Criminal Penalties May Result from a California Taxpayer’s Failure to Report Offshore Accounts

In October, a St. Louis man pleaded guilty to one count of filing a false income tax return and one count of failing to file a Report of Foreign Bank and Financial Accounts (“FBAR”). The Missouri man was apparently charged with the two felonies after he was investigated by the Internal Revenue Service’s Criminal Investigation Division. According to the indictment, the man chose not to disclose the existence of bank accounts he held in Switzerland and Singapore to his tax preparer between 2006 and 2008. In addition, the man apparently failed to file a completed FBAR between 2007 and 2010.

Although an individual who is convicted of filing a false federal income tax return faces up to three years in prison for each count, a United States District Judge recently sentenced the St. Louis man to serve three years’ probation.  She also ordered him to pay almost $850,000 in restitution. According to the Special Agent in Charge of IRS Criminal Investigation, the Agency is currently focused on investigating overseas tax evasion.  The IRS Special Agent added that U.S. citizens should be aware that hiding assets in foreign bank accounts is considered tax fraud and that they will be prosecuted accordingly.

This case serves as a reminder that U.S. taxpayers in California and elsewhere can face hefty fines and criminal prosecution for a willful failure to comply with the nation’s income tax laws. Every year, taxpayers in San Diego and across the nation who have an ownership interest in or signatory authority over certain overseas financial assets totaling at least $10,000 must file a completed FBAR by June 30. If a taxpayer fails to timely file the FBAR, he or she may face a fine of $10,000 or up to one-half of the highest balance of the offshore financial account per occurrence. According to the IRS, the FBAR must be filed for any foreign bank account, mutual fund, trust, brokerage, or other financial asset. Unfamiliarity with this legal obligation will not shield an American taxpayer from incurring a penalty.

Since 2009, the IRS’s Offshore Voluntary Disclosure Program (“OVDP”) has provided U.S. taxpayers who previously failed to report foreign assets with the opportunity to come into compliance with the nation’s federal income tax laws. Since then, the Agency has collected about $6.5 billion in unpaid taxes through the program. American taxpayers who willfully fail to disclose financial assets maintained with an offshore banking institution that is publicly identified as being under investigation or cooperating with a U.S. government investigation are currently subject to a penalty of one-half of the foreign account’s value. It is important to note that OVDP penalties for American taxpayers who did not willfully use a foreign account to evade income taxes but still failed to report the asset are lower.

San Diego residents who maintain unreported assets in an overseas financial account are advised to think about utilizing the OVDP to become compliant with our nation’s federal income tax laws. If you have questions about how to take advantage of the OVDP, you should contact a skillful international tax lawyer. Certified tax law specialist William Hartsock has advised many Southern California clients with offshore assets about how to maintain compliance with current IRS rules. To discuss your tax situation with Mr. Hartsock, do not hesitate to call (858) 481-4844 today or contact him online.

Additional Resources:

St. Louis County Man Sentenced on Tax Charges, United States Attorney’s Office for the Eastern District of Missouri Press Release dated January 16, 2015

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