Offshore Voluntary Disclosure Program

Precious Metals Broker Indicted for Using Shell Corporations to Conceal Income

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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!

IRS Cracks Down on Sovereign Debit Cards linked to Offshore Accounts

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On January 25, 2017, the federal court in Montana authorized the IRS to serve John Doe Summons on Michael Berg of Bozeman, Montana, seeking information about US taxpayers with offshore accounts established by Sovereign Management & Legal LTD (“Sovereign”), a Panamanian company. In particular, the IRS is interested in US taxpayers who use debit cards linked to these offshore accounts (“Sovereign Debit Cards”). Let’s explore in more detail why the IRS is pursuing John Doe summons with respect to Sovereign Debit Cards.

Sovereign Debit Cards Used to Access Secret Offshore Accounts Without Identifying the Owner of the Accounts

First of all, it is important to point out that Sovereign is already on the OVDP (now closed) list of “facilitators”, which means that any US taxpayer who owns Sovereign offshore accounts and enters the OVDP will be subject to a 50% Offshore Penalty. Additionally, it means that the IRS has long been focusing on this company and what it is doing to promote US tax evasion.

It seems that there is a particular scheme linked to Sovereign debit cards that bothers the IRS. In its press release, the IRS and the DOJ stated that Sovereign advertised various products that allow US taxpayers to hide their offshore assets. In particular, the IRS emphasized one “package” where a corporation owned by another entity (including a fake charitable foundation) is officially governed by nominee officers provided by Sovereign. Then, Sovereign would open bank accounts for these entities and provide Sovereign debit cards (issued in the name of a nominee) to the taxpayer. By using Sovereign debit cards, taxpayers were able to access their offshore funds without revealing their identities.

In essence, the main issue here is the use of pre-paid debit cards for tax evasion purposes.

The Information that the IRS Seeks Regarding Sovereign Debit Cards

The John Doe summons issued by the IRS seek the records of US taxpayers who received Sovereign debit cards, specifically “Sovereign Gold Cards”. The IRS wishes to obtain the records for eleven years – 2005 through 2016.

This is the Second Time the IRS Seeks Regarding Sovereign Debit Cards

The current summons represent just a part of the case against the Sovereign . The IRS and the DOJ already previously obtained a similar order from the U.S. District Court for the Southern District of New York, which authorized the issuance of eight separate John Doe summonses on bank and other entities for information related to Sovereign and its US customers. The evidence submitted in the request to issue the current Montana John Doe summons was built in part on the information provided in response to the earlier summons.

Impact of Sovereign Debit Cards John Doe Summons on US Taxpayers

The new Sovereign Debit Cards John Doe Summons should be of grave concern to US taxpayers who own Sovereign Debit Cards as well as other noncompliant US taxpayers. Let’s discuss two most important aspects of these John Doe Summons with respect to noncompliant US taxpayers.

First of all, all noncompliant US taxpayers related to Sovereign in one way or another are in grave risk of the IRS detection. As long as their names appear in Sovereign’s internal records, these taxpayers are likely to be discovered and prosecuted by the IRS.

Second, what is especially disconcerting is the time frame for the new John Doe summons – years 2005 through 2016. The IRS is seeking records of even pre-UBS case tax noncompliance. This trend to going back that far should worry not only the US taxpayers with Sovereign debit cards, but also any US taxpayers who did quiet disclosure or just closed their accounts a long time ago and believe that they are safe from the IRS prosecution because of the passage of time. The willingness of the IRS to go back that far shows that all of these taxpayers are at risk.

Contact Sherayzen Law Office for Help with Your Voluntary Disclosure Concerning Sovereign Debit Cards and/or Any Other Undisclosed Foreign Accounts

As the IRS correctly pointed out, “the time to come forward and come into compliance is running short, and those who continue to violate U.S. tax and reporting laws will pay a heavy price.” The “heavy price” might be the criminal tax evasion penalties and willful and criminal FBAR penalties – a situation where a taxpayer might owe in penalties more than he ever had on his offshore accounts and he will also be put in prison for potentially as many as ten years.

This is why it is very important for noncompliant US taxpayers to contact Sherayzen Law Office to discuss their offshore voluntary disclosure options as soon as possible. The situation is particularly critical for US taxpayers with Sovereign debit cards.

We have successfully helped hundreds of US taxpayers avoid criminal penalties and achieve civil case resolutions with the IRS. We can Help You!

Contact Us Today to Schedule Your Confidential Consultation!

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!