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Quiet Disclosure Guilty Plea

Florida man pleads guilty to tax evasion and hiding funds around the world

FBAR Quiet disclosuresIn April 2020, a Florida man pleaded guilty to tax evasion and the willful failure to file FBAR’s. What makes this case particularly interesting is that the taxpayer made use of a “quiet disclosure” rather than entering into the Offshore Voluntary Disclosure Program (OVDP). This is a classic case of greed on steroids.

Experienced tax attorneys will usually discourage their clients from making quiet disclosures. However, some practitioners may be tempted to recommend using a quiet disclosure to help close the deal with the client. An uninformed or greedy client will invariably opt for the least costly strategy. Unfortunately, these same practitioners routinely fail to provide the client with an explanation of the downside risks associated with making a quiet disclosure.

The following discussion is limited to the defendant’s foreign financial accounts, his failure to file FBAR’s and his unsuccessful attempt at making a quiet disclosure. If you interested in the tax evasion portion of the case you can click on the link hereand you will be linked to the Department of Justice, Tax Division, website.

Case background

–The taxpayer owned and operated a U.S. business that bought U.S.-made agricultural machinery and parts and sold them throughout the world.  The taxpayer failed to not only file business, personal and employment income tax returns but also failed to pay corporate, employment or individual income taxes. Although the taxpayer never received a salary, he certainly was living large. In addition to the business paying all of his personal expenses, the defendant was also able to siphon off significant amounts of cash, which he used for a variety of reasons. In total, the taxpayer failed to report more than $7.7 million in income, resulting in a total tax loss to the Government of over $2.7 million.

-From 2007 to 2011, the taxpayer transferred 5.8 million from the company’s bank accounts to foreign financial accounts. The taxpayer maintained these foreign financial accounts in Croatia, Germany, Serbia, and Switzerland from 2008 to 2015. Despite knowing that he had an obligation to report these accounts on FinCEN Form 114 (FBAR), the defendant kept these accounts secret in order to avoid IRS detection.

–In 2010, an account the taxpayer held at Credit Suisse in Zurich, Switzerland reached a year-end high value of $6,177,586. The taxpayer used the Credit Suisse account to fund the purchase of a $1,350,000 yacht and a $1,650,000 waterfront home in Florida.

–In 2015, Credit Suisse closed the taxpayer’s account in Switzerland and advised him to enter the IRS’s Offshore Voluntary Disclosure Program (OVDP). To provide some context, the OVDP was terminated in September of 2018 and replaced that same year with the Voluntary Disclosure Practice rules.

–The taxpayer failed to heed the Bank’s advice and elected not participate in the OVDP. The last iteration of the OVDP provided taxpayer’s with undeclared offshore accounts the opportunity to come clean in exchange for the prospect of avoiding criminal prosecution. Under the OVDP, participating taxpayers were required to:

  • File 8 years of delinquent or amended tax returns
  • File FBARS for 8 years.
  • Submit his or her returns and copies of the electronically filed FBAR, together with a penalty worksheet to the OVDP unit of the IRS.
  • Pay any outstanding income tax, together with a 20% accuracy penalty and interest.
  • Pay a one-time miscellaneous offshore penaltyequal to 27.5% of the highest aggregate account balance(s) in any one disclosure year.

In exchange for making these disclosures and paying all taxes, penalties and interest as well as the miscellaneous offshore penalty, the taxpayer and IRS would enter into a “Closing Agreement” (Form 906). A Closing Agreement effectively bars any additional claims by the IRS or the taxpayer for any of the years included in the disclosure period.

The taxpayer’s quiet disclosure consisted of filing several delinquent tax returns with the hope that the filings would fly under the radar, and the taxpayer would avoid paying income taxes, penalties and interest as well as the miscellaneous offshore penalty. Ironically, the taxpayer did not file any FBAR as part of his quiet disclosure.

Findings of the case

As it turns out, the tax returns filed by the defendant were materially false in several respects. First, the income tax returns disclosed only the taxpayer’s Credit Suisse account but failed to disclose his other foreign financial accounts. Second, the income tax returns submitted by the taxpayer failed to include the income the defendant earned from his company as well as the foreign source income earned from the taxpayer’s undisclosed foreign financial accounts.

Making a quiet disclosure, even in cases where the taxpayer files all FBAR’s in addition to his or her amended or delinquent income tax returns, is strong evidence of the taxpayer’s intent to prevent or hinder the IRS from detecting the existence of the taxpayer’s foreign financial accounts. It also demonstrates the taxpayer’s intent to avoid the assessment and payment of FBAR penalties.

Takeaway from the defendant’s guilty plea

If you make a quiet disclosure and are caught, there are significant financial consequences, even if you are fortunate enough to avoid criminal prosecution. The use of a quiet disclosure will invariably result in the assessment of the Willful FBAR Penalties which are substantial. Any hope of merely paying the Non-Willful FBAR penalty is out the window. In addition, if you are discovered, you will have to pay the outstanding tax, as well as the related penalties and interest on any unreported income. Among the IRS penalties, you could be subject to the 75% Civil Fraud Penalty.

Where criminal risk is minimal or non-existent, it may be possible to utilize the foreign or domestic streamlined procedures, thereby eliminating or limiting the FBAR penalty to a onetime 5% penalty.

While some taxpayers have been successful in avoiding detection by the IRS by using a quiet disclosure, you do not want to be the last person without a chair when the music stops. If you have undisclosed foreign financial accounts and foreign income, don’t let greed cloud your judgment. Nor should you make a decision based upon any potential savings in legal costs. Take the time to meet with an experienced and knowledgeable tax attorney to see what your options are. If any practitioner mentions the use of a quiet disclosure as a potential disclosure strategy, run like hell!

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OVDP Coming to an End Soon

Internal Revenue Service plans to close the Offshore Voluntary Disclosure Program (OVDP) on September 18, 2018.

Offshore Voluntary Disclosure Program

The Internal Revenue Service recently announced that they will be winding down the Offshore Voluntary Disclosure Program (OVDP) and plan to close the program on September 18, 2018.  As such, taxpayers who have yet to come forward have a limited amount of time in which to make a disclosure or face the new penalties.  This is of particular importance for those taxpayers who may be deemed to have been “willful” in their failure to file FinCen Form 114 (FBAR) and as such would not otherwise qualify for the Streamlined Filing Compliance Procedures. This announcement is intended to give taxpayers who have yet to come forward one last chance to do so.

The Streamlined Filing Compliance Procedures will still continue to be available to eligible taxpayers. However, the IRS has indicated they may also close this method for making an offshore disclosure.

The IRS will continue with its global enforcement initiatives to detect the offshore evasion of income tax, and further, to uncover those who have undeclared foreign assets.  These global initiatives include reporting under the Foreign Account Tax Compliance Act (FATCA), Whistleblower leads, civil examination and criminal prosecution. As the Chief of the IRS Criminal investigation recently stated:

“The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics.” “Stopping offshore tax noncompliance remains a top priority of the IRS.”

 

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Money Laundering Is Tax Evasion

Money Laundering is the same thing as tax evasion according to the IRSMoney Laundering and Tax Evasion

Money laundering and tax evasion are closely related. The IRS has used money laundering statutes to help cut down on tax evasion. Money laundering may be seen as willful tax evasion. Hiding money will off course lead to not paying taxes on the same.

What is Money Laundering?

Money laundering is a common occurrence today. Global concern surrounding this nefarious activity is based upon the theory that failure to report and account for this activity erodes the economic base of national economies. Individuals and organizations involved in criminal activity attempt to obscure the illegal source of the funds in an effort to avoid detection from law enforcement officials.

These funds commonly referred to as “dirty money” are the by-product of illegal activities such as drug and human trafficking, gambling, elaborate fraud schemes, and terrorism. Historically, criminals have utilized foreign financial institutions for purposes of “washing” dirty money through legitimate enterprises in order to avoid the scrutiny of taxing authorities.

Recent Global initiatives in combating money laundering including criminal prosecution, and the imposition of stiff criminal penalties have heightened foreign financial institution awareness and willingness to cooperate with authorities.  Moreover, new reporting requirements, mutual exchange of information agreements and coordination of local, national and global law enforcement agencies will make it more difficult for individuals to avoid detection.

How does money laundering work?

The main objective behind money laundering is to obscure the illegal source of the funds, thereby enabling the criminal to use the money without detection. The process is complex as it involves several financial transactions which may be carried out through various financial outlets in various countries. There are so many ways in which individuals hide money derived from criminal activities to avoid detection. Some of them are:

  • Depositing a large sum of money earned illegally in small amounts in a financial institution under different fake names.
  • Depositing a large sum of money earned illegally in small amounts by using various bearer instruments like money orders.
  • Creating a Trust or Corporation or a non-profit organization or an account under a different name in a different country and moving large sums of money there.

The hidden money is then accessed through debit cards, credit cards, money orders or cash withdrawals. Check this article “Caribbean based investment advisors and an attorney”  to see how Caribbean based investment advisors and an attorney colluded in their efforts to helping US Citizens hide money abroad.

Tax Evasion

Tax evasion is the wilful attempt to evade or defeat the assessment of taxes or the payment of taxes. The act of evasion occurs when a taxpayer either willfully fails to report his or her income as required by law, or having reported the income, engages in conduct that either hinders or defeats any attempt by the IRS in collecting the tax owed. In the latter case, the taxpayer prevents IRS from collecting by moving assets around under different ownership. An example would be: A taxpayer reports his income and has a tax liability. He has the money to pay the liability but instead, he closes all his bank accounts and moves the money to a different account under a different name. This is a clear indication of wilful tax evasion. For more on Tax evasion, check IRS Tax Crimes handbook.

Is money laundering therefore tax evasion?

In the U.S., money laundering is tax evasion but not all tax evasion is money laundering. According to IRS, money laundering is tax evasion in progress if the underlying conduct violates income tax laws and Bank Secrecy Act.  If you are a U.S. citizen/ permanent resident, the law requires you to report your income and pay taxes on the same.

As a U.S. taxpayer, when you are involved in money laundering, it is obvious that you are hiding the money in question. The reason may be because the money is from criminal activities you are involved in and you do not want your cover to be blown. In this case, you want to hide the dirty source of your money through laundering to be able to spend it without worrying about the IRS and the tax consequences. Alternatively, the main reason behind your hiding the money may be because you are actually running away from paying your taxes. Either way, this is tax evasion engineered through money laundering. It does not matter if the income is legal or illegal, you have to pay your taxes or else the IRS will somehow catch up with you some day. It is even worse when your income is from criminal activities since there may be additional consequences for the underlying crime. I think this is why individuals who engage in criminal activities choose to launder their money to avoid detection by the government for the fear of facing criminal prosecution.  While doing so, they are evading their responsibility to pay taxes.

Is there a way out of this money laundering mess?

You may have been involved in money laundering and off course tax evasion in the process and may be you are tired of hiding.  Your question may be “can I really make it right? Is there really a clean way out?” While there is no guarantee of avoiding criminal prosecution, there is still a chance to make it right. This is by getting into the OVDP (Offshore Voluntary Disclosure Program). You have to get a pre-clearance letter from the IRS to be accepted into the OVDP. You do this by providing all information on all foreign financial accounts, filing amended income returns for all the years in question etc.  Once approved, you will be able to enter into “Closing Agreement” with the IRS which means that the IRS will not revisit the matter again.

The Closing Agreement may differ from one case to another since one size does not fit all. This sounds easy, right? It may seem so but the whole process requires a careful evaluation of all the facts. If you need help walking through this, contact The Law Office of Anthony Verni . We can help you evaluate your situation and devise the best strategy to follow.

 

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OVDP Lawyer — Protect Yourself Against OVDP Crackdown by the IRS

About The Offshore Voluntary Disclosure Program (OVDP)

OVDP Lawyer for The Offshore Voluntary Disclosure Program

US citizens and residents are required to report foreign accounts and assets by filing an FBAR and other tax documents. Often, our clients are surprised to learn about the degree of possible penalties for an unreported foreign account. US citizens and residents who miss filing an FBAR  (that’s IRS jargon for the Report of Foreign Bank and Financial Account) for just one year can end up with a penalty of  $100,000 or 50% of the highest balance of the over-reported account.

Unintentional violations may receive fewer penalties, but still cause serious financial loss if not resolved properly with the help of a skilled tax attorney.

What is OVDP?

OVDP stands for Offshore Voluntary Disclosure Program. Often it’s also referred to as OVDI. It is the IRS amnesty plan that allows you to disclose offshore accounts and reduce your penalties. Without a voluntary disclosure, the IRS can and will impose much higher fees on your assets. The IRS can also seek criminal action against individuals who do not voluntarily disclose foreign bank accounts and assets.

What’s new in OVDP?

Also referred to as the 2014 OVDP, it is a continuation of the 2012 OVDP with a few changes.  A significant change is the increased 50% penalty from the previous 27.5% penalty. What this means is that a 50% offshore penalty applies if:

  • Either a foreign financial institution at which the taxpayer has or had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement has been publicly identified as being under investigation or as cooperating with a government investigation.

This is significant because there is a list of banks attempting to acquire Non-Prosecution Agreements with the Department of Justice to avoid paying this new penalty.  To date, there are only a handful of financial institutions whose clients would be subject to the 50% offshore penalty. However this list can grow at any moment. There are three events that will cause a financial institution’s offshore account holders to be subject to the 50% penalty beginning on August 04, 2014. Consulting with an OVDP lawyer will help you understand how this new law may affect reporting your offshore accounts and assets.

Hire the Right Legal Help to Deal with the IRS

Individuals sometimes choose to take their chances and hope they won’t get caught, simply because they can’t afford the penalties. Or, they opt to settle IRS matters on their own. That can be a very expensive mistake.

If you are facing an investigation by the IRS due to an OVDP issue, you will need an OVDP lawyer who can help you with the following:

  • If you can prove that your failure to report a foreign account was accidental, the penalty could be $10,000 or even waived.
  • Collect only the necessary documents to present to the IRS. This helps you from disclosing unnecessary information that the IRS may use against you during an investigation.
  • Make arrangements for standard amnesty, where the penalty is 27.5% but only imposed on 1 year.

As with any tax debt, the IRS wants to get paid quickly. The best option is always to pay the amnesty penalties in full, but payment plans are available and sometimes even an offer in compromise can be worked out. With the assistance of an experienced and skilled tax attorney, you can resolve many of your OVDP issues without adding additional fees and penalties.

Click here to request a consultation

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IRS modifications to OVDP and streamlined procedures a Relief to offshore bank account holders

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.

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Offshore Accounts and the Offshore Voluntary Disclosure Program

The Justice Department Crackdown on Offshore Foreign Accounts

Offshore financial accounts are the target of a recent IRS crackdown on tax evasionSince the Justice Department raised the threat of prison time for Americans who did not reveal their offshore accounts, the tax-evader crackdown has proven very successful for the United States government. Since 2008—when the Justice Department began a push against Swiss banks—the U.S. has prosecuted 103 people, including 62 guilty pleas and 5 trial convictions.

Of the 103 people prosecuted, only 18 received prison time. In almost every single case, the defendants received sentences that were below the set advisory guidelines. During sentencing, judges must weigh guidelines that seek to provide both consistency and fairness across the board. Although the guidelines still exist, they became advisory rather than mandatory as a result of a 2005 Supreme Court ruling in United States v. Booker [543 U.S. 220 (2005)]. Because the average defendant charged with tax evasion is both a first-time offender and likely very charitable due to their wealth, virtually all judges give out sentences below the guidelines.

The Case of Beanie Babies creator Ty Warner and Tax Evasion

Such is the case with billionaire Beanie Babies creator H. Ty Warner. Warner pleaded guilty Oct. 2 to tax evasion related to Swiss accounts in which he held as much as $107 million. Before sentencing, he had paid a $53 million civil penalty and $27 million in back taxes. Though the guidelines called for between 46 to 57 months in prison, U.S. District Judge Charles Kocoras sentenced Warner to two years’ probation, ordering him to perform 500 hours of community service and pay a $100,000 fine. Remarking upon the relatively light sentence, Judge Kocoras stated, “Society will be best served to allow [Warner] to continue his good works.”

Making a Voluntary Disclosure to the IRS

Since 2009, more than 38,000 taxpayers have joined the government’s amnesty program and paid $5.5 billion in back taxes, interest, and penalties. Deciding whether to participate in the Offshore Voluntary Disclosure Program (“OVDP”) or proceeding under an alternative voluntary disclosure protocol requires careful evaluation of the specific facts in each case and should not be undertaken without the assistance of a competent tax attorney.

Dealing with delinquent foreign financial accounts or unreported income from offshore activity is not a matter that should be handled by the taxpayer without the assistance of competent tax counsel.

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