Recently in Offshore Bank Account Problems Category

New FAQs For Offshore Voluntary Disclosure Program (OVDP) Released by IRS

October 16, 2014,

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Our tax lawyers have reviewed the IRS' newly issued FAQs for its Delinquent International Information Return Submission Procedures, the Streamlined Filing Compliance Procedures for U.S. Taxpayers Residing in the United States (SDOP), and the Streamlined Filing Compliance Procedures for U.S. Taxpayers Residing Outside the United States (SFOP). These programs are first cousins of the IRS' Offshore Voluntary Disclosure Program (OVDP), but technically are not part of OVDP, and are options for individuals who have failed to report income from offshore bank accounts, and who may have failed to file a Foreign Bank Account Reports, FinCEN Form 114, formerly TDF 90-22.1 (FBAR) or other international information reporting returns.

Perhaps the most disturbing FAQ is the one issued for the Delinquent International Information Return Submission Procedures. The procedures replace former OVDP FAQ 18, and became effective July 1, 2014. Under old FAQ 18, if a taxpayer failed to file an information reporting form, but had reported all taxable income, and paid all the tax the IRS would not impose a penalty. Under the new Delinquent International Information Return Submission Procedures however, even if all income has been reported, and taxes paid, the taxpayer must submit a "reasonable cause statement" with each delinquent information return. Before the issuance of the new FAQ, many tax attorneys believed (hoped?) that if a taxpayer met the requirements of old FAQ 18 that no penalty will be imposed without regard to whether there was reasonable cause.

The FAQ makes clear that if the IRS does not accept the reasonable cause statement then penalties will be imposed. The FAQ states that the reasonable cause determination will be based upon longstanding authorities, and cites to Treas. Reg. § 1.6038-2(k)(3), Treas. Reg. § 1.6038A-4(b), and Treas. Reg. § 301.6679-1(a)(3). The FAQ suggests that a statement of facts made under penalties of perjury should be included with the late filed returns.

The cited authorities are not particularly helpful in determining whether or not reasonable cause exists. For example, Treas. Reg. Section 1.6038-2(k)(3) which references reasonable cause for the failure to file Form 5471 (related to controlled foreign corporations or CFCs) does not set forth any standard for determining reasonable cause.

These requirements essentially make the Delinquent International Information Return Submission Procedures worthless. It has always been the case that penalties for the failure to file international information reporting forms could be waived if there was reasonable cause. The procedure adds nothing in the way of protection, and it is unclear why it even exists. A taxpayer who has reasonable cause for the failure to file can assert that defense at any time. Our tax lawyers see little benefit to filing under these procedures. Taxpayers who are concerned about not meeting the reasonable cause test should consider instead whether they would be better off in one of the IRS' Streamlined Filing Compliance Procedures, or even a full-blown OVDP.

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.

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

September 16, 2014,

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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.

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.

Business Owners Get Jail Time for Tax Evasion

September 3, 2014,

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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.

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.

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

June 19, 2014,

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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:

1. UBS AG
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.

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.

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,

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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.


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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.

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

April 5, 2014,

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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,

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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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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.

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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:
Global Money

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 9.5.11.9, 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.
prison picc.jpg

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.