Precious Metals Broker Indicted for Using Shell Corporations to Conceal Income

On April 12, 2017, a federal grand jury sitting in the Eastern District of New York returned an indictment, which was unsealed on May 24, 2017, charging Mr. Christopher Wolf, who operated Rothchild & Associates LLC (in New York), with tax evasion and aiding and assisting in the preparation of false tax returns achieved by using shell corporations to conceal income.

Using Shell Corporations to Conceal Income: Facts According to the Indictment

Mr. Wolf operated Rothchild & Associates LLC and was in the business of selling precious metals to investors over the telephone. While the company was technically owned by a third-party, the indictment alleges that Mr. Wolf controlled all aspects of Rothchild’s operations

According to the indictment, Mr. Wolf allegedly concealed the income he earned from Rothchild by using shell corporations. The scheme operated in a very simple way: Mr. Wolf’s commissions from Rothchild were paid by the company to shell corporations and, then, Mr. Wolf used the funds for his own personal purposes.

The indictment further alleges that Mr. Wolf filed a false 2010 individual income tax return which did not disclose the income he earned from selling precious metals. Then, Mr. Wolf simply failed to file his 2011 income tax return. On the “corporate side”, the indictment states that Mr. Wolf caused the shell corporations to file false 2010 and 2011 corporate tax returns that claimed deductions for phony expenses.

Using Shell Corporations to Conceal Income: Potential Consequences

If the IRS is successful in proving its case, Mr. Wolf may face a statutory maximum sentence of five years in prison for tax evasion and three years in prison for aiding and assisting the preparation or presentation of a false tax return.

Important Reminder: Indictment is NOT a Finding of Guilt

Sherayzen Law Office reminds its readers that an indictment is not a finding of guilt. Guilt can only be established in a court of law. Individuals charged in indictments are presumed innocent until proven guilty beyond a reasonable doubt.

Contact Sherayzen Law Office for a Voluntary Disclosure to Avoid Criminal Penalties if You are Using Shell Corporations to Conceal Income

If you are using shell corporations to conceal your income, then you should contact Sherayzen Law Office as soon as possible to explore your voluntary disclosure options to avoid criminal penalties. It is important to act fast – if the IRS initiates an investigation first, you may not be able to participate in any formal IRS voluntary disclosure programs.

Contact Sherayzen Law Office Today to Schedule Your Confidential Consultation!

A Senior Citizen With Offshore Accounts in Panama Pleads Guilty | IRS News

On May 26, 2017, the IRS scored another victory against Offshore Accounts in Panama and again against a senior citizen. This time, Ms. Joyce Meads, a 73-year old Texas resident, pleaded guilty to conspiring to defraud the United States by using offshore accounts in Panama to conceal more than $1.3 million in royalty income that she earned from oil wells.

Offshore Accounts in Panama: Facts of the Meads Case

According to documents and information provided to the court, from approximately April of 1997 through April of 2010, Ms. Meads conspired with offshore promoters to disguise more than $1.3 million in royalty income (from oil wells) as scholarships and loans from a foreign corporation that she set up.

In particular, Ms. Meads set up nominee companies in Delaware and Panama in the name of W.G. Holdings Corporation. Then, she transferred her interest in the oil wells to the nominee entity in Delaware, which resulted in all of the royalty checks to be issued to W.G. Holdings and sent to a Miami post office box. The checks were picked up there and sent by a courier to Panama to be deposited into Ms. Meads’ nominee accounts. Later, as it was mentioned above, the funds were repatriated as scholarships or loans from W.G. Holdings to herself. Ultimately, the funds ended up on her bank accounts and the accounts that were opened in her mother’s name.

During all of the relevant years, Ms. Meads never reported her income on her tax returns. Nor did she ever file an FBAR with respect to her offshore account in Panama. As part of the guilty plea, Ms. Meads admitted that she caused a tax laws of more than $250,000.

The IRS identified the promoters who helped Ms. Meads in her conspiracy to evade taxes. They are Marc Harris of The Harris Organization, Republic of Panama, and Boyce Griffin of Offshore Management Alliance Ltd., Republic of Panama. Both of them have already been convicted of conspiracy and other charges and were previously sentenced to prison.

Offshore Accounts in Panama: Potential Jail Time and FBAR Penalties

The sentencing of Ms. Meads is scheduled for August 4, 2017. Ms. Meads faces a statutory maximum sentence of five years in prison, a period of supervised release, restitution and monetary penalties. The penalties will likely include not only income tax fraud penalties, but also FBAR penalties.

Offshore Accounts in Panama: Lessons from the Meads Case

The Meads case is a classic example of a situation that leads to an IRS criminal investigation. Let’s focus on three main factors here.

First, Ms. Meads was diverting pre-tax US-source income from the United States to an offshore tax shelter. Based just on this fact, the IRS has sufficient incentive to make an example of her. In fact, diverting US-source income to a tax shelter might be the most important factor that led to criminal penalties in this case.

Second, Ms. Meads utilized a shell corporations to hide her income. Involving foreign companies in a tax evasion scheme is a very common factor that leads to an IRS criminal investigation.

Finally, Ms. Meads utilized secret offshore accounts in Panama in her tax evasion scheme – accounts that she never disclosed on her FBARs. By doing so, she granted to the IRS a very powerful weapon in the form of draconian FBAR penalties, not just criminal but also civil. This means that the IRS had a trump card in court to force Ms. Meads to agree to a guilty plea. In other words, with FBAR penalties as a major negotiation weapon, the IRS feels confident to press with the criminal charges for the entire case. While in the Meads case proving the rest of the charges might not have been very difficult, this is not the situation in a lot of other cases.

Contact Sherayzen Law Office for Professional Help With Disclosing Your Offshore Accounts in Panama and Any Other Foreign Country

If you have undisclosed foreign accounts or any other foreign assets, contact Sherayzen Law Office as soon as possible. Time may be of the essence, because an IRS investigation may prevent you from participating in any of the main Offshore Voluntary Disclosure initiatives.

With Sherayzen Law Office, you can feel confident that expertise, experience and convenience is on your side! We have helped hundreds of US taxpayers around the world to bring their tax affairs into full compliance with US tax laws, and We Can Help You!

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IRS Wins Against Wells Fargo’s Tax Shelter Scheme | Int’l Tax Lawyers MN

On May 25, 2017, the IRS sealed another victory against the infamous abusive tax shelter known as STARS (Structured Trust Advantaged Repackaged Securities).

The actual victory occurred on November 17, 2016, when a jury in Minnesota found Wells Fargo guilty of engaging in abusive tax shelter and determined that Wells Fargo was not entitled to a about $350 million of foreign tax credits. On May 25, 2017, however, the IRS expanded that victory when the Minnesota federal district court found Wells Fargo liable for a 20 percent negligence penalty.

Wells Fargo’s Tax Shelter Scheme can be traced to Barclays Bank PLC (“Barclays”). Barclays marketed the STARS transaction to American banks, including Wells Fargo. STARS was designed to exploit differences between the tax laws in the United States and in the United Kingdom.

Wells Fargo’s Tax Shelter Scheme is not the first one to be rejected by courts. In fact, at this point, three other cases have rejected the STARS tax shelters similar to Wells Fargo’s Tax Shelter Scheme. These case are: Bank of New York, BB&T Bank and Santander Bank purchased. Santander Holdings USA, Inc. v. United States, 844 F.3d 15 (1st Cir. 2016), pet. for cert. filed, March 20, 2017 (No. 16 1130); Bank of N.Y. Mellon Corp. v. Comm’r, 801 F.3d 104 (2d Cir. 2015), cert. denied, 136 S. Ct. 1377 (2016); Salem Fin., Inc. v. United States, 786 F.3d 932 (Fed. Cir. 2015), cert. denied, 136 S. Ct. 1366 (2016).

The recent victory by the IRS against Wells Fargo’s Tax Shelter Scheme is an important reminder of the salience of the business purpose doctrine in US international tax law. Sherayzen Law Office has previously written on the doctrine and emphasized how crucial it is to distinguish legitimate tax planning from engaging in abusive tax shelters.

Sherayzen Law Office advocates an approach that emphasizes legitimate tax planning that allows US taxpayers to utilize the advantages offered by US tax laws without engaging in abusive tax schemes, like STARS.

IRS Wins Against a Lawyer’s Motion to Dismiss FBAR Penalties | FBAR Tax Lawyer

On May 3, 2017, the IRS scored an important victory in United States v. Little, 2017 U.S. Dist. LEXIS 67580 (SD NY 2017) by defeating a Motion to Dismiss FBAR charges made by the defendant, Mr. Michael Little. The motion was based on an argument that is often used by opponents of FBAR penalties – the unconstitutionality of the FBAR penalties based on a tax treaty and the vagueness of the FBAR requirement as applied to the defendant. While I do not intend to provide a comprehensive analysis of the Motion to Dismiss FBAR Charges and the reasons for its rejection, I do wish to outline certain important aspects of the judge’s opinion.

Brief Overview of Important Facts

The Motion to Dismiss FBAR Charges was made by Mr. Little, a UK citizen and a US permanent resident. Mr. Little was a UK lawyer who also became a US lawyer and practiced in New York. During this time, he helped Mr. Harry G.A. Seggerman’s heirs hide millions in offshore accounts. For his services, he was paid hundreds of thousands of dollars which were never disclosed to the IRS.

In 2012 and 2013, Mr. Little was charged with willful failure to file FBARs and his US tax returns. He was further charged with various crimes arising out of his alleged assistance to Mr. Seggerman’s heirs in a scheme to avoid the taxes due on their inheritance held in undeclared offshore accounts.

Motion to Dismiss FBAR Penalties Based on “Void for Vagueness” Standard

The key argument of the Motion to Dismiss FBAR Penalties was based on the so-called “Void for Vagueness” Standard. The court cited United States v. Rybicki, 354 F.3d 124, 129 (2d Cir. 2003) to define the standard as follows: “the void-for-vagueness doctrine requires that a penal statute define the criminal offense with sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not encourage arbitrary and discriminatory enforcement.”

In the first part of the Motion to Dismiss FBAR Penalties, Mr. Little essentially argued that, in his circumstances, the application of the FBAR requirement was too vague due to the 2008 changes in the definition of the required FBAR filers, particularly with respect to exclusion of persons “in or doing business in the United States”.

The Court dismissed the argument stating that whatever was an issue with respect to “in or doing business” provision, a lawful alien resident of ordinary intelligence (whether or not he was “doing business in the United States”) would have understood that the FBAR requirement applied to him because the definition of the “United States resident” includes green card holders. Hence, the vagueness of the original FBAR definition was inapplicable to a lawful alien resident such as Mr. Little.

Motion to Dismiss FBAR Penalties and Other Criminal Counts: No Vagueness in Criminal Statutes Because Willfulness Must be Proven Beyond Reasonable Doubt

The Motion to Dismiss FBAR Penalties also contained several more “void for vagueness” arguments (related not just to FBARs, but also to Mr. Little’s failure to file US tax returns and his role as an “offshore account enabler”). Among these arguments, Mr. Little especially relied on several US-UK tax treaty provisions which led him to believe that he was not a US tax resident (in particular, he believed that he was in the United States temporarily and he interpreted the treaty as stating that he was not a US tax resident even though he had a green card).

The Court dismissed Mr. Little’s treaty-based arguments based on its interpretation of how a person of ordinary intelligence would have understood these provisions. Here, I wish to emphasize one of the most important parts of the decision – the affirmation that the worldwide income reporting requirement was not vague. The Court found that “the U.S. statutes and regulations that require alien lawful permanent residents (green card holders) to either (a) file a tax return and pay taxes on worldwide income, or (b) file a tax return reporting worldwide income and indicate that he or she is taking a particular protection under the Treaty, are not unconstitutionally vague as applied”.

The most interesting aspect of the Court’s decision, however, was in its last part. Here is where judge Castel dealt a death blow to all of Mr. Little’s void-for-vagueness arguments. The Court stated that, since a conviction can only be achieved if the government proves willfulness beyond reasonable doubt, none of the relevant criminal tax provisions (including criminal FBAR penalties) can be deemed as vague.

The reason for this conclusion is very logical – in order to prove willfulness, the government must establish that: “the defendant knew he was legally required to file tax returns or file an FBAR, and so knowing, intentionally did not do so with the knowledge that he was violating the law.” Obviously, if such knowledge and intention of the defendant are proven beyond the reasonable doubt, the defendant “cannot complain that he could be convicted for actions that he did not realize were unlawful”.

Motion to Dismiss FBAR Penalties Based on Vagueness Versus Non-Willfulness Arguments

It is important to emphasize that the vagueness arguments contained in Mr. Little’s Motion to Dismiss FBAR Penalties can still be utilized to establish the defendant’s non-willfulness even though the Motion to Dismiss was denied. In other words, while the void-for-vagueness arguments were insufficient to challenge the criminal tax provisions, they may be important in establishing the defendant’s subjective perception of these provisions and his non-willful inability to comply with them.

I believe that the defendant’s motion in this case was destined to be denied. In reality, the defendant might have made this motion not to win, but in order to establish the base for asserting the same arguments in a different context of undermining the government’s case for willfulness. The Court itself stated that one of the Defendant’s arguments (reliance on advice received from her Majesty’s Revenue and Customs”) was in reality a potential affirmative defense to failure to file US tax returns, not an argument against the constitutionality of the laws in question.

IRS Wins Another Case Against Secret Belize Bank Accounts | FATCA Lawyers

On March 23, 2017, the IRS scored another major victory against using Belize bank accounts to hide income. On that day, Mr. Casey Padula pleaded guilty to conspiracy to commit tax and bank fraud, including using Belize bank accounts to conceal almost $2.5 million.

Facts Concerning Using Belize Bank Accounts to Commit Tax Fraud

According to documents filed with the court, Mr. Padula was the sole shareholder of Demandblox Inc. (Demandblox), a marketing and information technology business. Mr. Padula conspired with others to move funds from Demandblox to his Belize bank accounts, disguising the transfer of funds as business expenses in Demandblox’s corporate records. At the same time, Mr. Padula created two offshore companies in Belize: Intellectual Property Partners Inc. (IPPI) and Latin American Labor Outsourcing Inc. (LALO). He opened and controlled bank accounts in the names of these entities at Heritage International Bank & Trust Limited (Heritage Bank), a financial institution located in Belize.

From 2012 through 2013, Demandblox “paid” to the bank accounts at Heritage Bank approximately $2,490,688. The transfers were recorded as intellectual property rights or royalty fees on Demandblox’s corporate books and deducted as business expenses on the company’s 2012 and 2013 corporate tax returns, causing a tax loss of more than $728,000. In reality, Mr. Padula used the funds to pay for personal expenses and purchase significant personal assets.

Furthermore, Mr. Padula also conspired with investment advisors Mr. Joshua VanDyk and Mr. Eric St-Cyr at Clover Asset Management (CAM), a Cayman Islands investment firm, to open and fund an investment account that he would control, but that would not be in his name. Heritage Bank had an account at CAM in its name and its clients could get a subaccount through Heritage Bank at CAM, which would not be in the client’s name but rather would be a numbered account. Mr. Padula transferred $1,000,080 from the IPPI bank account at Heritage Bank in Belize to CAM to fund his numbered account.

Facts Concerning Bank Fraud

In addition to committing tax fraud, Mr. Padula also conspired with others to commit bank fraud.

Mr. Padula had a mortgage on his Port Charlotte, Florida home of approximately $1.5 million with Bank of America (BoA). In 2012, he sent a letter to the bank stating that he could no longer repay his loan. At the same time, Mr. Padula provided Mr. Robert Robinson, III, who acted as a nominee buyer, with more than $625,000 from his IPPI bank account in Belize to fund a short sale of Mr. Padula’s home. Mr. Padula and Mr. Robinson signed a contract, which falsely represented that the property was sold through an “arms-length transaction,” and agreed that Padula would not be permitted to remain in the property after the sale.

In fact, Mr. Padula never moved from his home. Moreover, less than two months after the closing, Mr. Robinson conveyed it back to Mr. Padula by transferring ownership to one of Mr. Padula’s Belizean entities for $1. Mr. Robinson also pleaded guilty on March 23, 2017, to signing a false Form HUD-1 in connection with his role in the scheme.

Potential Penalties Concerning Using Belize Bank Accounts to Commit Tax Fraud

Mr. Padula faces a statutory maximum sentence of five years in prison, a term of supervised release and monetary penalties. As part of his plea agreement, Mr. Padula agreed to pay restitution to the IRS and to BoA in the amount of $728,609. Mr. Robinson faces a statutory maximum sentence of one year in prison, a term of supervised release, restitution and monetary penalties.

Lessons of the Padula Case

The Padula Case is a classic illustration of facts that often lead to a criminal prosecution by the IRS. First, he was shifting US-source income to Belize bank accounts by creating an artificial loss between the entities that he controlled.

Second, Mr. Padula employed a sophisticated offshore corporate structure to actively attempt to conceal his ownership of his Belize bank accounts. While the guilty plea does not specifically state how the IRS first found out about Mr. Padula’s structure, it appears to me that it occurred in connection with the IRS criminal cases against Mr. VanDyk and Mr. St-Cyr.

Finally, Mr. Padula utilized Belize, a tax haven, to commit tax fraud. This is always a factor for the IRS with respect to deciding whether to commence a criminal investigation.

Additionally, the Padula Case is another confirmation there are no safe havens anymore. Especially since the implementation of FATCA, the IRS has now the capacity to trace the transfer of funds, identify the tax violations and present sufficient evidence to prosecute a criminal case.

Contact Sherayzen Law Office for Professional Help With the Voluntary Disclosure of Your Belize Bank Accounts

If you have undisclosed Belize bank accounts or undisclosed offshore assets in any other foreign country, you should contact Sherayzen Law Office to explore your voluntary disclosure options as soon as possible. If the IRS commences an investigation against you, this very fact may result in the closure of all voluntary disclosure paths currently available to you.

Sherayzen Law Office has accumulated tremendous experience in helping its clients with their Offshore Voluntary Disclosures, including Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures and Offshore Voluntary Disclosure Program (OVDP). We can help you!

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