Offshore Voluntary Disclosure Program

University Professor Sentenced to Prison with $100 Million FBAR Penalty

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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!

Guilty Pleas for Secret Swiss-Israeli Bank Accounts | FATCA Lawyer

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On January 18, 2017, three US taxpayers pleaded guilty for hiding millions of dollars in their secret Swiss and Israeli bank accounts (hereinafter “Swiss-Israeli Bank Accounts”) and failing to report these Swiss-Israeli Bank Accounts on their FBARs.

Facts of the Case Involving Secret Swiss-Israeli Bank Accounts

All three defendants are relatives – Mr. Dan Farhad Kalili and Mr. David Ramin Kalili are brothers while Mr. David Shahrokh Azarian is their brother-in-law. They are all residents of Newport Coast, California.

According to the documents filed with the court and statements made in connection with the defendants’ guilty pleas, between May 1996 and 2009, Mr. Dan Kalili opened and maintained several undeclared offshore bank accounts at Credit Suisse and UBS in Switzerland. Similarly, Mr. David Kalili opened and maintained several undeclared accounts at Credit Suisse from February 1999 through at least 2009. He also owned several undeclared accounts at UBS from October 1993 through at least 2008. The brothers also maintained joint undeclared Swiss bank accounts at both UBS and Credit Suisse beginning in 2003 and 2004, respectively.

At the same time, Mr. Azarian opened and maintained several undeclared accounts at Credit Suisse from May 1994 through at least 2009. He also owned several accounts at UBS in Switzerland from April 1997 through at least 2008.

In 2006, we had the appearance of the now famous Ms. Beda Singenberger, a Swiss citizen who owned and operated a financial advisory firm called Sinco Truehand AG. She was indicted in New York on July 21, 2011. The charges were: conspiring to defraud the United States, evade U.S. income taxes, and file false U.S. tax returns. Ms. Singenberger remains a fugitive as of the time of this writing.

In July of 2006, Mr. Dan Kalili, with the assistance of Ms. Singenberger, opened an undeclared account at UBS in the name of the Colsa Foundation, a Liechtenstein entity. As of May 2008, the Colsa Foundation account at UBS held approximately $4,927,500 in assets.

In light of the increased IRS tax enforcement and the UBS case, all three defendants attempted to partially hide their prior ownership of Swiss accounts by moving the assets from one account to another. At the same time, they also tried to legitimize partial ownership of their assets.

Mr. Dan Kalili opened an undeclared account at Swiss Bank A in the name of the Colsa Foundation and in May 2008 and transferred his assets from the UBS Colsa Foundation account to Swiss Bank A. He then made partial disclosure of the Swiss Bank A Colsa account on his individual income tax returns. In 2009, Mr. Dan Kalili opened undeclared accounts at Israeli Bank A and at Bank Leumi, both in Israel. He then closed his joint (with his brother) Credit Suisse account and his own undeclared account and transferred all funds to Israel.

At that time of its closure, the undeclared joint account of Dan and David Kalili at Credit Suisse held approximately $2,561,508 in assets. As of December 2009, Dan Kalili’s undeclared account at Israeli Bank A had the approximate value of $1,569,973 and his undeclared account at Bank Leumi was valued at approximately $2,497,931.

Mr. David Kalili followed almost the same pattern. In August of 2008, he opened an account at Israeli Bank A in Israel and transferred to this account all of his funds from his UBS accounts. He later partially declared the Israeli Bank A account on his individual income tax returns. As of August 2009, Mr. David Kalili’s undeclared account at Israeli Bank A held assets valued at approximately $1,369,489.

Finally, Mr. Azarian also opened an account at Israeli Bank A in Israel in August of 2008. In May of 2009, he closed his Credit Suisse account and transferred all funds to his Israeli account. At the time of its closure, Mr. Azarian’s undeclared account at Credit Suisse held assets valued at approximately $1,903,214.

Neither of the three defendants ever filed an FBAR for their secret Swiss-Israeli Bank Accounts on their FBARs during any of the years 2006-2009.

Criminal and Civil Penalties Imposed For Failure to Declare Foreign Income and Swiss-Israeli Bank Accounts

According to the plea agreements, the criminal and civil penalties were severe. Mr. Dan Kalili, Mr. David Kalili and Mr. Azarian each face a statutory maximum sentence of five years in prison, a period of supervised release and restitution for 2003-2009 tax loss and monetary penalties. The defendants also admitted to committing civil fraud, which exposes them to additional civil fraud penalty.

In addition, each defendant agreed to pay a willful FBAR civil penalty in the amount of 50% of the highest balances of their undeclared Swiss-Israeli Bank Accounts. Mr. Dan Kalili agreed to pay the FBAR penalty of $2,674,329, Mr. David Kalili agreed to pay the FBAR penalty of $1,325,121 and Mr. Azarian agreed to pay the FBAR penalty of $951,607.

Lessons to Be Learned from the Defendants’ Handling of Their Undeclared Swiss-Israeli Bank Accounts

This case is a classical example of what not to do if one wishes to avoid criminal prosecution. Let’s point out five main mistakes which exposed the taxpayers to the IRS criminal prosecution.

The first mistake is obvious – the defendants willfully failed to declare their Swiss-Israeli bank accounts on their FBARs and the income generated by these accounts on their US tax returns.

The deleterious impact of the first mistake was magnified by the usage of an offshore shell corporation to hide the ownership of the Swiss-Israeli bank accounts (while the entity was concerned mostly with Swiss accounts, it was also used to hide the source of funds on the defendants’ Israeli bank accounts).

Third, the defendants engaged in the evasive pattern of opening and closing foreign accounts in various banks in order to hide them from the IRS. The defendants obviously underestimated the IRS ability to track these accounts and ended up giving the IRS additional powerful indirect evidence of intent to evade taxes and the willfulness of their failures to file FBARs.

Fourth, the taxpayers engaged in partial voluntary disclosure outside of any actual voluntary disclosure program. By doing partial disclosure, the taxpayers provided additional evidence to the IRS of their knowledge of the requirement to report foreign income and properly complete Schedule B. At the same time, the fact that their disclosure was only partial further emphasized the willfulness of their prior failure to disclosure foreign income and foreign assets. The readers should remember that a voluntary disclosure must always be accurate and complete; otherwise, the taxpayers simply give the IRS more evidence of willfulness of their tax noncompliance.

Finally, it does not appear that the taxpayers ever considered doing a true voluntary disclosure which could have limited their penalties and prevented the IRS criminal prosecution. One of the first thing that the taxpayers should always consider once they find out about their noncompliance or the possibility of the IRS detection of such noncompliance is to retain an international tax lawyer to review their voluntary disclosure options. The taxpayers failed to do so in this case and paid a very high price.

Contact Sherayzen Law Office for Professional Help with the Voluntary Disclosure of Your Foreign Income and Foreign Assets, including Swiss-Israeli Bank Accounts

If you have undisclosed foreign income and foreign assets, you should contact Sherayzen Law Office for professional help as soon as possible. Our international tax law firm has successfully helped hundreds of US taxpayers around the world to bring their tax affairs into full compliance with US laws and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Swiss Bank Program Summary | Offshore Accounts Lawyer

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On December 29, 2016, the US Department of Justice (“DOJ”) and the IRS announced that they have reached final resolutions with Swiss banks that have met the requirements of the Swiss Bank Program. In this article, I would like to provide the Swiss Bank Program summary and explain the importance of the Program to the overall US international tax enforcement efforts.

Swiss Bank Program Summary: History of the Swiss Bank Program

The Swiss Bank Program was a groundbreaking initiative of the DOJ and the IRS. It was the very first time when the tax authorities of one country (United States) conducted a voluntary disclosure program for banks in a different country (Switzerland) as if it were not an independent sovereign territory.

At the core of the Swiss Bank Program was the promise of the DOJ not to prosecute Swiss banks that would come forward and participate in the Swiss Bank Program. The banks were divided into four categories.

Category 1 banks were not eligible to participate because they were already under the DOJ investigation.

Category 2 banks had to pay a penalty and consisted of banks for which was a reason to believe that they committed tax-related criminal offenses with respect to undisclosed foreign accounts owned by US persons. In addition to paying a penalty, Category 2 banks also had to disclose all of their cross-border activities and provide detailed information with respect to US-owned accounts to the DOJ and the IRS.

Category 3 consisted of banks that established, with the assistance of an independent internal investigation of their cross-border business, that they did not commit tax or monetary transaction-related offenses and had an effective compliance program in place. These banks did not pay any penalties.

Finally, category 4 was reserved for Swiss banks that were able to demonstrate that they met certain criteria for deemed-compliance under the Foreign Account Tax Compliance Act (FATCA). They also did not pay any penalties.

Swiss Bank Program Summary: Results

Let’s discuss the results of the Program in our Swiss Bank Program summary. The Swiss Bank Program was announced on August 29, 2013 and it was in operation until December 29, 2016. During that time the DOJ executed non-prosecution agreements with 80 Category 2 banks and collected more than $1.36 billion in penalties. The Department also signed a non-prosecution agreement with Finacor, a Swiss asset management firm. Between July and December 2016, four banks and one bank cooperative satisfied the requirements of Category 3, making them eligible for Non-Target Letters. No banks qualified under Category 4 of the Program.

Swiss Bank Program Summary: Legacy

No Swiss Bank Program summary would be complete without a discussion of the legacy of the Program. In our Swiss Bank Program summary, let’s divide the impact of the Program into four parts: impact on Switzerland as a bank secrecy fortress, impact on other tax havens, impact on US tax compliance and the precedent for the future.

The most immediate impact was felt in Switzerland itself. The Swiss Bank Program has in effect completely destroyed the vaunted Swiss bank secrecy laws with respect to US taxpayers and gave the green light to other European countries to conduct similar interventions. In essence, the Swiss Bank Program has completely destroyed the main fortress of bank secrecy that had existed for centuries.

The destruction of the Swiss bank secrecy laws also influenced the other tax havens. Fearing a similar DOJ intervention, the rest of the world’s tax havens have significantly softened their own bank secrecy laws and have agreed to an automatic exchange of information regarding their account owners with the IRS. There can be no doubt that the Swiss Bank Program has greatly facilitated the implementation of FATCA on the global scale.

The combined effect of the Swiss Bank Program, the softening of the bank secrecy laws in tax havens and the implementation of FATCA was acutely felt by noncompliant US taxpayers. Tens of thousands of US taxpayers participated in the IRS voluntary disclosure programs (often, they were urged by the Swiss banks to enter the OVDP, because this is how the banks mitigated their own penalties under the Program). Many more tens of thousands of taxpayers became tax compliant through a noisy or quiet disclosure. The greater awareness of US international tax laws among the tax preparers has greatly improved US annual tax compliance, bringing huge amounts of additional revenue to the US treasury.

Finally, no Swiss Bank Program summary would be complete without mentioning the potential for repetition of the Swiss Bank Program in another country. It may not necessarily come in the same format, but it is very likely that a version of the Program will be implemented elsewhere, especially since the IRS commitment to offshore tax compliance will remain a priority in the immediate future.

Contact Sherayzen Law Office for Help With Your Undisclosed Foreign Accounts

If you have undisclosed foreign accounts or other foreign assets, contact Sherayzen Law Office for professional help. Our legal team will thoroughly analyze your case, explore your voluntary disclosure options, prepare all of the necessary legal documents and tax forms, and defend your case against the IRS.

We have helped hundreds of US taxpayers to bring their tax affairs into full compliance and we can help you! Contact Us Today to Schedule Your Confidential Consultation!

Mistake as Reasonable Cause | Offshore Voluntary Disclosure Lawyer

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This article is a continuation of a series of articles on the Reasonable Cause Exception as a defense against various IRS penalties. Today, we will be exploring whether a mistake made by a taxpayer satisfies the ordinary business care and prudence standard and can be considered a reasonable cause.

Mistake Alone Does Not Constitute Reasonable Cause

Generally, the IRS takes the view that a mistake alone is not sufficient to establish a reasonable cause defense to an imposition of an IRS penalty, because it is not considered to be a conduct that would qualify as ordinary business care and prudence – i.e. generally, situations when a taxpayer acted prudently, reasonably and in good faith (taking that degree of care that a reasonably prudent person would exercise) and still could not comply with the relevant tax requirement.  We remind the readers that the ordinary business care and prudence standard is at the heart of the Reasonable Cause Exception.

Mistake Can Help Establish Reasonable Cause

While a taxpayer’s mistake alone is insufficient to establish a reasonable cause, the Internal Revenue Manual (IRM) specifically foresees a possibility that a mistake can help assert a reasonable cause defense. IRM 20.1.1.3.2.2.4 (12-11-2009) specifically states that the Reasonable Cause Exception may be established if mistake with “additional facts and circumstances support the determination that the taxpayer exercised ordinary business care and prudence but nevertheless was unable to comply within the prescribed time”.

In other words, if mistake, in combination with other facts and circumstances, established that a taxpayer’s behavior was consistent with the ordinary business care and prudence standard, the IRS may agree that the tax noncompliance was caused by a reasonable cause.

IRS Factors Supporting Mistake as a Reasonable Cause

IRM 20.1.1.3.2.2.4 (12-11-2009) does not limit the number of factors that will be considered by the IRS in deciding whether there are sufficient facts and circumstances supporting mistake as a reasonable cause. However, it provides five specific factors to which the IRS will pay special attention:

1. When and how the taxpayer became aware of the mistake;

2. The extent to which the taxpayer corrected the error;

3. The relationship between the taxpayer and the subordinate (if the taxpayer delegated the duty);

4. If the taxpayer took timely steps to correct the failure after it was discovered;

5. The supporting documentation.

Contact Sherayzen Law Office for Professional Legal Help with Establishing a Reasonable Cause Exception in Your Case

If the IRS imposed a penalty for your prior tax noncompliance, contact Sherayzen Law Office for the legal help. We will thoroughly review the facts of your case, determine available defense options, including the Reasonable Cause Exception defenses, implement the case strategy with which you feel comfortable, and negotiate the abatement or reduction of your IRS penalties.

Contact Us Today to Schedule Your Confidential Consultation!

Streamlined Disclosure Attorney Madison | FATCA OVDP Lawyer

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In today’s world connected through an invisible network of new technologies, a great number of persons prefer to choose an attorney based on his qualities rather than his state of residence. The residents of Madison, Wisconsin, similarly search for such an attorney, especially in the area of Streamlined compliance procedures by utilizing the search words: Streamlined Disclosure Attorney Madison.

The question is whether an attorney in Minneapolis falls within the search for Streamlined Disclosure Attorney Madison. Furthermore, is there an ethical problem? – i.e. does a Minnesota attorney’s license extend to help clients in Madison with respect to Streamlined Compliance Procedures? Let’s answer all of these questions in this article.

Streamlined Disclosure Attorney Madison Search Includes Attorneys Who Reside in Another State

The answer to the first question is “yes’ – the search for Streamlined Disclosure Attorney Madison includes an attorney whose residence is in Minneapolis as long as this attorney offers his services in Madison to help clients with international tax law issues.

There can be no doubt that an attorney in Minneapolis is objectively (i.e. setting aside the personal qualities and the level of competence that naturally differ from attorney to attorney even within Madison) qualified to provide services in Madison. On the technological side, the improvements in modern communications technology with online video conferences and email, combined with the traditional express mail, have completely eliminated the logistical and administrative differences between a local attorney in Madison and an attorney from Minneapolis who offers his Streamlined Compliance Procedures services in Madison.

On the legal side, the difference never even existed. While there are still many local Madison legal issues concerning local and state law where local attorneys hold a decisive advantage over out-of-state attorneys, this is not the case when it comes to Streamlined Compliance Procedures. This is because Streamlined Compliance Procedures is a purely federal law with zero Madison or even Wisconsin influence. In fact, these procedures constitute an IRS program within the regulatory framework of the much larger US international tax law.

This means that a search for a Streamlined Disclosure Attorney Madison is really a search for an international tax attorney who deals with the Streamlined Compliance Procedures and helps clients in Madison. There is no requirement that the Streamlined Disclosure Attorney Madison actually resides in Madison.

Streamlined Disclosure Attorney Madison Search Applies to Any US International Tax Attorney Without Any License Limitations

The answer to the second question – whether there are any license limitations for a Minnesota attorney to offer international tax services related to Streamlined Compliance Procedures to clients in Madison – is clear from the discussion above: no, there are no attorney license limitations in this case.

Again, the search for Streamlined Disclosure Attorney Madison is a search for an international tax attorney for a specific US international tax law issue. In fact, a search for Streamlined Disclosure Attorney Madison can be easily replaced by a search for a broader category of International Tax Attorney Madison. There is simply no specific local input from City of Madison or the State of Wisconsin, and, theoretically, any attorney licensed to practice in the United States can practice federal tax law.

Of course, in practice, only highly specialized international tax attorneys are competent enough to practice in the area of US international tax law. The number of such attorneys is extremely small; this means that the persons who search for a Streamlined Disclosure Attorney Madison must necessarily broaden their search to attorneys who reside in other states in order to have a real chance for choosing the right Streamlined Disclosure Attorney Madison.

Sherayzen Law Office Offers Services Related to Streamlined Compliance Procedures and Can Be Your Streamlined Disclosure Attorney Madison

Sherayzen Law Office is an international tax law firm that specializes in all types of offshore voluntary disclosure, including Streamlined Compliance Procedures. Our professional tax team, headed by Mr. Eugene Sherayzen, is highly experienced in helping US clients around the globe with their US international tax issues, including voluntary disclosure of foreign accounts and other foreign assets. This why Sherayzen Law Office should be considered as a top candidate when you search for Streamlined Disclosure Attorney Madison.

Contact Us Today to Schedule Your Confidential Consultation!