A Californian pleaded guilty this week before the U.S. District Court, Central District of California, to willfully failing to disclose over $1 million held in offshore bank accounts. He and the bank also took other steps to hide and secretly access his funds. The man now faces up to five years in prison, supervised release, restitution, and other monetary penalties.
During the last two weeks of 2015, the United States Department of Justice announced that Bank Lombard Odier& Co Ltd, DZ Privatbank (Schweiz) AG, Bank J. Safra Sarasin AG, Coutts & Co Ltd, Gonet & Cie, and Banque Cantonal du Valais reached resolutions under the department's Swiss Bank Program. These banks collectively will pay penalties of more than $285 million.
The IRS met its deadline to begin the reciprocal automatic exchange of tax information with some foreign jurisdiction tax administrators as agreed under the intergovernmental agreements (IGAs) as part of the Foreign Account Tax Compliance Act (FATCA). As of September 30, 2015, the IRS can now reciprocate and provide information to the other jurisdictions who have shared information regarding financial accounts held by U.S. taxpayers with the IRS. The information now available provides the United States and partner jurisdictions an improved means of verifying the tax compliance of taxpayers using offshore banking and investment facilities, and improves detection of those who may attempt to evade reporting the existence of offshore accounts and the income attributable to those accounts.
Once again, the Department of Justice has flexed its muscles and shown dishonest financial professionals that if they help clients hide assets offshore or create sham entities for clients to evade taxes, they will be prosecuted. The tax preparers in this case helped their wealthy clients to conceal millions of dollars of assets and income in secret foreign bank accounts, filed false federal income tax returns, maintained an offshore account in the name of a sham corporation and failed to disclose the account to the IRS. They also failed to file a Report of Foreign Bank and Financial Accounts (FBAR). Two of the three tax preparers have been sentenced to 36 and 50 months in prison and ordered to pay fines of nearly $300,000. The third tax preparer is still at large. To learn more, click here.
In the past two weeks, three Swiss banks--Bank Linth LLB AG (Bank Linth), Bank Sparhafen Zurich AG (BSZ), and Ersparniskasse Schaffhausen AG (EKS)-have reached resolutions under the Department of Justice's Swiss Bank Program. The Swiss Bank Program, which was announced on Aug. 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States. Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts. Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.
For those with one or more bank of financial accounts located outside the United States, or those who have signature authority over such accounts, Report 114, Report of Foreign Bank and Financial Accounts is due Tuesday, June 30, 2015. For more information, see the IRS website here.
In a recent edition of TaxTips, the IRS reminds taxpayers of pending deadlines related to foreign income and assets.
A federal jury found that Carl Zwerner must pay more than $2 million for wilfully failing to file Reports of Foreign Bank and Financial Accounts (FBARs). In this case, the IRS sought a 50 percent penalty for each of the four years at issue, for a total of 200 percent in a civil case. Clearly, the punishment for not coming forward and reporting offshore accounts is pricey. In this case, the highest value of the account over the four years was approximately $1.55 million, but the total penalties for failing to file this report, which carries no tax, were approximately $2.24 million.
The United States has agreed to forego criminal prosecution against the bank, Liechtensteinsche Landesbank AG, for opening and maintaining bank accounts for U.S. taxpayers from 2001 through 2011 and assisting U.S. taxpayers in evading their U.S. tax obligations. In addition, new Liechtenstein legislation has resulted in U.S. taxpayer names being turned over to the Department of Justice.
In the National Taxpayer Advocate's 2012 Report to Congress, it issued data highlighting the disproportionate penalties to account holders with undisclosed offshore accounts who participate in the IRS' Offshore Voluntary Disclosure Program (OVDP). Generally, if a taxpayer has an aggregate of more than $75,000 at any time during the year in undisclosed accounts, the taxpayer in the OVDP program will be required to pay a 27.5 percent penalty on the highest account balance for one of the years included in the offshore voluntary disclosure. Some taxpayers barely pass the $75,000 threshold while others greatly exceed that amount. In the recent report, OVDP participants in the 10th percentile with accounts of $78,315 paid penalties that were greatly disproportionate to those in the 90th percentile with accounts in excess of $4 million. For those in the 10th percentile, they paid at least 575 percent of the tax, interest and penalties on their unreported income. Contrast that with those in the 90th percentile who paid only 86 percent or less.