Posts

University Professor Sentenced to Prison with $100 Million FBAR Penalty

On February 10, 2017, the IRS scored yet another victory in its fight against secret offshore accounts with the imposition of a $100 Million FBAR Penalty. Mr . Dan Horsky, a 71-year old retired university professor (he used to teach at a business school), was a spectacularly successful investor and a very unsuccessful tax evader. After making a fortune, he decided to conceal his earnings through secret offshore accounts in Switzerland. Now, not only will this university professor pay an enormous $100 Million FBAR penalty, but he will also go to prison.

Facts of the Case: From University Professor to a $100 Million FBAR Penalty

Let’s first explore how did a simple professor ended up paying a $100 Million FBAR penalty.

According to court documents and statements made during the sentencing hearing, Mr. Horsky is a citizen of the United States, the United Kingdom and Israel. For over 30 years, he worked as a professor of business administration at a university located in New York. Around 1995, this university professor invested in numerous start-up companies. All of them but one failed; however, the one that succeeded (“Company A”) was spectacularly profitable.

In 2000, Mr. Horsky consolidated all of his investments into a nominee account in the name of a shell entity, Horsky Holdings. The account was opened at a Swiss bank in Zurich in order to conceal his financial transactions and accounts from the IRS and the US Treasury Department (the “DOJ”).

In 2008, Mr. Horsky received approximately $80 million in proceeds from selling Company A’s stock. However, he filed a fraudulent 2008 tax return, under-reporting his income by more than $40 million and disclosing only approximately $7 million of his gain from the sale. Then, the Swiss Bank opened multiple accounts for the university professor to assist him in concealing his assets. The university professor decided to trick the IRS and opened one small account for which Horsky admitted that he was a US citizen and another much larger account for which he claimed he was an Israeli citizen and resident.

As a university professor who loved business, Mr. Horsky could not stay away from temptation of further investments. He re-invested some of his gains from selling Company A’s stock into Company B’s stocks. Again, the university professor was enormously successful – by 2015, his secret offshore holdings exceeded $220 million.

In 2012, after learning about the IRS efforts to fight offshore tax evasion, Mr. Horsky engaged in a new scheme. He arranged for an individual (“Person A”) to take nominal control over his accounts at the Swiss Bank because the bank was closing accounts controlled by US persons. Interestingly, the Swiss Bank went so far as to help Person A relinquish his US citizenship. In 2014, Person A filed a false Form 8854 (Initial Annual Expatriation Statement) with the IRS that failed to disclose his net worth on the date of expatriation, failed to disclose his ownership of foreign assets, and falsely certified under penalties of perjury that he was in compliance with his tax obligations for the five preceding tax years.

By 2015, however, the IRS already conducted an investigation (probably triggered by information received as a result of the Swiss Bank Program) and identified Mr. Horsky’s tax evasion scheme. The IRS special agents actually raided Mr. Horsky’s home and confronted him about his concealment of his foreign financial accounts.

The IRS estimated that, during this entire 15-year old tax evasion scheme, Mr. Horsky evaded more than $18 million in income and gift taxes.

Punishment: $100 Million FBAR Penalty, Imprisonment and Other Penalties

Mr. Horsky faced a large array of penalties for filing fraudulent federal income tax returns, failure to disclosure his beneficial interest in and control over his foreign financial accounts on FBARs through the year 2011, and filing of fraudulent 2012 and 2013 FBARs.

The court sentenced Mr. Horsky to seven months in prison, one year of supervised release and a $250,000 fine. As part of his plea agreement, Mr. Horsky also paid over $13,000,000 in taxes owed to the IRS and a $100,000,000 FBAR penalty.

Lessons to be Learned from this $100 Million FBAR Penalty Case

So, how did this become a $100 Million FBAR Penalty Case? What qualified this case for criminal prosecution?

First, the very sophisticated nature of the tax evasion scheme made it very easy for the IRS to pursue criminal penalties in this case. Mr. Horsky went from one tax evasion trick to another, believing that he could avoid IRS detection. Using a shell corporation to hide his identity was definitely a big factor here. However, other strategies (like the use of a nominee who gave up his US citizenship) employed by him also made it an easy target for criminal prosecution.

Second, the amounts involved. With over $200 million in assets, Mr. Horsky should have known that he would be a valuable target for the IRS criminal prosecution.

Third, income evasion was done here on a grand scale. Not only did Mr. Horsky conceal the income from his accounts, but he also tried to evade the taxation of his very large capital gains. Every time that there is a combination of FBAR violation with a large-scale income tax violation, the chances of a criminal prosecution increase exponentially.

Finally, the willfulness of Mr. Horsky’s entire behavior was particularly made evident with the filing of fraudulent tax returns. A partial disclosure is one of the most dangerous patterns of tax behavior, because it discloses the knowledge of a tax obligation on the part of the taxpayer and points to the willfulness of the violation with respect to the noncompliant part of the obligation.

In fact, looking at this case, one can say that Mr. Horsky’s $100 Million FBAR penalty was definitely not the worse outcome. It is probably thanks to the skillful work of his criminal tax attorneys that the worst was avoided.

There is one more lesson that needs to be learned from this case. It appears that Mr. Horsky had plenty of opportunities to enter into any of the IRS offshore voluntary disclosure programs to avoid his $100 Million FBAR penalty and a prison sentence. He could have entered the 2009 OVDP, 2011 OVDI, 2012 OVDP and probably even 2014 OVDP.

If he would have entered into any of these programs, Mr. Horsky could have avoided the $100 Million FBAR penalty, saved tens of millions of dollars in potential penalties and eliminated any serious chance of a criminal prosecution.

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

If you have undisclosed foreign accounts outside of the United States, you are in grave danger of IRS detection and the imposition of draconian FBAR penalties, including incarceration. This is why you need to contact Sherayzen Law Office as soon as possible to explore your voluntary disclosure options.

Sherayzen Law Office is an international tax law firm that specializes in offshore voluntary disclosures. We have successfully helped hundreds of US taxpayers to avoid or reduce draconian FBAR penalties and bring their tax affairs into full compliance with US tax laws. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

2013 FBAR is Due on June 30, 2014

The most dangerous information report – the Report of Foreign Bank and Financial Accounts (the “FBAR”) – is due at the end of this month. The 2013 FBAR (i.e. the FBAR for the calendar year 2013) is due on June 30, 2014.

Pursuant to the Bank Secrecy Act, 31 U.S.C. §5311 et seq., the Department of Treasury (the “Treasury”) has established certain recordkeeping and filing requirements for United States persons with financial interests in or signature authority (and other comparable authority) over financial accounts maintained with financial institutions in foreign countries. If you had such a situation in 2013 and if the aggregate balances of such foreign accounts exceed $10,000 at any time during 2013, the 2013 FBAR must be filed with the Treasury.

What constitutes an account for the purpose of complying with 2013 FBAR can be a complex question. Generally, the IRS is using a very broad definition of the “account” to include the great majority of custodial situations, even those that are not usually associated with the concept of an “account” (for example, a precious metals storage or a foreign life insurance policy may have to be reported on the 2013 FBAR). You need to contact an experienced international tax attorney to determine what accounts need to be reported on your 2013 FBAR.

The FBAR must be filed by June 30 of each relevant year, including this year (2013). Thus, the 2013 FBAR must be received by the Treasury by June 30, 2014. This rule is contrary to your regular tax returns where the mailing date determines whether the filing is timely. There are no extensions available – the 2013 FBAR must be received by June 30 or it will be considered delinquent.

If the 2013 FBAR becomes delinquent, it may be subject to severe penalties.

Contact Sherayzen Law Office for FBAR Assistance

If you have any questions or concerns regarding whether you need to file the 2013 FBAR, please contact Sherayzen Law Office directly. If you have not previous filed the FBARs and you were required to do so, you may be subject to severe penalties and you may need to do some form of a voluntary disclosure.

If this is the case, you need to contact our experienced international tax law office to schedule a consultation as soon as possible. Attorney Eugene Sherayzen will assess your situation, determine your potential FBAR liability, explain the available options, prepare all of the required tax forms and the necessary legal documentation, guide you through this complex process of voluntary disclosure, and vigorously represent your interests during your negotiations with the IRS.