DOJ Asks for Tougher Offshore Sentences

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Explore:  OVDP

Two important announcements were recently made that should provide further motivation for U.S. taxpayers with undisclosed accounts to come forward. First, according to Reuters “Credit Suisse and Julius Baer are among five Swiss banks which have sought government approval to hand data to U.S. prosecutors in a bid to reach settlements in a long-running tax dispute, four sources familiar with the matter said.” Second, the Department of Justice (DoJ) is urging tougher sentences for those U.S. taxpayers charged with having undisclosed offshore accounts.

The DoJ grounds its rationale in asking for upward sentencing, meaning that it is asking sentencing judges to impose tougher sentences than the Sentencing Guidelines suggest, is that the amount of the tax loss may not be the only important indicator. In its annual report to the U.S. Sentencing Commission the DoJ cites the following example:

“For example, a defendant who willfully fails to disclose an offshore bank account may have unreported income from the account that is relatively small in comparison with the value of the assets hidden, as a result of low rates of return and high fees charged in exchange for the secrecy procured. In such a case, the tax loss table in §2T4.1 may produce an offense level that substantially understates the seriousness of the offense. If so, an upward departure may be warranted.”

U.S. taxpayers who have not disclosed their offshore financial accounts can still come forward under the Offshore Voluntary Disclosure Program (OVDP) and if accepted into the program avoid prosecution. The OVDP requires filing of Reports of Foreign Financial Accounts (FBAR’s) for 2004-2012, on Form TD 90-22.1, and amended income tax returns for the same years. Payment of a civil miscellaneous penalty of for account balances in excess of $75,000 of 27.5% (an FBAR penalty) plus payment of income tax on unreported income, interest on the tax and a 20% accuracy related penalty are also required. The OVDP also requires filing of previously unfilled information returns, like those for Controlled Foreign Corporations, Controlled Foreign Partnerships and gifts from or transfers to offshore trusts. However, the penalties ordinarily assessable for late filing of these information returns are waived. Compare that result to the current position of the DoJ which is if a u.S taxpayer who has unreported offshore accounts is discovered before coming forward, the DoJ will prosecute, and now ask for above Guidelines sentencing and a penalty of 50% of the highest account balance, plus tax, interest and a 75% fraud penalty.

The opportunity to come forward is still open, but the risks of discovery as evidenced by the statements of the Swiss banks is increasing dramatically. A wise move would be to act before it is too late.

 

Topics:  OVDP

Published In: Criminal Law Updates, Finance & Banking Updates, International Trade Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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