Southern California Doctor Faces Prison Sentence and Civil Penalties Over Failure to File the FBAR
A Laguna Beach, California physician is reportedly facing a potential prison sentence over his failure to file a Report of Foreign Bank and Financial Accounts (“FBAR”) in 2009. According to the United States Justice Department’s Tax Division, the American citizen maintained money in a Luxembourg bank account using a foreign corporate entity that was set up with the assistance of his tax preparer. Prosecutors from the U.S. Attorney’s Office for the Central District of California stated the overseas corporation was created by the doctor in order to evade paying taxes on approximately $8 million in income earned through his managed health care business.
In December, the physician’s tax preparer and his son were convicted on conspiracy to defraud the U.S. government, tax evasion, and other charges in connection with their role in creating a number of similar sham offshore companies. The tax preparation duo will reportedly be sentenced for their crimes next month. As part of his own guilty plea, the Laguna Beach doctor agreed to pay about $4.2 million in civil penalties to the Internal Revenue Service (“IRS”) over his failure to file the FBAR. The physician also faces up to five years in prison as well as a maximum additional fine of $250,000.
U.S. citizens and other taxpayers who have an ownership interest in or signature authority over one or more offshore financial accounts with an aggregate balance of at least $10,000 in a given tax year must file the FBAR with the U.S. Treasury by June 30th. The IRS has stated this requirement applies to an overseas checking, savings, or secured credit card account. In addition, an insurance policy that may be cashed out, foreign securities, and mutual funds must be reported on the FBAR. A U.S. taxpayer who does not timely file the FBAR may incur financial penalties of up to one-half of the highest unreported offshore account balance. In certain situations, a taxpayer may also face criminal prosecution.
The IRS’s Offshore Voluntary Disclosure Program (“OVDP”) provides American taxpayers who previously failed to report offshore financial accounts with the opportunity to come into compliance with U.S. federal income tax laws. Currently, U.S. taxpayers who willfully fail to disclose assets maintained with a foreign banking institution that is publicly identified as being under investigation or cooperating with a U.S. government investigation are subject to a penalty of one-half of the foreign account’s value. OVDP penalties for taxpayers who did not willfully use an offshore account to evade federal income taxes but still failed to report the financial asset are lower.
If you have questions about your international tax obligations, you should speak with a veteran tax lawyer. Certified tax law specialist William Hartsock has over 30 years of experience advising clients in San Diego about how to comply with current IRS rules. To discuss your tax situation with a seasoned international tax attorney, give Mr. Hartsock a call today at (858) 481-4844 or contact him online.
Additional Resources:
California Doctor Pleads Guilty to Failing to Report Foreign Account at Bank Leumi in Luxembourg, United States Department of Justice Office of Public Affairs Press Release dated February 2, 2015
Photo Credit: DodgertonSkillhause, MorgueFile