The Tinkov Case: Concealment of Foreign Assets During Expatriation
On March 5, 2020, the Internal Revenue Service (“IRS”) and the U.S. Department of Justice (“DOJ”) announced that Mr. Oleg Tinkov was arrested in London in connection with an indictment concerning concealment of about $1 billion in foreign assets and the expatriation income in connection with these assets. Let’s discuss the Tinkov case in more detail.
The Tinkov Case: Alleged Facts
According to the indictment, Oleg Tinkov was the indirect majority shareholder of a branchless online bank that provided its customers with financial and bank services. The indictment alleges that, as a result of an initial public offering (IPO) on the London Stock Exchange in 2013, Tinkov beneficially owned more than $1 billion worth of the bank’s shares. He allegedly owned these shares through a British Virgin Island (“BVI”) structure.
The indictment further alleges that three days after the IPO, Mr. Tinkov renounced his U.S. citizenship or expatriated. Expatriation is a taxable event subject to the expatriation tax. As a an expatriated individual, Mr. Tinkov should have reported to the IRS the gain from the constructive sale of his worldwide assets and pay the expatriation tax on such a gain to the IRS. Yet, he allegedly never did it.
Instead, Mr. Tinkov filed an allegedly false 2013 tax return with the IRS that reported income of less than $206,000. Moreover, the IRS further alleges that he filed a false 2013 Initial and Annual Expatriation Statement reporting that his net worth was $300,000.
The Tinkov Case: Potential Noncompliance Penalties
If convicted, Mr. Tinkov faces a maximum sentence of three years in prison on each count. He also faces a period of supervised release, restitution, and monetary penalties. Other penalties (including Form 5471, Form 8938 and FBAR penalties) may be imposed.
The Tinkov Case: Presumption of Innocence
The readers should remember that an indictment is a mere allegation that crimes have been committed. The defendant (in this case, Mr. Tinkov) is presumed innocent until proven guilty beyond a reasonable doubt.
The Tinkov Case: Lessons from This Case
The Tinkov Case offers a number of useful lessons concerning US international tax compliance, particularly U.S. expatriation tax laws. Let’s concentrate on the three most important lessons.
First, a U.S. citizen or a long-term U.S. permanent resident must carefully consider all tax consequences of expatriation. Such a taxpayer must engage in careful, detailed tax planning prior to expatriation. Mr. Tinkov did not do such planning and renounced his U.S. citizenship merely three days before the IPO. By that time, the value of his assets was already easily established beyond reasonable dispute.
Second, one must be very careful and accurate with one’s disclosure to the IRS. Mr. Tinkov’s 2013 U.S. tax return and the Expatriation Statement contained information vastly different from the one that the IRS was able to acquire during its investigation. It is no wonder that the IRS concluded that he willfully filed false returns to the IRS, especially since it does not appear that his submissions to the IRS attempted to explain the gap between the returns and the information that IRS had or acquired later during an investigation.
Finally, expatriation cases involving sophisticated tax structures, especially those incorporated in an offshore tax-free jurisdiction, are likely to face a closer scrutiny and even a criminal investigation by the IRS. We have seen the confirmation of this fact in many cases already. In this case, Mr. Tinkov’s BVI corporation, which protected his indirect ownership of his online bank, was a huge red flag. His attorneys should have predicted that this structure alone would invite an IRS investigation of his expatriation.
Contact Sherayzen Law Office for Professional Help With Your U.S. International Tax Compliance and Offshore Voluntary Disclosures
If you are a U.S. taxpayer with assets in a foreign country, contact Sherayzen Law Office for professional help with your U.S. international tax compliance. If you have already violated U.S. international tax laws concerning disclosure of your foreign assets, foreign income or expatriation, then you need to secure help as soon as possible to conduct an offshore voluntary disclosure to lower your IRS penalties.
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