On May 9, 2014, a Florida doctor was sentenced to serve two years in prison and three years supervised release for conspiring to defraud the Internal Revenue Service (IRS). The doctor was found guilty of concealing millions of dollars in assets and income in offshore bank accounts at UBS and other non-U.S. banks, and of filing false individual income tax returns which failed to report the existence of those non-U.S. accounts or the income earned in those accounts.
The doctor was also ordered to pay $15,518,382 in restitution and $42,732.27 for the costs of prosecution. She was convicted by a jury on October 24, 2013.
According to court documents, the doctor and her husband conspired to defraud the IRS. They carried out the conspiracy by creating and using nominee entities, including a foundation, and by using undeclared accounts in their names and the names of nominee entities at UBS and other non-U.S. banks to conceal assets and income from the IRS.
More than $35 million was deposited into undeclared accounts in the names of the nominee entities. In total, between 2003 and 2008, the doctor and her husband failed to pay more than $15 million in taxes.
It was established that the doctor and her husband used emails, telephone calls, and in-person meetings to instruct Swiss bankers and asset managers to make investments and transfer funds from their undeclared accounts at UBS to accounts in the name of the nominee entities.
The doctor was also convicted of three counts of filing false tax returns. Her tax returns substantially understated her total income. In addition, the doctor failed to report that she had an interest in, signature authority or power of attorney over, bank, securities or other financial accounts located in foreign countries.
U.S. citizens who have an interest (directly, indirectly or beneficially) in, signature authority or power of authority over, a financial account in a foreign country with assets in excess of $10,000 aggregate are required to disclose the existence of such accounts on Schedule B, Part III, of their individual income tax returns. Additionally, U.S. citizens must file a FinCen Form 114, Report of Foreign Bank and Financial Accounts (FBAR), with the U.S. Treasury disclosing any financial account in a foreign country with assets in excess of $10,000 aggregate which they have a financial interest, or over which they have signature authority or other authority. Please click here to read our previous Practice Update on 2013 FBAR reporting requirements.
In addition to the FBAR, certain U.S. taxpayers holding specified foreign financial assets with an aggregate value exceeding $50,000 must report information about those assets on Form 8938, Statement of Specified Foreign Financial Assets, which must be attached to the taxpayer's annual income tax return. Higher asset thresholds apply to U.S. taxpayers who file a joint tax return or who reside abroad. If a taxpayer filed their income tax return and did not attach a required Form 8938, the income tax return will not be deemed "complete." Please click here to view the most recent Form 8938, "Statement of Specified Foreign Financial Assets," and click here to read our previous Practice Update on Form 8938.
If the taxpayer is required to file a Form 8938, be aware that other IRS forms, such as Form 3520, Form 3520-A, Form 5471, Form 8621, Form 8865, or Form 8891 may also be required.
Due to the overwhelming legal issues and penalties, we highly recommend that all U.S. citizens or residents holding any assets offshore seek proper legal advice to determine if they now possess or in the past possessed an FBAR, Form 8938, or other filing obligation.