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Southern California Businessman Admits to Hiding Overseas Bank Accounts from the IRS

Southern California Businessman Admits to Hiding Overseas Bank Accounts from the IRS

A Los Angeles businessman has pleaded guilty to conspiracy to defraud the United States government. According to the U.S. Justice Department, the American citizen owned a number of Israeli bank accounts that he failed to report to the Internal Revenue Service. The L.A. man apparently held the accounts in the names of nominee corporate entities in an effort to avoid detection by the agency. In addition, he purportedly asked the Israeli financial institution where the accounts were opened to hold his mail. Instead, the man collected his account statements directly from an international accounts manager during scheduled meetings at an L.A. hotel.


In 2000, the man apparently began using the undeclared offshore funds as collateral for commercial real estate loan transactions. The man also deducted the interest he paid on those loans from his business tax returns without paying income tax on the interest he earned from the offshore accounts. According to the IRS, the L.A. man’s highest offshore financial account value reached about $3 million. Because of this, the man is accused of failing to report more than $500,000 in interest income earned from the undeclared overseas accounts between 2005 and 2010. The man now faces up to five years in prison as well as a maximum potential fine of $250,000.



Taxpayers in the U.S. who have an ownership or signatory interest in an overseas financial account that holds at least $10,000 in the aggregate at any time during the tax year are compelled to file a completed Report of Foreign Bank and Financial Accounts (“FBAR”). Offshore financial assets that are subject to FBAR reporting requirements include a checking, savings, or secured credit card account. In addition, foreign securities, insurance policies that may be cashed out, and mutual funds must also be disclosed to the U.S. Treasury using the FBAR.


A taxpayer’s failure to file a required FBAR can result in serious civil penalties and potential incarceration. The L.A. man has reportedly agreed to pay a financial penalty equal to one-half of his highest undeclared foreign account balance as a result of his failure to timely file the FBAR. Although such a penalty is commonly imposed in cases where an American taxpayer does not file a completed FBAR, an individual who can establish that his or her failure was not willful may potentially incur a smaller financial penalty.


This situation serves as a reminder that American taxpayers who do not disclose an ownership or control interest in an overseas asset can face harsh financial and other penalties. If you would like more information regarding your international income tax obligations, contact certified tax law specialist William Hartsock today. Mr. Hartsock is an international tax lawyer with more than 30 years of experience helping clients in San Diego and across Southern California successfully navigate the Internal Revenue Code. To discuss your situation with a skillful tax attorney, please call Mr. Hartsock at (858) 481-4844 or contact him through his website.


Additional Resources:

Los Angeles Businessman Pleads Guilty to Conspiring to Defraud the United States by Concealing Israeli Bank Accounts, United States Department of Justice Press Release dated November 3, 2013



Photo Credit: DuBoix, MorgueFile


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