A case from a few years ago involving undisclosed Swiss bank accounts demonstrates the pitfalls of failing to disclose foreign financial accounts, as well as what happens when you lie to IRS special agents.
A New York resident pleaded guilty to corruptly endeavoring to obstruct and impede an investigation by the Internal Revenue Service after repeatedly lying about his assets in Swiss bank accounts. Not only did the taxpayer fail to report his foreign financial assets, but he also told several IRS agents that he had no foreign financial assets.
For the tax years 2001 through 2010, Georges Briguet, the owner of now defunct famed French restaurant Perigord, failed to report his foreign financial accounts on his tax return. He did not report the income from these accounts or pay taxes on this income. He had placed around 7 million Swiss Francs in a Swiss bank account in 1992.
The taxpayer made a bad situation worse by lying to several IRS agents. He first told an IRS agent that he had no foreign financial accounts when he was interviewed during a civil audit. He later repeated those false assertions to an IRS special agent during a criminal investigation.
The taxpayer agreed to pay the IRS restitution of $169,935, in addition to fines and possible prison time.
Lessons for Taxpayers with Unreported Offshore Accounts
There are several lessons to be learned from this incident. First, it is a much better idea to take a proactive approach to resolving offshore bank account problems, rather than waiting until the IRS becomes aware of your unreported foreign financial accounts. By the time an IRS special agent shows up at your door, it is too late to disclose your foreign assets and avoid the stiff penalties for FBAR violations.
The taxpayer is this situation probably would not have been eligible to use the Streamlined Filing Compliance Procedures because those procedures are only available to taxpayers whose conduct was non-willful. However, the Offshore Voluntary Disclosure Program (OVDP) may have been an option in this case. If he was eligible, the taxpayer might have been able to limit the amount of penalties he would have to pay for his FBAR violations, while also avoiding criminal liability and possible jail time.
Finally, do not lie to the IRS during an audit or investigation. Contact a tax attorney before you say anything that could incriminate you, or you may end up arousing further suspicion and getting yourself into even more trouble. Remember sometimes the cover-up is worse than the crime.