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What triggers a prison sentence in offshore prosecutions?

Willfulness is usually required to support criminal charges. Assigning signature authority to someone else to conceal account ownership could show willful conduct. Filing a document, such as a Foreign Bank and Financial Accounts/FinCEN Report 114 (FBAR) with false information is another.

A five year prison sentence is on the table in most federal criminal offshore account prosecutions. Allegations of failure to file or false statements related to foreign holdings must therefore be taken seriously. A recent case illustrates what can happen when the attorney general alleges significant assets were hidden offshore to avoid U.S. taxes.

A business professor's start-up investment pays off

An emeritus professor of business administration at a New York university entered a plea agreement in June. A statement released by the Justice Department said that, "Despite his extraordinary wealth, [the professor] concealed funds offshore, failed to report substantial income, conspired to submit false repatriation documents to cover up the fraudulent scheme, and evaded paying his fair share."

These were weighty charges and went back many years. One mid-90s start-up investment paid off and a subsequent sale of company shares netted $80 million. An initial mistake was failing to disclose the full sum - the professor purportedly only paid tax on about $7 million.

By 2013, the amount in an undeclared Swiss bank account had grown to nearly $200 million. From 2008 to 2014, FBARs were not properly filed for the bank account. None were filed from 2008 through 2011. Then in 2012 and 2013 false FBARs were apparently submitted. This may have coincided with passing signature authority of the accounts to another person.

While the professor was a citizen of the U.S., United Kingdom and Israel, he still had an obligation as a U.S. taxpayer to pay tax on worldwide income. In return for accepting guilt and agreeing to cooperate with the authorities, he may receive a reduced prison term. The 71-year-old faces up to five years in prison.

Civil penalties are another story

The questions about FBAR accuracy and account ownership often start in the civil division. Even after a criminal case is initiated, a parallel civil matter continues related to the monetary penalty.

In this case, the professor paid an initial FBAR penalty of $100 million. This amount does not include restitution related to past due taxes and accrued interest.

Whenever the IRS has questions about your foreign accounts, you should speak with a tax attorney who has a record of handling these complicated matters. An attorney can protect your rights and handle all communication with the IRS to mitigate the consequences of any past mistake.

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