The U.S. Department of Justice (DOJ) and the Internal Revenue Service (IRS) recently announced that attorney Aristotle "Rick" Matsa was convicted of tax fraud and obstruction of justice related offenses, including witness tampering. Additionally, Mr. Matsa and his mother were convicted of conspiracy to obstruct justice, conspiracy to commit perjury, and making false statements. The conviction followed a five-week jury trial in a U.S. District Court in Ohio.
According to the evidence presented at trial, Mr. Matsa created and operated a myriad of shell corporations and trusts for the purpose of disguising and concealing his income and assets from the IRS. The false trust return charges relate to filings for at least five separate trusts during the period of 2003 to 2005. According to court documents, each of Mr. Matsa's trusts reported receiving substantial amounts of interest income each year, generated from funds held in numerous bank accounts, however, no income tax was reported due as a result of fraudulently claimed deductions for distributions to purported foreign beneficiaries, whereas Mr. Matsa was the true beneficiary of the funds. The evidence at trial also showed that Mr, Matsa violated the Foreign Bank Account Reporting requirements (FBAR) by failing to disclose his ownership interest and control over an account held in a Netherlands bank account. The evidence at trial was that Mr. Matsa maintained more than $300,000 in funds in that undisclosed foreign bank during 2003.
In the statement made by the Assistant Attorney General for the Tax Division, the government said that "those who illegally attempt to hide their income and assets from the IRS through fraudulent trusts or offshore bank accounts will be prosecuted and punished."
"The government will not tolerate abusive tax schemes that use offshore accounts to illegally escape taxes," said Rick A. Raven, Acting Chief of IRS Criminal Investigations, "Those Americans who file accurate, honest and timely tax returns can be assured that the government will hold accountable those who don't." Mr. Matsa faces a potential sentence of 108 years in prison, a fine of up to $3.25 million and five years of supervised release.
This case is a prime example of the government's efforts to crack down on the offshore tax evasion and enforce FBAR rules. Although not every case where a foreign bank account was not properly reported bears a high risk of criminal prosecution, those type of situations are very sensitive and taxpayers with undeclared foreign bank accounts are encouraged to consult tax attorneys in order to evaluate their options.
You can read the DOJ press release here.