by Brian Mahany
A couple years ago, headlines like this would have been shocking. Although federal law has for years required U.S. taxpayers to declare their offshore bank and brokerage accounts, only recently has the law been actively enforced. Since the UBS scandal in 2008, the IRS and Department of Justice have been relentless in the pursuit of taxpayers with unreported offshore holdings. Last week a federal judge in California sentenced a husband and wife to a year and a day in federal prison after the pair pleaded guilty to filing a false tax return.
We first reported this story in June prior to the couple’s sentencing. Back then we predicted both a prison sentence and high fines. Unfortunately for Sean and Nadia Roberts, those predictions came true. Until caught, the Roberts had a pretty good life as flight instructors. The couple saved much of their money and put it in a Swiss account at UBS.
When the feds began investing UBS, the couple could have participated in the amnesty program, paid a 20% (or less) penalty and kept their money at UBS. Instead, they tried to hide their money by moving it around. According to court documents, they moved their money from Switzerland to Liechtenstein, Hong Kong and South Africa. Instead of putting the money in their own names, they created a constellation of entities and business accounts.
They were caught.
Opening a foreign account is legal. Not telling Uncle Sam, however, is a felony. Many people with foreign accounts simply don’t understand or know the law. Rarely are those folks prosecuted. Although they may be penalized and pay huge monetary penalties, the IRS does not criminally prosecute unless they can prove that a taxpayer’s actions were “willful.”
Unfortunately, creating nominee accounts, moving money with no business purpose and transferring your account after you learn that a bank is under investigation are all red flags. Because their returns did not disclose the Swiss and other foreign accounts, the Roberts will each be serving year long prison sentences.
If that is not bad enough, they were also ordered to pay the IRS $3,200,000!
The penalties for an unreported account are the greater of $100,000 per year or 50% of the high account balance. The IRS can go back years often making the fines larger than balance in the account! If you can prove that your failure to report was not intentional, however, the penalties are generally much lower and are even waived sometimes.
Presently the IRS has an amnesty program called the Offshore Voluntary Compliance Program (or “OVDI” or “OVDP” for short). Participants can pay a reduced one time penalty instead of yearly penalties and also avoid prison.
The rules for offshore reporting change frequently. If you have an unreported foreign account, speak to a lawyer or CPA knowledgeable about foreign reporting. (Most are not.) Amnesty is not always the best option.
The tax lawyers at Mahany & Ertl have helped many taxpayers with a wide variety of offshore tax issues including FBARS (Report of Foreign Bank and Financial Account), OVDP, opt-outs, foreign gift reporting and the new FATCA (Foreign Account Tax Compliance Act) law. If that sounds like “alphabet soup,” then you really need to find someone who can help you. Once you get in compliance, staying there is usually neither expensive nor difficult.
Whatever you do, don’t try to outsmart the IRS or ignore the problem. Like Sean and Nadi Roberts found out, people do get caught and do go to prison. While prison is never enjoyable, Sean Roberts is almost 80 years old and his wife Nadia is in her 60′s. Their golden years will be spent behind bars or scraping together millions of dollars to pay the IRS.
If you have questions or an unreported account and want to learn more about your options, contact attorney Bethany Kroes at bckroes@mahanyertl.com or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon, San Francisco, California. IRS services available anywhere in the United States and worldwide.
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