Criminal Case Reminds California Taxpayers to Report All Foreign Bank Accounts to the U.S. Treasury
A 46-year-old Atlanta man was recently ordered to serve four months in prison and pay almost $100,000 in restitution after he was convicted of willfully failing to file a completed Report of Foreign Bank and Financial Accounts (“FBAR”). According to federal prosecutors, the internet entrepreneur hid money he earned in a virtual world called “Second Life” in Hong Kong, Switzerland, and Thailand in order to avoid paying federal income taxes on the assets.
Between 2000 and 2008, the Atlanta man held an ownership interest in an unreported Swiss bank account with assets totaling over $1 million. Beginning in 2002, the internet entrepreneur transferred money from his Swiss bank account to other banking institutions in Asia. The man also directed his income from at least two of his companies into his Swiss account.
In addition to violating United States tax laws, the Atlanta man apparently did not disclose the existence of his offshore financial accounts when he electronically filed a Free Application for Federal Student Aid (“FASFA”) in order to secure funds to pay tuition expenses in 2007 and 2008. When he filed the FAFSA forms, the entrepreneur purportedly held at least half a million dollars in his Swiss bank account. Disclosing such funds would have made him ineligible to receive federal financial aid.
The Atlanta man’s failure to disclose his foreign assets was discovered when Swiss banking giant UBS began revealing the identities of American account holders to the Internal Revenue Service (“IRS”) in 2008. After UBS began doing this, the man allegedly attempted to cover up his omission by closing his Swiss account and transferring his assets to Asia. In 2010, the now-convicted man filed a completed FBAR for the first time. He also amended his federal income tax returns for 2007 and 2008. Despite this, the Atlanta man failed to report about $150,000 in taxable income related to his online “Second Life” to the IRS. Virtual transactions made through the program are redeemable for U.S. dollars.
American taxpayers who hold an ownership interest in or signature authority over an offshore financial account with a balance of at least $10,000 in a given tax year must file the FBAR with the U.S. Treasury by June 30th of each year. This obligation applies to an overseas checking, savings, or secured credit card account, insurance policies that may be cashed out, foreign securities, and mutual funds. A U.S. taxpayer who fails to timely file the FBAR can face criminal prosecution and incur financial penalties of up to one-half of the highest unreported foreign account balance. Additionally, American taxpayers must disclose any ownership interest in an overseas bank account on Schedule B of their federal income tax return and report all income earned from such an account to the IRS.
It can be difficult to navigate the nation’s income tax laws on your own. Certified tax law specialist William Hartsock has more than three decades of experience advising clients in Southern California regarding how to successfully comply with the nation’s federal income tax laws. To discuss your international tax questions with a veteran tax lawyer, give Mr. Hartsock a call at (858) 481-4844 or contact him through his website.
Circlenet CEO gets four months in prison for hiding money in Swiss bank, Atlanta Business Chronicle
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