Disclosing Offshore Bank Accounts

fbar quiet disclosureTaxpayers who are considering coming out of the shadows to disclose their offshore accounts need to be extremely careful when deciding what road to take. Too often, taxpayers simply default to the cheapest method (streamlined procedures) when deciding how to proceed in making an offshore disclosure without considering the significant financial and criminal risks associated with choosing the wrong method.

In addition, taxpayers who have elected to opt out of the Offshore Voluntary Disclosure Program rather than paying the miscellaneous offshore penalty have found that opting out was ill-advised. The rationale for opting out is the belief that the taxpayer will somehow be able to convince the IRS that his or her failure to (i) report their financial accounts on FinCEN Form 114 (FBAR) (ii) make the appropriate disclosure on Schedule B; and (iii) report the income derived from their foreign financial assets was not willful. While justification does exist for opting out of the OVDP in select cases, by and large, most taxpayers are best served by staying in the program and securing a Closing Agreement.

Other taxpayers have opted for using the streamlined procedures for disclosing their foreign financial accounts, based entirely upon 0% to 5% penalty, without carefully considering the veracity of their representations under oath or the likelihood that their statements will be vetted.

Taxpayers have also placed undue reliance upon the reasonable cause defense or the advice of a tax professional defense to support their certifications of non-willfulness, without fully understanding whether these defenses are legitimately available to them.  Unfortunately, many of these taxpayers now face the imposition of the willful FBAR penalty, and in extreme cases, criminal prosecution.

The Government has become increasingly aggressive in both the assessment of the willful civil FBAR penalties as well as in the prosecution of those who make false statements.  Just ask Brain Nelson Booker, who was recently charged by the Department of Justice for, among other things, filing a false document under 26 U.S.C. § 7206 (1) when he submitted a certification of non-willfulness in October 2015 as part of a submission using the Streamlined Domestic Offshore Procedures. The DOJ alleges that Booker “falsely certified that he met all the eligibility requirements for treatment under the streamlined procedures, and falsely claimed, among other things, that his failure to report all income pay all tax, and submit all required information returns, including FBARs, was due to non-willful conduct.” Mr. Booker is now a fugitive from Justice and has since taken up residency in a non-extradition jurisdiction.

Likewise, Taxpayers who either opted out of the OVDP or rolled the dice with the streamlined procedures, and in doing so, stretched the truth in their certifications, are quickly learning that the IRS has seen it all and can easily discern when a taxpayer is lying or stretching the truth. The IRS is making good on its pledge to carefully scrutinize opt out and streamlined disclosure cases. They will go after those who have been less than candid.

There are common characteristics in both criminal and civil FBAR cases including (i) the failure to report foreign financial assets; (ii) a “no” response to question 7(a), in Part III of Schedule B as to the existence of an interest in or signatory authority over a foreign financial account; (iii) the failure to report the income associated with the foreign financial accounts; and (iv) a signed income tax return. These characteristics are generally present in FBAR cases  where the taxpayer self-prepared his or her return as well as in cases where the return was prepared by a third party.

The presence of the above common characteristics is by no means all inclusive. Nevertheless, in nearly all cases, these characteristics have been sufficient to sustain the assessment of non-willful FBAR penalties, despite taxpayer claiming of reasonable cause or reliance upon the advice of professionals as a defense.

More importantly, the presence of these factors is now routinely cited by the Courts in sustaining the assessment of willful FBAR penalties as well as in criminal prosecutions.

Accordingly, a decision to make an offshore disclosure as well as the method of disclosure is a serious decision that must be carefully evaluated, particularly in light of the closure of the OVDP in September 2018. Likewise, those who have participated in the OVDP need to carefully consider the financial and potential criminal risks associated with opting out. In this regard, it is necessary to analyze the total costs under the OVDP as well as the potential down side risks associated with opting out.

Factors to consider when deciding which type of offshore disclosure to make

Since each case will differ, a decision as to what type of offshore disclosure to make will depend on a many factors including, but not limited to:

  1. Whether the taxpayer self-prepared his or her tax returns or whether the returns were prepared by a CPA.
  2. Whether the taxpayer checked “no,” in response to disclosure question 7(a), Part III, Schedule B as to the existence of an interest in or signatory authority over a foreign financial account.
  3. If the taxpayer failed to file FBARs, whether he nonetheless reported all of the income derived from his or her foreign assets.
  4. The extent to which the taxpayer sought to evade Government detection of his or her foreign financial assets and any income associated therewith (nominee entity, foundation or straw person).
  5. Any special arrangement the taxpayer has or had with the bank (unnumbered account, hold mail, nominee officers and directors, etc.).
  6. The number and size of foreign financial accounts.
  7. The length of time the foreign financial accounts have been open.
  8. The purpose for opening the accounts.
  9. Whether the foreign financial accounts are active (regular deposits and withdrawals, or atm use) or dormant (no activity in account for extended period of time).
  10. The taxpayer’s efforts to familiarize himself with the FBAR filing and return disclosure requirements.
  11. The taxpayer’s efforts to ascertain the selected tax professional’s competence in connection with the FBAR financial reporting requirements and disclosure rules.
  12. Where the taxpayer used a third party preparer, whether he or she completed a tax organizer.
  13. The existence of any written communications between the taxpayer and third party tax return preparer related to the existence of foreign financial accounts and the reporting requirements.
  14. Whether the taxpayer provided the third party return preparer with sufficient documentation from which the return preparer could determine FBAR filing requirements and other return filing obligations.
  15. Whether the taxpayer sought and obtained written advice from a tax attorney, independent from any advice he or she may have received from the tax return preparer.
  16. The taxpayer’s level of education and sophistication.
  17. The source of funds deposited into the accounts; (inheritance, after tax savings, etc.).
  18. Whether the source of the funds in the foreign financial accounts is the by-product of legal vs criminal activity.
  19. Taxpayer’s history with the IRS.
  20. Whether the taxpayer has prior FBAR violations.
  21. Whether a civil fraud penalty has ever been assessed against the taxpayer.
  22. The existence of a current or past civil or criminal investigation by the IRS or other Government agency (i.e. SEC).
  23. Whether the taxpayer was ever convicted of a felony.

The preceding represents some, but certainly not all, of the factors to be considered when deciding which method of disclosure to be used, or whether to opt out of the OVDP. Taxpayers are best served when they consult with a seasoned tax attorney, who has both the knowledge and experience with offshore disclosures. While some may be tempted to use a CPA or enrolled agent, these professionals generally lack the ability to understand the legal and financial implications associated with such a decision. Nor do they understand the discovery and the rules of evidence. In fact, these professionals often-times become fact witnesses in both civil and criminal FBAR cases.

The takeaway is simple, offshore disclosures are becoming much more complicated due to the changing legal landscape as well as the new rules related to voluntary disclosure practice that were announced in November of 2018. Equally important, the Government has had a succession of FBAR victories, both civil and criminal, and as such, is now emboldened.




Case Background

On August 27, 2019 the Department of Justice (DOJ) announced a superseding indictment of a Florida business man and former Texas CPA for allegedly filing a false document. This was because he made an offshore disclosure using streamlined filing procedures.

The supplemental indictment alleges that, Brain Nelson Booker, a Florida resident, who was in the cocoa trading business in Venezuela, Panama and Florida, filed false Foreign Bank Account Reports (FBARs) for the years 2011-2013. The new indictment also included charges from the original indictment which was brought because Booker filed false income tax returns (under 26 USC § 7206(1) ) for the tax years 2010-2012.

In addition to the false FBAR and tax return charges, the Government alleges that Booker filed a false document under 26 U.S.C. § 7206 (1) when he submitted a certification of non-willfulness in October 2015 as part of a submission using the Streamlined Domestic Offshore Procedures. According to the charging document, Booker “falsely certified that he met all the eligibility requirements for treatment under the streamlined procedures, and falsely claimed, among other things, that his failure to report all income, and pay all tax  and submit all required information returns including FBARs was due to non-willful conduct.”

Booker was unavailable for comment, since he fled the United States to a non-extradition jurisdiction.

Government Argument

According to the Government, Booker only reported two foreign financial accounts he maintained in Venezuela on his FBARs and tax returns for 2008-2010, while omitting other accounts in Switzerland, Panama and Singapore.

In 2009 Booker was contacted by the Swiss Bank where he maintained one of his foreign financial accounts. The Bank, who participated in the DOJ’s Swiss Bank Program, notified Booker to either report his account to the IRS or leave the Bank.  Subsequently, Booker moved his account to another Swiss Bank.

In July 2015 Booker filed delinquent FBARs for 2008 through 2015, this time reporting all his foreign financial accounts, including the two Venezuelan accounts as well as his Swiss, Panamanian and Singapore accounts. In October 2015 Booker made an offshore disclosure using the streamline procedures. As part of the streamlined procedures, Booker submitted a certification of non-willfulness claiming that his failure to file FBARs identifying all of his accounts was due to the fact he first learned about FBARs in 2008 and was under the mistaken belief that he was only required to report personal foreign financial account and not the accounts held by his business.


How does Booker’s indictment affect tax payers in a similar situation?

This indictment represents the first prosecution for filing a false document in connection with a submission under the streamlined procedures and clearly signals that the IRS is making good on their earlier pledge that they intend to closely scrutinize taxpayer certifications submitted in connection with the streamlined procedures, and further, that they will pursue persons who make false statements in their certifications.

Taxpayers with undeclared foreign financial accounts are afforded an opportunity to come into compliance. The Offshore Voluntary Disclosure Program  (OVDP) and the Streamlined Offshore Procedures represent  two alternatives for coming into compliance, depending upon whether the failure to file was willful or simply due to negligence. Closely tied to the issue of willfulness is the criminal risk associated with using the streamline procedures to make an offshore disclosure.

Prior to the closure of the OVDP in September of 2018, taxpayers who willfully failed to disclose their offshore assets and/or were at risk of criminal prosecution, could make application to participate in the OVDP.

Once the taxpayer was cleared to make the offshore disclosure, he or she would file eight years of amended income tax returns, as well as eight years of FBARs. The individual would also submit a Miscellaneous Offshore Penalty Worksheet. The Taxpayer would also be required pay the outstanding amount of tax due, together with interest and a 20% accuracy related penalty. Depending upon the circumstances and when the disclosure was made, the taxpayer would pay a miscellaneous offshore penalty equal to 20-50% of in the disclosure year with the highest aggregate balance.

In exchange for the taxpayer coming into compliance, payment of all amounts due, and assuming there were no material misstatements in the taxpayer’s submissions, the IRS would generate a Closing Agreement (Form 906). The Closing Agreement would generally include a representation that the IRS would not refer the case for criminal prosecution. Furthermore, the Closing Agreement would foreclose the possibility of any further income tax or FBAR penalty assessment by the IRS for any year in the disclosure period. The Agreement would also preclude the taxpayer from making any claim for a refund at a later date.

In November of 2018, the IRS the announced the updated Voluntary Disclosure Practice Rules which now include both domestic and offshore disclosures. The penalties under the new regimen are quite onerous when compared to the penalties under prior iterations of the OVDP.

Recognizing that one size doesn’t fit all, the IRS permits taxpayers, whose offshore disclosures present little risk to no risk of criminal prosecution or the assessment of the civil willful FBAR Penalty, to use the streamline offshore procedures. There are two scenarios. One for persons residing outside of the U.S and the other for persons residing in the US

In both cases, the taxpayer will file three years of amended returns and six years of FBARs. In addition, the taxpayer must submit a certification of non-willfulness, wherein he or she must set forth in detail the reasons why the failure to file FBARs was non-willful.

Those residing outside of the U.S. who meets the physical presence requirements are not subject to any FBAR penalty, while those residing in the U.S. pay a 5% penalty in the disclosure year with the highest aggregate balance.  In addition, the taxpayer must pay any additional income tax due related to the unreported income associated with his or he offshore accounts.

The key difference between the OVDP and the streamlined procedures is that the OVDP provides a taxpayer with closure, whereas a submission using streamlined procedures does not. As such, those using the streamlined procedures are at risk that the IRS may determine that the taxpayer’s representations, as contained in the certification of non-willfulness were false or unsubstantiated. If such a determination is made, the taxpayer could be subject to the assessment of civil willful FBAR penalties, as well as the possibility of a referral to IRS Criminal Investigation.

The indictment of Booker serves as a cautionary tale for those taxpayers who elect to use the streamlined procedures rather than the new voluntary disclosure practice rules in order to avoid paying higher legal fees and FBAR penalties associated with the later protocol.  In this regard, some taxpayers may be tempted to stretch the truth in an effort save on the FBAR penalties and legal fees, only to later find themselves in serious trouble.

The instant indictment should also serve as a wake up call that undertaking an offshore disclosure requires a careful review of the facts with an experienced tax attorney to assess whether a person’s failure to file an FBAR and his “no” response to the Schedule B FBAR disclosure was the result of negligence or a willful attempt to prevent the Government from discovering the taxpayer’s foreign assets and the income derived therefrom.

Ultimately, whenever a criminal risk is present, streamline procedures should be avoided. Likewise, streamline procedures should be avoided where there is a possibility that the facts otherwise support the assessment of the civil willful FBAR penalty, rather than a finding of mere negligence. Taxpayers who struggle with the truth and particularly those with prior dealings with the IRS that have resulted in the taxpayer’s integrity coming into question, should think long and hard before making a false statement in a certification when making a streamlined disclosure. Such actions are shorted sighted and almost always meet with financial disaster.






fbar penalties for tax evasion can include imprisionment if the IRS seeks to criminally prosecute youThe definition of a Knucklehead is“someone considered to be of questionable intelligence.”

On October 7, 2016 a Michigan business man plead guilty to tax obstruction for filing a false amended tax return for the tax year 2008. The guilty plea echoes the sentiments of Chief Richard Weber of the Internal Revenue Service, Criminal Investigation that: “There are no safe havens for hiding money in secret bank accounts around the globe.” The case also makes clear that substance will always prevail over form for purposes of determining the true beneficial owner of a foreign financial account or asset and whether the income from any such account or asset is subject to U.S. tax. The following case is just one of many examples of the pervasive use by U.S. Taxpayers of abusive offshore tax avoidance schemes and the consequences of getting caught.

On or about November of 2004,  Robert Rumbold (“Rumbold” or the “Defendant”), a manager of a trust account owned by his parents, transferred $2.6m from his parents’ account into Credit Suisse Bank AG in Switzerland. In order to evade income tax and to conceal the identity of the beneficial owner, the Defendant arranged for the account to be held in the name of Wisdom City Limited, a Hong Kong company. Although Wisdom City Limited was set up to be the named the account holder, the Defendant effectively controlled and was the beneficial owner of the account until December 2008, when Rumbold transferred control to a relative.

Rumbold failed to report any interest, dividends or capital gains received from the Wisdom City Limited Credit Suisse account on the Defendant’s personal tax returns for the tax years 2006-2008. The Defendant also falsely stated on each of his three tax returns that he did not have an interest in any foreign financial account.  In 2010 the Defendant amended his 2008 income tax return, where he once again failed to report the income generated from the foreign financial account and failed to make any disclosure concerning his interest in the Wisdom City Limited Credit Suisse account.

The takeaways from this case are the following:

  1. A U.S. Taxpayer’s worldwide income is subject to federal income tax;
  2. Depending upon the circumstances, a U.S. Taxpayer may have to comply with certain financial reporting requirements under the Bank Secrecy Act and FATCA and may be required to make other financial disclosures;
  3. Irrespective of the form, abusive offshore tax avoidance schemes (“tax schemes”) are devised for the purpose of carrying out two objectives: First, to conceal the true identity of the owner of any foreign financial account or other foreign financial asset; and Second, to conceal income derived from those foreign assets that is subject to tax by the United States;
  4. These tax schemes may include, but are not limited to, the use of foreign trusts, foreign corporations, offshore partnerships, limited liability companies, and international business companies. The tax schemes can also include using anon-resident alien or maintaining funds in a foreign attorney’s trust fund account in order to carry out a taxpayer’s nefarious plan;
  5. The element of intent in a criminal tax prosecution more often than not is proven by circumstantial rather than direct evidence. Therefore, it logically follows that the more elaborate the tax scheme is, the easier it will be to establish intent. . Remember! “If it walks like a duck and talks like a duck, it’s probably a duck;” and
  6. Taxpayers, attempting to game the system, by creating and/or participating in these knucklehead schemes will eventually find themselves in deep trouble due to recent global tax enforcement initiatives and the financial reporting requirements established under the Bank Secrecy Act, FATCA, the Common Reporting Standards and other protocols.

If you are the architect, principal or a participant in such a tax scheme, you are either aware or should be aware that what you are doing is illegal. If you do not think what you are doing is illegal, you are probably in a state of denial. You only need ask yourself: “Does it pass the smell test?”

Any path to redemption with the IRS involves taking personal responsibility, making a conscious decision to right the ship and thereafter taking remedial action.  Remember, you can generally recover from a financial setback. In contrast, imprisonment and the financial and emotional toll to you and your family may be insurmountable.

The immediate action should start with your speaking with a tax attorney to discuss your particular situation and evaluating whether making an offshore voluntary disclosure is a viable option for you.

© Anthony N. Verni, Attorney at Law, Certified Public Accountant   10/13/2016

Prosecutors announced Jan. 20 that a Connecticut business executive has pleaded guilty to willfully failing to report offshore bank accounts to the IRS.

Tax Evasion, Offshore Account filing taxes with the IRSAs part of his plea, which was entered Jan. 16 2015 before Magistrate Judge Debra Freeman of the U.S. District Court for the Southern District of New York, George Landegger of Ridgefield, Conn., agreed to pay a civil penalty of more than $4.2 million and more than $71,000 in back taxes.

According to the charges in a criminal information, Landegger maintained undeclared accounts at an unidentified Swiss bank based in Zurich from at least the early 2000s until 2010. His undeclared assets reached a high value of over $8.4 million in that period.

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).

According to prosecutors, a representative of the Swiss bank referred Landegger to a Zurich-based attorney, Edgar Paltzer, to form a sham entity to hold his undeclared accounts. In April 2009, Landegger met with the bank representative and another individual to discuss the future of his undeclared accounts in light of the news about a U.S. investigation into hidden accounts at another Swiss bank, UBS AG, according to the charges.

At the meeting, prosecutors said, Landegger affirmatively rejected the possibility of disclosing his undeclared accounts to the IRS through its Offshore Voluntary Disclosure Program or otherwise. Instead, he shifted the assets out of Switzerland into a new, declared account in Canada and an account kept by another person in Hong Kong.

“The benefits of citizenship or residency in the United States come with certain obligations, including, as George Landegger well knew, the legal requirement to report foreign bank accounts,” U.S. Attorney Preet Bharara said. “He will now pay for his illegal conduct.”

Secret Foreign Bank Accounts

Secret Foreign Bank Accounts are not secret anymoreSecret foreign bank accounts have been at the center of money laundering. This is especially with reference to offshore bank accounts.  It is very common for people to hide money in secret foreign bank accounts in other countries in an effort to avoid paying taxes on the monies.

A Case Where a Businessmen & Attorney Collude to Hide Money in Secret Foreign Bank Accounts

In the case, United States v. Kerr, D. Ariz., No. 2:11-cr-02385, which Bloomberg reports, two businessmen and an attorney were charged in U.S. District Court for the District of Arizona for hiding more than $8,000 million in assets in foreign bank accounts that were kept a secret.

The prominent Phoenix businessmen, Stephen M. Kerr & Michael Quiel, solicited the services of a former San Diego attorney in committing this crime.

The attorney, Christopher M. Rusch, assisted the two businessmen to set up secret foreign bank accounts Switzerland. The Swiss accounts were set up in the name of nominee entities concealing the identity of Kerr and Quiel as the owners of the bank accounts. They then went ahead and deposited millions in these secret foreign bank accounts from sale of stock they had concealed their ownership in acquiring. All this while, Rusch acted as a signatory authority to these secret accounts. He carried out all the transactions on these accounts on behalf of Kerr and Quiel.

The Role of the Attorney

Rusch, focused on criminal and civil tax defense, creating and maintaining offshore accounts among other things. He was a master in setting up these offshore accounts and was not left out in using them too. He also maintained secret foreign bank accounts in Switzerland and Panama. He went against the statement “preach water and drink wine.” He actually preached the water and drank it, or how else can you convince clients to hide money in secret foreign bank accounts.  At one point, he helped Kerr to purchase a golf course in Colorado from his secret accounts. He actually did this using his nominee Panamanian entity. As if that was not enough, he helped Kerr and Queil to use the hidden money in the secret foreign bank accounts at their comfort back in the U.S. by transferring funds to them through his client trust account.


You cannot hide from the law for so long.  Rusch was sure they will never be found or may be the deal he got from this two business men was too sweet to be ignored.  Either way, he was at the center of breaking the law by aiding money laundering and in the promoting tax evasion. IRS and the government proved too smart to be outsmarted when they caught up with the three.

 Kerr and Queil were each convicted of two counts of filing false individual tax returns for 2007 and 2008. In addition, Kerr was charged with failing to file FBARs (Report of Foreign Bank and Financial Accounts) for 2007 and 2008.  Rusch, pleaded guilty to conspiracy to defraud the government and failing to file an FBAR.

In case you have found yourself in the above situation, contact us for help. It is getting hard to run from the law with the IRS intensifying its search on these secret foreign bank accounts.

Failure to file FBARs as a Signatory Authority

The Foreign Bank Account Report (FBAR) can be submitted with the advice of a tax law attorney.Failure to file FBARs as a Signatory Authority to a foreign bank account is an offense punishable by law according the to the Bank Secrecy Act

The U.S. Court of Appeals for the Seventh Circuit affirmed the conviction of an Indiana CPA/Accounting professor by a U.S. District Court in United States vs Simon, 7th Cir, No. 11-01837. The conviction was based upon the taxpayer’s filing false income tax returns, failure to file FBARs (Foreign Bank Account Reports), mail fraud and financial aid fraud. One of the four FBAR counts related to Simon failure to file FBARs (reports on foreign bank accounts) for which he was a signatory for the years 2002 through 2007. During this time period he was the managing director of three foreign companies and had signatory authority over foreign bank accounts of these companies.  The companies included: The Simon Family Trust based in the Cook Islands, Elekta Ltd, a Gibralter company and JS Elekta, a Cyprus corporation.

Charges on Failure to File FBARs

Simon was charged with four counts of failure to file FBARs  related to foreign bank accounts according to 31 U.S.C. §§ 5314, 5322. For the years 2005 through 2007, Simon  conceded he was required to file a form TDF 90-22.1 now FinCEN Form 114 by June 30th for the foreign bank accounts aggregating more than $10,000 in the previous years. He also admitted that he failed to do so. However, Simon argued that he did not violate the law.

Simon’s defense

According to Simon, the IRS issued guidance in 2009 and 2010 that granted retroactive extensions for filing FBARs for the year 2008 and preceding years. This guidance was issued through IRS notices.  Taking the notices into consideration, Simon asserted that he filed the required FBARS prior to his indictment. He insisted that he did the filing within the deadlines set forth in the notices 2009‐62 and 2010‐23 and could therefore not face prosecution on failing to meet the original deadlines.

Government’s standing

The Government maintained that Simon’s crimes were complete before the IRS issued the notices. According to the government, Simon could not use the notices to exonerate himself from crimes he had already committed before the notices came into play. According to the Government,

“amendment of a regulation does not relieve the taxpayer of criminal liability for conduct that occurred before the amendment even when the amendment purports to have retroactive application.”

In addition, nothing in the notices promised relief from criminal liability for taxpayers who willfully failed to file FBARs. The only relief in the notices was that the IRS would not impose civil penalties for taxpayers whose failure to comply was non-willful.

Evaluation Points

  1. Setting up and using foreign corporations, trusts and other devices for purposes of hiding foreign funds never works and can be viewed as strong evidence of “willfulness” in an FBAR prosecution.
  2. Masking transfers from foreign corporate  and other third party accounts as “loans” can be used by the Government as strong evidence on intent in a criminal tax prosecution.
  3. The facts in the Simon Case involved a wilful failure to file FBARs.

IRS modifications to OVDP and streamlined procedures

The Offshore Voluntary Compliance Program

Internal Revenue Service’s major revisions in its Offshore Voluntary Compliance Program may just be the light at the end of the tunnel for tax payers with offshore bank accounts. The revisions provide a new path for tax payers with offshore bank accounts to come into compliance with their tax obligations. The modifications of the OVDP 2012 and the expansion of streamlined procedures (IR-2014-73) are just a relief. They are more inclusive for both U.S tax payers residing abroad and in the U.S.

IRS launched the Offshore Voluntary Compliance program in 2012 following the success of its prior voluntary programs offered in 2009 and 2011. The 2012 OVDP was launched to help people with undisclosed income from offshore accounts get current with their tax returns.  It encourages taxpayers to disclose foreign accounts now rather than risk detection by the IRS and possible criminal prosecution. All the three voluntary programs have resulted in more than 45,000 voluntary disclosures from individuals who have paid about $6.5 billion in back taxes, interest and penalties.

fatca foreign account tax compliance act. tax law attorneyThese current modifications in the OVDP 2012 have been fueled by the implementation of the Foreign Account Tax Compliance Act (FATCA) and Department of Justice determination to deal with tax evasion. FATCA will soon go into effect, as a matter of fact, from July 1st 2014. With FATCA in place, foreign financial institutions will start reporting to the IRS foreign accounts held by U.S persons. The IRS enforcement efforts and implementation of FATCA, have made taxpayers are more aware of their obligations. This means that it’s going to be so hard for U.S. citizens in the U.S or overseas to conceal foreign bank accounts and assets.. That is why the IRS has come up with the modifications in the 2012 OVDP to help U.S Citizens who have undisclosed foreign bank accounts or assets to come to compliance, including those who are not willfully hiding assets. The IRS is providing the tax payers this golden chance through these modifications to help them avoid prosecution and limit their exposure to civil penalties.

Streamlined Procedures and OVDP 2012 changes

OVDP’s 2012 changes just expand the Streamlined Procedures put in place in Sept 2012. The streamlined filing compliance procedures were put in place to help U.S. taxpayers living abroad comply with their tax obligations. The IRS recognized that some of the U.S taxpayers residing abroad may not have been aware of their filing obligation. They failed to timely file U.S. federal income tax returns or report Foreign Bank and Financial Accounts (FBARs) not because they wanted but because they were unaware. This program is available to non-resident U.S. taxpayers who have resided outside of the U.S. since January 1, 2009, and who have not filed U.S. tax returns during the same period. These taxpayers must also present a low level of compliance risk.

The changes to the Offshore Voluntary Compliance Program (OVDP 2012) will expand on streamlined procedures to help accommodate a wider group of U.S. taxpayers who have unreported foreign financial accounts. The original streamlined procedures announced in 2012 were available only to non-resident, non-filers. The expanded streamlined procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, to certain U.S. taxpayers residing in the United States.

Changes to streamlined procedure include:

The changes to streamlined procedures will help cover a much broader group of U.S. taxpayers who have failed to disclose their foreign accounts but who aren’t willfully evading their tax obligations. To encourage these taxpayers to come forward, IRS is expanding the eligibility criteria.  These changes include:

  • Eliminating a cap on the amount of tax owed to qualify for the program (requirement that the taxpayer have $1,500 or less of unpaid tax per year).
  • Doing away with the risk questionnaire that applicants were required to complete.
  • Requiring the taxpayer to certify that previous failures to comply were due to non-willful conduct.
  • For eligible U.S. taxpayers residing outside the United States, all penalties will be waived. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to 5 percent of the foreign financial assets that gave rise to the tax compliance issue.

These modifications provide an ease avenue for taxpayers who have been looking for a better easy way to comply with their tax obligations. Taxpayers with offshore accounts should take advantage of these changes in the OVDP while it lasts.  This grace period is something that U.S. taxpayers should not overlook.

FBAR Case: United States vs. Carl Zwerner is settled for $1.8 Million

The IRS U.S. Court building in Washington DC, a courthouse where cases on the Trust Fund Recover Penalty (TFRP) are held

The United States v Carl Zwerner FBAR case has been finally settled despite the many speculations regarding the Eighth Amendment rights. Carl Zwerner has entered a settlement agreement with the U.S. Department of Justice contrary to what most tax practitioners and attorneys thought. “Mr. Zwerner believed that a settlement at this time was in his best interests,” Press told Bloomberg BNA. “The Eighth Amendment issue will have to be litigated at some future date by others. We were fully prepared to litigate that issue.” This settlement agreement therefore finally closes the case of United States v. Zwerner.


Zwerner opened an account in Switzerland in the 1960s, under the name of two different foundations he created. He used the proceeds of the account for personal expenses. Zwerner failed to report his financial interest in the Swiss bank account on an FBAR and also failed to report any income earned from the Swiss bank account on his original tax returns for 2004 to 2007.  He represented on Schedule B of his original tax returns for those years that he did not have an interest in a foreign financial account by answering “no” in response to question 7(a). Check here for more details on the case.

The Tax Law

U.S. District Court for the Southern District of Florida jury scrutinized the evidence and found that Zwerner knew of his obligation to file FBARs. According to the jury, Zwerner’s failure to file FBARs for the years 2004 through 2006 was willful. See (U.S. v. Carl Zwerner, Civil Docket Case #1:13-cv-22082-CMA). The balance of the account for each of the years at issue exceeded $1.4 million and Zwerner committed FBAR violations by not complying with the law as required by 31 U.S.C. § 5314 and its implementing regulations. The law requires that U.S. citizens who have an interest in or signature authority over, a financial account overseas are required to disclose the existence of such account on Schedule B, Part III of their individual income tax return. Additionally, U.S. citizens must file an FBAR with the U.S. Treasury disclosing any financial account in a foreign country with assets in excess of $10,000 in which they have a financial interest, or over which they have signatory or other authority. Those who willfully fail to file their FBARs on a timely basis, due on or before June 30 of the following year, can be assessed a penalty of up to 50 percent of the balance in the unreported bank account for each year they fail to file a required FBAR.


The FBAR Case on United States v. Carl Zwerner was finally settled for $1.8 Million. Zwerner agreed to pay about $1.8 million in penalties and interest to settle the case.

The penalties Zwerner will pay for failure to file the FBAR include; $723,762 for 2004 and $745,209 for 2005. Zwerner also agreed to pay the U.S. interest of $21,336.11 for the 2004 failure and $20,947.52 for the 2005 failure. In addition, he will pay statutory penalties of $128,016.64 for 2004 and $125,685.11 for 2005.

The defendant agreed to make all of these payments by Sept. 2. Once the payment is made, the parties will stipulate to dismiss the action with prejudice, according to the court document. Check here for more information.  Zwerner’s attorney, Martin Press, told Bloomberg BNA on June 10 that the final settlement was less than half of the amount originally sought by the government for the four-year period. Press said it was his client’s decision to settle the case. “The government is looking at multiple FBAR penalties and will increase the assertion of multiple FBAR penalties in the future,” Press said. “And this may apply to both civil cases and criminal cases. I believe this is an initiative by the Justice Department to assert penalties in more than one year.”

FBAR Case on United States v. Carl Zwerner is just an eye opener to U.S. Citizens and Residents with foreign financial accounts that are not reported.

“As this jury verdict shows the cost of not coming forward and fully disclosing a secret Offshore bank account to the IRS can be quite high,” said Assistant Attorney General Kathryn Keneally for the Justice Department’s Tax Division. She added that “Those who still think they can hide their assets offshore need to rethink their strategy,”