January 9, 2015
Atlanta CEO Convicted of Hiding Assets in Swiss Accounts
The CEO of an Atlanta internet company has pleaded guilty to one count of willfully failing to file an FBAR, related to his concealment of offshore accounts from the U.S. Treasury. As part of his plea agreement, Kaminsky has agreed to pay the IRS a civil FBAR penalty in the amount of $250,635.
From 2000-2008, Gregg Kaminsky owned an account at UBS, one of the largest banks in Switzerland. This account grew to approximately $1.1 million, as Kaminsky had his income from at least two U.S. businesses direct-deposited there, without reporting the income to the IRS. During this time period, Kaminsky failed to file FBARs or report hundreds of thousands of dollars of foreign-earned income on his tax return.
In 2008, the Department of Justice sought a court order requiring UBS to turn over the names of U.S. account holders. After this was widely reported in the news, Kaminsky sent a letter to UBS, asking that his account be closed and the funds transferred to his account at HSBC Hong Kong. In the letter, he stated that he expected “any details regarding the account over its history to be kept entirely confidential.”
Kaminsky then attempted what is known as a “Quiet Disclosure,” which is when a taxpayer with previously undisclosed foreign accounts submits amended tax returns and FBARs, without participating in one of the available IRS programs. While some tax professionals have advised clients to make quiet disclosures, doing so is very risky. Last year, the Government Accountability Office (GAO) issued a report urging the Internal Revenue Service to pursue those making quiet disclosures. The IRS has since started training its personnel on methods to detect these disclosures, which could result in the assertion of substantial civil penalties or even criminal prosecution.
The amended returns that Kaminsky filed as part of his quiet disclosure did not include $150,000 of taxable income that he earned on “Second Life,” a virtual online world where users can trade virtual properties and services with one another, using a virtual currency known as “Linden Dollars.” This virtual currency can be redeemed for cash.
Had the IRS not already obtained information about his account from UBS, Kaminsky would have been a perfect candidate for the Offshore Voluntary Disclosure Program (known as the Offshore Voluntary Disclosure Initiative at the time). This program allows taxpayers with undisclosed offshore accounts to file amended tax returns and FBARs for the eight most recent tax years and pay an offshore penalty, in exchange for immunity from criminal prosecution. Since the voluntary disclosure program was first made available in 2009, tens of thousands of U.S. taxpayers have participated in it.
With the Foreign Account Tax Compliance Act (FATCA) coming into effect, the time for U.S. taxpayers to voluntarily disclose their foreign accounts is running out. Foreign financial institutions in most countries are set to turn over information about their American clients to the Internal Revenue Service, exposing those individuals to potential civil and criminal liabilities.