign Bank Account Reports (FBARs) be filed electronically. This includes all late filed FBARs for prior years. Therefore, as part of a quiet voluntary disclosure the back FBARs will be filed electronically which makes it very, very easy for the IRS to track them; since the Government Accountability Office (GAO) has previously criticized the IRS for failing to follow up on quiet disclosures it would not be surprising to see more quiet disclosures being targeted for tax audits.

Swiss Banks Are Getting Ready to Throw Their U.S. Clients with Swiss Bank Accounts under the Bus

At the end of August 2013 the Department of Justice and the Swiss Federal Department of Finance announced an "Amnesty Program" for Swiss Banks who wanted to obtain non-prosecution agreements from the Department of Justice. The joint statement sets forth a process by which all Swiss bank accounts other than those who are currently under active investigation by the Department of Justice had until December 31, 2013 to send a letter of intent asking to participate in the Program. Under the terms of the Program, and depending upon a series of factors including the banks' degree of culpability, and the dates that accounts were opened by U.S. persons, the Swiss Banks will be required to pay a penalty ranging from 20 to 50 percent of the maximum aggregate value of all of the funds in Swiss accounts held by U.S. persons. According to one press report around 40 of Switzerland 300 banks had signed up as of December 22nd. That number is probably a low estimate since private banks are not obligated to announce their intentions, and the reported number has necessarily been cobbled together from sources which are imperfect.

Under the terms of the program the Swiss Banks must provide aggregate information about the accounts they hold. At this point, the banks will not be turning over the names of any U.S. taxpayers. HOWEVER, most tax attorneys expect that the IRS will use the information provided by the Swiss Banks to initiate a second round of requests to the Swiss Banks which ultimately will result in the names of the U.S. account holders along with their bank statements, and related documentation being turned over to the IRS. The IRS is unlikely to make things pretty for those taxpayers who haven't gone into OVDP.

Why would a Swiss Bank be concerned about prosecution by in the United States? After all you can't put a bank in jail, and if the Swiss Bank doesn't have U.S. clients any more why would they care about what the U.S. Department of Justice thinks. The answer is that a bank that is convicted of a crime will be unable to use the U.S. financial system to clear their dollar transactions. Essentially that is a death knell for any bank since the U.S. dollar is still the reserve currency to the world.

If you would like to find out about all of your options from quiet voluntary disclosures to OVDP contact the tax litigation lawyers at Brager Tax Law Group, A PC for a confidential consultation.

Quiet Voluntary Disclosures as an Alternative to the Offshore Voluntary Disclosure Program (OVDP) Are Becoming More Risky

November 14, 2013,

Owners of foreign bank accounts who have failed to file foreign bank account reports (FBAR) have several options to clean up this ugly tax problem. I briefly discussed them in a recent webinar, and in the related PowerPoint presentation. One of the options is a "quiet voluntary disclosure." Although the quiet voluntary disclosure has been blessed by the IRS in the Internal Revenue Manual, public statements by IRS representatives, both written and oral, have indicated that the quiet voluntary disclosure is disfavored, and that the IRS would like to see all offshore account holders file under the Offshore Voluntary Disclosure Program (OVDP). For example, FAQ 15 of the 2012 Offshore Voluntary Disclosure Program states:
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The IRS is aware that some taxpayers have attempted so-called "quiet" disclosures by filing amended returns and paying any related tax and interest for previously unreported offshore income without otherwise notifying the IRS. ...

Taxpayers are strongly encouraged to come forward under the OVDP to make timely, accurate, and complete disclosures. Those taxpayers making "quiet" disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years (emphasis supplied).

FAQ 16 provides:
The IRS is reviewing amended returns and could select any amended return for examination. The IRS has identified, and will continue to identify, amended tax returns reporting increases in income. The IRS will closely review these returns to determine whether enforcement action is appropriate. If a return is selected for examination, the 27.5 percent offshore penalty would not be available. When criminal behavior is evident and the disclosure does not meet the requirements of a voluntary disclosure under IRM, the IRS may recommend criminal prosecution to the Department of Justice (emphasis supplied).

Still, experienced tax litigation attorneys (our firm included) have advised that in appropriate cases a quiet disclosure is a viable option. While our opinion has not changed there are three developments that make it more likely that quiet disclosures will lead to tax audits and the possibility for exposure to FBAR penalties exceeding the OVDP in-lieu penalty. I will be addressing two here, and one in a second post which will be available soon.

First, earlier this year the GAO released a report critical of the IRS for failing to follow-up and audit taxpayers who had filed quiet disclosures. Second, as of July 1, 2013 FBARs must be filed electronically. This is the case even for late filed FBARs! What this means is that it just got easier for the IRS to identify individuals who are filing quiet disclosures. No more manually combing through records to identify late-filed FBARs. Identification of persons who filed quiet disclosures is now just a few key-strokes away.

While this should not discourage taxpayers who believe that their behavior was non-willful, and therefore that the highest FBAR penalties are inapplicable, from filing quiet disclosures, it is a cautionary note for those who hope to win the audit lottery, and never hear from the IRS. Also foreign account holders who are considering a quiet disclosure should analyze the non-willful penalties, which could be imposed if they are audited. The IRS position is that for each foreign financial account that was not listed on the FBAR a separate $10,000 penalty will be imposed. We have seen clients, many from Asian countries, who have 15 or more accounts at a time. Since the statute of limitations on FBAR penalties is six years, someone with 15 accounts who failed to file FBARs could be subject to a penalty of $900,000 ($10,000 x 15 accounts x 6 years)!!

Continue reading "Quiet Voluntary Disclosures as an Alternative to the Offshore Voluntary Disclosure Program (OVDP) Are Becoming More Risky " »

The Family That Commits Tax Evasion Together May Go to Prison Together

October 4, 2013,

While tax fraud is often perpetrated by a single person, a recent case shows that offshore tax evasion can sometimes be a family affair as well. U.S. Attorney Preet Bharara recently announced a prosecution of an offshore tax evasion case involving multiple family members. This case illustrates the dangers involved when an older family member passes on without cleaning up his tax problems; this is especially true where there has been a failure to file Form TDF 90-22.1, Report of Foreign Bank Account (FBAR). Henry Seggerman, of New York and Los Angeles, pled guilty this summer to one count of conspiracy to defraud the U.S., as well as two counts of filing false tax returns in connection with his family's criminal tax evasion scheme.
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Along with four other siblings, Seggerman inherited a substantial estate from his father Harry Seggerman, a wealthy New York businessman who passed away in 2001. According to the Department of Justice ("DOJ"), the senior Seggerman's fortune totaled $24 million, over half of which was held in undeclared Swiss bank accounts. While the DOJ did not say that either Henry Seggerman or any of his siblings actively assisted the late Harry Seggerman with his offshore tax fraud during his lifetime, Henry Seggerman allegedly filed false tax returns after his father's death that grossly underreported the value of his father's estate. Furthermore, the tax return that Henry filed on behalf of his father's estate failed to disclose the over $12 million hidden in Swiss bank accounts.

According to the DOJ, Henry Seggerman and his family continued this offshore tax fraud scheme for over a decade after their father's death. Seggerman was accused of taking further steps to set up new Swiss bank accounts to conceal the funds inherited by himself and his siblings. Aside from controlling his own offshore bank account, Seggerman was accused of helping his brother repatriate funds from a Swiss bank account to the U.S. under the guise of loans from a foundation that he controlled.

Similar to many others who have been accused of committing offshore tax evasion, Seggerman is expected to fully cooperate with U.S. authorities in exchange for the possibility of a reduced sentence. Seggerman is expected to testify on behalf of the U.S. in the trial of Michael Little, an attorney who advised the Seggermans on financial issues. Little, who is accused of operating an 11-year offshore tax fraud conspiracy, has pleaded not guilty and is awaiting trial. Additionally, three of Seggerman's siblings have already pled guilty to conspiracy to defraud the United States and filing fraudulent tax returns. All three siblings are currently awaiting sentencing.

While no sentencing date has been set for Seggerman, he faces a maximum penalty of 11 years in federal prison. Additionally, he has already agreed to make a $600,000 restitution payment at the time of his sentencing; if the case follows past patterns it would not be surprising if the total restitution payments are in the 6 million dollar range.

Continue reading "The Family That Commits Tax Evasion Together May Go to Prison Together " »

78-year-old Illinois Businessman Sentenced to Prison for Multi-Year Offshore Tax Evasion Scheme

August 12, 2013,

Tax fraud is not limited to the young. The IRS has once again demonstrated that its pursuit of American citizens who commit tax evasion through the use of offshore bank accounts does not diminish when taxpayers of advanced age are involved. Seventy eight- year-old Peter Troost, of Skokie, Illinois, recently pled guilty to tax fraud charges stemming from his use of a Swiss bank account to evade more than $1 million in taxes dating back to 1999. Earlier this year, the TaxProblemAttorneyBlog discussed the prosecution and ultimate acquittal of Hawaiian auto mogul James Pflueger for offshore tax evasion and other criminal tax charges, noting that despite his age of 87 years old, the Department of Justice vigorously prosecuted the case arising from his offshore bank accounts.

ID-100104416.jpgNow, Peter Troost, the owner of Troost Memorials, a seller of gravestones and other cemetery markers, has pled guilty to an offshore tax evasion scheme in which he diverted income from both his business and various rental properties into a Swiss Bank Account located at UBS. According to his plea agreement, Troost diverted taxable income into his UBS account for at least 10 years, beginning in 1999. Troost admitted to intentionally failing to report both interest income and income from his business throughout his offshore tax evasion scheme. The timing of the end of Troost's offshore arrangement (and its discovery) is unsurprising, considering the IRS' increased scrutiny of offshore banks accounts resulting from UBS' deferred prosecution agreement to provide information about U.S. account holders that began in 2009.

According to the Department of Justice, Troost is the first taxpayer to be charged in Federal Court in Chicago arising out of the United States' 2009 agreement with UBS and other Swiss banks for those banks to provide information about U.S. taxpayers holding offshore bank accounts. Given the Department of Justice's vigorous prosecution of taxpayers who commit offshore tax fraud, Troost may not be the last Chicago-area businessperson to be investigated for use of an overseas bank account. Although Troost's involvement with UBS lasted for at least 10 years, given the IRS' increased enforcement efforts against individuals who own undeclared offshore bank accounts it is unlikely that many taxpayers will remain undetected for that long in the future.

Although Troost had already paid a substantial amount to the IRS including over $1 million in back taxes and a $3.75 million civil penalty, U.S. District Judge John Tharp, Jr. felt that financial penalties alone would not suffice to deter other potential tax cheats. In sentencing Troost to one year in federal prison followed by a year of supervised release and 200 hours of community service (not to mention an additional $32,500 fine), Judge Tharp stated that Troost's "deliberate, conscious decision" to evade taxes merited the more substantial sentence that he imposed. Despite Troost's advanced age, no special consideration was given to him during the sentencing.

If you have tax problems, don't let them turn into criminal tax problems. Contact a tax litigation lawyer for help.

Offshore Account Holders Beware. More Swiss Bank Account Information to Be Turned Over to the IRS

July 15, 2013,


In a move which should send shivers through the spines of delinquent FBAR (Foreign Bank Account Report) filers the Swiss Federal Supreme Court has granted the IRS' request for the names of U.S persons holding "secret" Swiss bank accounts. The IRS had originally submitted a so-called group request in September 2011, but an account holder brought an appeal to the Swiss Federal Administrative Court which held that the group request was too vague and amounted to a fishing expedition. The IRS amended its group request, and the Federal Administrative Court ruled the amended request was allowable under the provisions of 1996 Convention between the United States and Switzerland for the Avoidance of Double Taxation with Respect to Taxes on Income (the "Treaty").

Under the Treaty, the Swiss will supply information if the IRS can show a suspicion of "fraud or the like." Since Swiss and U.S. law are very different in terms of defining tax fraud it is sometimes difficult for tax attorneys in the U.S. to understand whether a particular set of factual circumstances will be considered fraud or the like. Indeed, "mere tax evasion" is not a crime in Switzerland. The key issue in the Credit Suisse case, however, was whether a "group request" i.e. one which describes a particular set of persons by their characteristics as opposed to providing a specific name could ever be honored.

According to its press release the Swiss Federal Supreme Court held that:

[R]equests for administrative assistance in relation with fraud and the like are in principle admissible under the 1996 Double Taxation Agreement with the United States, regardless of whether the suspicion falls on one or more persons and whether the said persons are explicitly named in the request.

In another words in the future the IRS can describe a class of individuals, and a Swiss Bank will be required to turn over their bank records. It wouldn't be a bit surprising if the IRS already has group requests in the works at other Swiss banks including those reportedly under investigation such as Julius Baer, Basler Kantonalbank, Zuercher Kantonalbank, HSBC, and Pictet.

It is hard to believe that anyone with a Swiss bank account is still laboring under the belief that their offshore accounts will remain secret from the IRS. The penalties for failure to file FBARS are very severe, and can include criminal convictions, as well as civil penalties which can reach 300% of the offshore account balances. In addition, criminal tax evasion charges could be brought by the IRS. Anyone with an offshore account needs to give serious consideration to whether or not they should enter the IRS' Offshore Voluntary Disclosure Program (OVDP). With the IRS racking up continued success in obtaining the cooperation of foreign banks it could decide to close the OVDP at any time, and therefore waiting may not be an option.

IRS Slams Offshore Account Holder with 200% FBAR penalty for Willful Failure to File Foreign Bank Account Reports

July 10, 2013,

The IRS has assessed FBAR penalties against Carl R. Zwerner for willfuly failing to file an FBAR (Foreign Bank Account Report) on Form TDF 90-22.1. The news here is that the IRS is seeking to impose a willful failure to file an FBAR penalty against Zwerner for multiple years. Specifically the IRS seeks to impose a separate 50% penalty for each of four years that Zwerner failed to file an FBAR. According to the Complaint the IRS assessed four separate penalties totaling over $3 million as follows:

2004 - $723,762, assessed on June 21, 2011
2005 - $745,209, assessed on August 10, 2011
2006 - $772,838, assessed on August 10, 2011
2007 - $845,527 assessed on August 10, 2011

Perhaps not surprisingly Zwerner didn't pay the FBAR penalties and the Department of Justice has filed suit to collect the penalties. These penalties, are civil penalties, and separate and apart from any criminal FBAR penalties that could be imposed, or criminal tax fraud charges that could be brought. As a practical matter though it would be unusual for the IRS to bring criminal tax or FBAR charges after a civil suit has been filed.

Tax litigation attorneys sometimes advised clients who are considering quiet voluntary disclosures that in the past the IRS has only imposed one civil FBAR penalty even in criminal tax cases. Apparently, however, there is no guarantee for a client who decides not to enter the IRS' Offshore Voluntary Program (OVDP) that penalties could total 300%! This is because the statute of limitations on assessing the FBAR penalty is 6 years from the June 30th deadline for filing the FBAR. Whether or not the IRS can impose such a large penalty without running afoul of the prohibition under the 8th Amendment against "excessive fines" is unknown. Perhaps Zwerner's tax litigation lawyers will raise that as one of his defenses.

The question for those individuals with foreign bank accounts who have not yet entered the IRS' Offshore Voluntary Disclosure Program is whether the IRS has raised the stakes for all offshore account holders, or were there particularly bad facts in Zwerner's case which led the IRS to assess multiple FBAR penalties. The complaint, which was filed on June 11th gives Zwerner until August 12th to file an Answer. Perhaps once the Answer is filed we will know more. In any event, this case brings home the point that the decision not to enter the OVDP is not one to be taken lightly. All of the facts and circumstances need to be analyzed to determine what the likely action of the IRS will be if the foreign bank accounts are discovered by the IRS. As our tax lawyers tell anyone who will listen: "There are no cookie cutter answers," and there is no substitute for exercising careful and considered judgment based upon years of experience.

87 Year Old Hawaiian Auto Mogul Acquitted of all Tax Fraud and Conspiracy Charges after District Court for District of Hawaii Finds Lack of Intent and Willfulness

May 2, 2013,

The U.S. District Court for the District of Hawaii recently acquitted an 87-year-old auto dealership mogul of all tax fraud and conspiracy charges that the U.S. Government had brought against him. James Pflueger, who was facing multiple counts of both tax fraud and conspiracy to defraud the government, had been indicted on those charges in 2010 based on his alleged involvement in two separate tax fraud schemes. On March 20th, 2013, however, Pflueger was acquitted of all charges in what his criminal tax attorneys called "the Justice Department's first unsuccessful prosecution relating to the use of foreign bank accounts in the Government's ongoing international enforcement efforts."

Pflueger was initially indicted on tax fraud and conspiracy charges related to two separate incidents, the first of which involved a situation where Pflueger's company allegedly improperly paid for personal expenses of Pflueger's family, and the second of which involved alleged underreporting of gain from Pflueger's sale of one of his properties, known as Hacienda. The government also initially charged Pflueger with the failure to file a Report of Foreign Bank and Financial Accounts (FBAR), but dropped that charge before trial.

Dennis Duban, the accountant who handled Pflueger's financial affairs, had pled guilty in October 2012 to conspiracy and aiding in the filing of a false tax return. According to the government, Duban and Pflueger engineered the Hacienda sale to effect offshore tax evasion by transferring the proceeds from the sale to a Swiss bank account in order to prevent the proceeds from being used to pay civil claims arising from a 2006 accident at another of Pflueger's properties. However, Pflueger's criminal tax attorneys were successful in arguing that Pflueger was not responsible for his IRS tax problems, and that Duban was the sole mastermind of the tax fraud.

Over the course of a bench trial (which was elected by Pflueger's counsel partly due to concerns about jury prejudice resulting from the aforementioned well-publicized accidents at Pflueger's property), Judge Kobayashi of the District Court for the District of Hawaii held that the government failed to prove beyond a reasonable doubt that Pflueger had conspired to obstruct the IRS. Kobayashi also agreed with Pflueger's arguments that he lacked the requisite intent for a conspiracy conviction (as well as a lack of financial wherewithal and knowledge), finding that "Pflueger relied in good faith on his company's accounting staff, and especially on Duban" in all matters related to his company's books. Kobayashi also acquitted Pflueger of the charges of filing false returns for 2004 and 2007, finding again that Pflueger lacked willfulness, and had relied in good faith on others that had committed tax fraud.

While Pflueger was ultimately acquitted it is worth noting that his advanced age, and his claimed reliance on his accountant did not nothing to stop the IRS from putting him through the stress and expense of a trial.

If you have received a tax audit notice, or are under civil or criminal investigation by the IRS you should contact a tax litigation attorney to find out your options.

Streamlined Foreign Bank Account Report (FBAR) Filing Compliance Procedure FAQs Issued by IRS for Non-Resident Taxpayers

March 6, 2013,

Last year the IRS announced an alternative to its Offshore Voluntary Compliance Program (OVDP) which was being made available to a limited group of non-resident individuals who failed to file Foreign Bank Account Reports (FBARs) on Form TDF 90-22.1. Our tax lawyers blogged about the Streamlined Program previously, taking a look at some of the pros and cons. Now the IRS has issued six Frequently Asked Questions about the Streamlined Compliance Program.

The most important FAQ is the first one. It makes clear that taxpayers who have a tax liability greater than $1,500 may apply to the Streamlined Program. It cautions that if a taxpayer exceeds the $1,500 threshold he or she may be classified as higher risk, and under FAQ No. 2 may be subject to higher penalties. It appears that the Streamlined Program may be a good bet for those individuals whose liability exceeds the threshold by a relatively small amount, perhaps $1,000 or $2,000, or even as much as $3,500. In the judgment of our tax attorneys going over that amount could be problematic, although as with tax problems in general and FBAR problems in particular, there is no substitute for a review of all of the facts. Simply put, a case by case determination is necessary before making the decision.

FAQ No. 3 provides that an individual who is already in the 2011 Offshore Voluntary Disclosure initiative (OVDI) or the earlier or later OVDP, who qualifies under the
Streamlined Procedure may move over from those programs into the Streamlined Procedure. Like everything else about the IRS' OVDP it is not possible to do so without risk. Specifically, the FAQs require one to opt-out of the OVDP by way of an irrevocable election. Only then will the examiner determine whether the taxpayer meets all of the qualifications of the Streamlined Procedure. So it is possible, especially in cases where the taxpayer is over the $1,500 per year threshold , to opt out, and wind up in a situation with the IRS asserting either a non-willful FBAR penalty, or even a willful FBAR penalty.

This is just another example of the IRS making FBAR compliance more difficult than necessary. There is no good reason why the IRS could simply combine the OVDP and the Streamlined Procedure into one coordinated system. A taxpayer wishing to come clean, and who believes she qualifies, could apply under the Streamlined Procedure, and then if the IRS disagreed that person would automatically be phased into the standard OVDP.

The reverse should also be the case. If a taxpayer is already in OVDP she should be able to get a determination as to whether she qualifies under the Streamlined Procedure without having to opt out, and possibly incur disastrous consequences.

As in all FBAR cases involving substantial dollars a knowledgeable tax lawyer should be consulted before anything is done.

Continue reading "Streamlined Foreign Bank Account Report (FBAR) Filing Compliance Procedure FAQs Issued by IRS for Non-Resident Taxpayers " »

Foreign Bank Accounts and the Failure to File Foreign Bank Account Reports (FBARS) May Be the Death Knell of the 5th Amendment

October 23, 2012,

The Fifth Circuit Court of Appeals ruled that offshore bank account records sought in a criminal tax investigation (related to a suspected failure to file Foreign Bank Account Report, TDF 90-22.1, i.e. FBAR) must be turned over to the IRS despite the fact that turning over those records would have incriminated the witness. The grand jury subpoena issued to the witness required him to produce any records required to be maintained pursuant to the Bank Secrecy Act including records reflecting the names on the offshore bank accounts, and the maximum value of the account. The witness was an individual in Texas who was the target of a grand jury investigation seeking evidence he had used secret Swiss Bank accounts to engage in tax evasion. The IRS already knew based upon records it received from UBS that the witness held offshore bank accounts.

To lay people, and even to most tax attorneys this was a startling result. Actually it would have been more startling, but for the fact that the Fifth Circuit Court of Appeals was the third Circuit Court of Appeals to hold that the Bank Secrecy Act which requires the filing of FBARs trumps the 5th Amendment of the U.S. Constitution. The Fifth Circuit, thus joined the 9th Circuit and the 7th Circuit which issued similar rulings in the last year.

The rulings rely on the "Required Records Doctrine." This is a rather arcane concept which I suspect even some criminal tax attorneys were not familiar with. To vastly oversimplify, the argument goes like this. The 5th Amendment only prohibits compelled testimony; therefore compelling someone to produce records that are voluntarily kept does not violate the 5th Amendment. The witness argued that the mere act of turning over the records was tantamount to compelled "testimony" since by turning over the records the witness was "testifying" as their existence, and also admitting that he knew about the foreign accounts. In addition, maintaining the documents in question are not voluntary since the Bank Secrecy Act "compels" one to keep certain records. Indeed it is a crime not to keep the records.

The Supreme Court has said however that the privilege against self-incrimination does not bar the government from imposing record-keeping and inspection requirements as part of a valid regulatory scheme. The doctrine first arose in the context of a wholesaler of fruit who was required to turn over certain records he was obligated to keep pursuant the Emergency Price Control Act. The Supreme Court explained in a later case that there are three prongs of the Required Records Doctrine. The records must be:

  1. Essentially regulatory

  2. Customarily kept; and

  3. Have public aspects.

The witness argued that the true purpose of the Bank Secrecy Act was to combat criminal activity, and not simply to regulate the use of foreign bank accounts. That argument was rejected. The 5th Circuit also held that the records were of a type "customarily kept," and that they had acquired public aspects by virtue of the fact that the Treasury Department shares information it collects with other agencies. In the words of the Fifth Circuit: "That this data sharing is designed to serve an important public purpose sufficient to imbue otherwise private foreign bank account records with public aspects is not difficult to imagine."

What is difficult to imagine is why the Courts are willing to throw away an important Constitutional safeguard for the sake of catching of few criminal tax cheats.

Continue reading "Foreign Bank Accounts and the Failure to File Foreign Bank Account Reports (FBARS) May Be the Death Knell of the 5th Amendment " »

IRS Foreign Bank Account Report (FBAR), TD F 90-22.1 FBAR Relief for Non-Residents With Offshore Bank Accounts--Too Little Too Late

September 10, 2012,

Relief from penalties for failure to file Foreign Bank Account Reports (FBAR), TD F 90-22.1 for non-resident U.S. persons with offshore bank accounts was first announced by the IRS on June 26, 2012 with further guidance promised before the procedure's September 1st effective date. On Friday Aug. 31, 2012 with minutes to spare, the IRS announced the new "Streamlined" Filing Compliance Procedures for Non-Resident, Non-Filer U.S. persons. Those who qualify will only have to file tax returns for three years (rather than eight under the Offshore Voluntary Disclosure Program (OVDP)), and no FBAR penalties, or other penalties will be imposed. They will have to fill out a questionnaire, and answer such loaded questions as "Did you know you had a Report of Foreign Bank and Financial Accounts (FBAR), Form TD F 90-22.1, filing requirement when you failed to file an FBAR?" and "If you used a tax professional, did you disclose the existence of the accounts/entities you hold outside your country of residence to your tax professional?" 875413_balance.jpg

Who Is Eligible?
To qualify the taxpayer:

  • Must have lived outside the United States since Jan. 1, 2009;

  • Cannot have filed a U.S. tax return during the same period; and

  • Must present a "low level compliance risk.

How is Compliance Risk Determined?
The tax due for 2009, 2010, and 2011 must be less than $1,500 in each year. However, even if the tax due meets this low level if any of the following factors are present then the compliance risk rises, and the taxpayer may not be eligible to participate. The factors are:

  • If any of the returns submitted through this program claim a refund;

  • If there is material economic activity in the United States;

  • If the taxpayer has not declared all of his/her income in his/her country of residence;

  • If the taxpayer is under audit or investigation by the IRS;

  • If FBAR penalties have been previously assessed against the taxpayer or if the taxpayer has previously received an FBAR warning letter;

  • If the taxpayer has a financial interest or authority over a financial account(s) located outside his/her country of residence;

  • If the taxpayer has a financial interest in an entity or entities located outside his/her country of residence;

  • If there is U.S. source income; or

  • If there are indications of "sophisticated tax planning or avoidance."

Taxpayers who meet all of these requirements will be few and far between. For example, consider a U.S. citizen who has emigrated to Israel. Generally new Israeli residents are granted a 10 year exemption from taxes for any income including interest or dividends generated outside of Israel. It would therefore not be surprising if such an individual invested outside of Israel. Yet that person would be excluded from the new IRS streamlined program since they have accounts outside their country of residence.

The requirement that excludes someone from participation if they are claiming a refund seems punitive. Why should someone have to forego a legitimate refund just to be free of FBAR penalties?

Why should persons with offshore bank accounts who filed tax returns be treated worse than those who didn't file any tax returns at all? For that matter why should someone with U.S. source income (perhaps social security or pension income) not be able to obtain relief?

Note that a person who became aware of the FBAR requirements for offshore bank account owners, and filed a timely and accurate return for 2010 or 2011 may be barred from participating in the program based upon the literal requirements.

Do You Need A Reason Not to Participate in the Streamlined Compliance Procedure?

According to the IRS:

  • The new procedure provides no protection from the risk of criminal prosecution

  • Once a submission is made if the IRS determines that the Streamlined Compliance Procedure is not appropriate, the taxpayer may not participate in the Offshore Voluntary Disclosure Program (OVDP)

For these reasons the Streamlined Compliance Procedure is extremely risky for taxpayers who meet the guidelines for the 2009 through 2011 period, but have substantial offshore compliance issues in prior years.

Once again tax attorneys will be working full time to guide their clients through another thicket of IRS rules which seem only to reinforce the notion that the IRS is not serious about providing FBAR relief to those taxpayers who legitimately lost their way.

Continue reading "IRS Foreign Bank Account Report (FBAR), TD F 90-22.1 FBAR Relief for Non-Residents With Offshore Bank Accounts--Too Little Too Late " »

Criminal Tax Case Involving Offshore Bank Accounts Leads to Lawsuit Against U.S. Billionaire

September 4, 2012,

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When American billionaire Igor Olenicoff opened his offshore bank account with Swiss bank UBS, AG he was allegedly told he did not have to file Form TD F 90-22.1, or Foreign Bank and Financial Accounts Report, more commonly known as an FBAR, or pay taxes on the $180 million he held at the institution. In December 2007 Mr. Olenicoff pled guilty to willfully and knowingly filing a false tax return, yet sued the bank for $2.7 billion in damages less than a year later blaming it for his troubles. The case was dismissed last April because of his plea agreement, in which he took responsibility for his tax fraud in exchange for a reduced sentence.

Currently, UBS is suing Mr. Olenicoff for malicious prosecution. The bank argues that he was attempting to shift blame for not paying taxes on the money in his foreign bank account even though the billionaire swore in his criminal tax case that he willfully deceived the Internal Revenue Service. Mr. Olenicoff maintained in his suit against UBS that the bank misled him, and in doing so let him down the road to where he was forced to plead guilty to the criminal tax charges against him. Olenicoff also claimed that UBS mismanaged his offshore account assets. The financial institution is suing for special damages, including attorney's fees and harm to the bank's reputation, of more than $3 million, as well as other damages in an unspecified amount. Given UBS' own settlement with the IRS for $780 million, its suit against Olenicoff is an interesting spectacle, but as a practical matter may not have much to do with the "average" foreign bank account holder.

Some people, who have failed to file FBARs reporting their foreign bank accounts did so as part of a plan to commit tax evasion by concealing their offshore bank account holdings. Others failed to file FBARs out of ignorance about the legal requirements. If you have a foreign bank account and are not currently in compliance you may be eligible for a reduced penalty under the Offshore Voluntary Disclosure Initiative (OVDI). OVDI offers participants the opportunity to gain tax compliance. Most taxpayers with an undisclosed offshore bank account who are currently not undergoing investigation can take participate.

Continue reading "Criminal Tax Case Involving Offshore Bank Accounts Leads to Lawsuit Against U.S. Billionaire " »