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Criminal Tax Case Reminds Californians They Cannot Use Offshore Accounts to Avoid Federal Income Taxes

Criminal Tax Case Reminds Californians They Cannot Use Offshore Accounts to Avoid Federal Income Taxes

In United States v. Kerr, two individuals and their former attorney were charged with various counts of conspiracy to defraud the United States government by establishing foreign bank accounts used to hide money overseas, willfully filing false federal income tax returns by omitting the income placed in their foreign accounts, and failing to file a Report of Foreign Bank and Financial Accounts (FBAR) for both 2007 and 2008. Following a jury trial, the men were convicted of several criminal charges and ordered to serve time in prison. Two of the defendants then filed an appeal with the Ninth Circuit Court of Appeals. As part of their appeal, the defendants sought to supplement the trial record with additional information.


The defendants alleged that they should be able to offer evidence to the court demonstrating their attorney made a secret deal with the government that allowed the lawyer to continue providing international taxation advice. Although the record in a court case may not normally be augmented after filing a notice of appeal, the defendants argued that their motion to supplement the record with proof of this purported arrangement was permissible due to the court’s inherent authority and Federal Rule of Appellate Procedure 10(e). The Ninth Circuit disagreed, however, and stated a party to a lawsuit is generally prohibited from unilaterally offering evidence at the appellate level that was not available to the trial court. Because of this, the Court of Appeals denied the defendants’ motion to supplement the trial record.


As this case demonstrates, U.S. taxpayers sometimes choose to ignore federal foreign bank account reporting requirements. Americans who fail to pay any required taxes on assets stored in an offshore bank account can face serious financial penalties and criminal prosecution. In addition to filing an annual income tax return, taxpayers in the U.S. who hold one or more overseas financial accounts with an aggregate total of at least $10,000 must complete the FBAR. Since July 1, the Foreign Account Tax Compliance Act (FATCA) imposes additional disclosure responsibilities on U.S. taxpayers who hold more than $50,000 in an overseas bank or other financial account. FATCA also makes it easier for undisclosed offshore accounts to be detected by requiring foreign banking institutions to report information about accounts held by Americans directly to the Internal Revenue Service.



If you are under examination by the IRS or were charged with evading your income tax obligation, you need an experienced tax lawyer on your side. William Hartsock is a certified tax law specialist with decades of experience advising and defending clients in San Diego about a variety of international and other tax law matters. To speak with a knowledgeable tax attorney about your situation, do not hesitate to call Mr. Hartsock at (858) 481-4844 or contact him online.


Additional Resources:

United States v. Kerr, Dist. Court, D. Arizona 2014



Photo Credit: matthew_hull, MorgueFile

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