August 24, 2015
Two U.S. Return Preparers Sentenced for Enabling Offshore Tax Evasion
The Department of Justice announced that a father and son team of tax return preparers have been sentenced for conspiring with clients to prepare false tax returns omitting the clients’ foreign financial accounts or foreign income. David Kalai has been sentenced to serve 36 months, while his son, Nadav Kalai, was sentenced to 50 months.
The Kalais owned and operated United Revenue Service Inc. (“URS”), a return preparation business with twelve offices nationwide. In order the conceal secret accounts owned by their clients at two Israeli banks, the Kalais formed sham companies in Belize and other countries. The accounts were then held in the names of these sham companies. The funds that were transferred to these secret accounts were then falsely reported as either investment losses or business expenses. Three of the Kalais’ clients have already pleaded guilty to felonies for their role in the scheme. The Kalais also had their own offshore account that they failed to disclose.
One of the Kalais’ clients, Dr. Baruch Fogel, pleaded guilty to hiding more than $8 million in secret offshore accounts, but he was able to avoid prison time based on his cooperation in the prosecution of the Kalais. He also agreed to pay a civil FBAR penalty in the amount of $4.2 million.
Two of the DOJ Tax Division’s highest enforcement priorities in recent years have been to clamp down on offshore tax evasion as well as unscrupulous return preparers. The Kalais happen to fall into both categories. Since approximately 2009, tens of thousands of U.S. taxpayers have voluntarily disclosed their foreign accounts to the IRS as part of the ongoing voluntary disclosure initiatives. The DOJ now appears to be shifting its focus to “enablers” like David and Nadav Kalai, who aid and abet offshore tax evasion.
The IRS is also honing in on so-called “quiet disclosures,” where taxpayers file delinquent FBARs and amended returns without participating in one of the ongoing IRS programs, thus avoiding the payment of a penalty. The agency is identifying those who have opted to make quiet disclosures, and we expect that such individuals could be subjected to civil and/or criminal sanctions in the near future