U.S. Taxpayer Sentenced to Prison for Concealing Foreign Bank Accounts
On July 8, 2014, The U.S. Department of Justice and the Internal Revenue Service (IRS) announced that a U.S. individual was sentenced to serve six months in prison and an additional six months and one day of home confinement for concealing more than $8 million in foreign bank accounts in India and Dubai.
According to the evidence presented in court, the U.S. taxpayer controlled several foreign bank accounts at HSBC in India and Dubai, including accounts held in the name of his wife and adult children. The taxpayer invested the funds in these accounts in certificates of deposit, which earned interest at rates as high as nine percent. The taxpayer funded these accounts by mailing checks from the United States and by transferring money from other undeclared bank accounts in Singapore and the United Kingdom to his family’s accounts in India.
In October 2013, a jury convicted the taxpayer of failing to report his family’s foreign bank accounts to the government on tax returns and Reports of Foreign Bank and Financial Accounts (FBAR). The jury also found that the taxpayer failed to report more than $1 million in interest income earned from these accounts between 2007 and 2009.
Prior to the sentencing hearing, the IRS assessed and demanded payment of a FBAR penalty against him for over $14 million.
U.S. persons must report their worldwide income on their taxes. In addition, they must file a FBAR annually if their offshore accounts total over $10,000 at any time. If you have both failures, the IRS wants you to go into the Offshore Voluntary Disclosure Program. It involves reopening prior tax years, and paying taxes, interest and penalties, but no prosecution.
The IRS can assess a penalty on 50% of the highest balance in the account each year for willful failure to file the FBAR form. Therefore, the penalty can exceed the value in the account if the taxpayer does not file for several years.
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