A recent Forfeiture Case was brought against a taxpayer who was hiding financial assets (almost $4.6 M) from his soon to be ex-spouse. The case, US v. $4,656,085 (http://goo.gl/7b64A) illustrates how bad divorce planning (asset protection) can lead to worst case outcomes. The taxpayer husband made an effort to hide substantial sums of money in offshore accounts through a variety of structures, including nominee corporations.
The taxpayer’s intermediary, (the person who arranged the structures) is alleged to have been a confidential informant working for the U.S. government.
The taxpayer was repeatedly advised or reminded of his obligation to file a Report of Foreign Bank Account (FBAR) by the confidential informant but refused to do so. He was apparentntly more concerned about the potential discovery of the funds by his soon to be ex-spouse than he was about the civil and criminal consequences of his actions. The result of his seemingly deliberate conduct was the seizure of the funds, and the filing of a Forfeiture complaint by the U.S. What is most ironic, is that the ex-wife has an opportunity to file a claim to the funds in the Forfeiture action. She could end up with the money after all and the taxpayer left without funds, and facing civil and criminal penalties, including charges of tax evasion, money laundering and conspiracy.
How could this all have been avoided? First, (and most obviously) the taxpayer could have come clean about the funds and made a proper disclosure in the divorce proceedings. Second, he should have filed an FBAR for each year each of the offshore accounts was open and had $10,000 or more. For the nominees corporations, other returns may also have been needed as well. For year 2011 he would have to file a Statement of Specified Foreign Financial Assets (Form 8938) with his income tax return if the accounts had $50,000 at year end or $100,000 at any point during the calendar year 2011. Third, his advisers (including his lawyer) may wish that the did a more comprehensive interview and determined a disclosure strategy, including whether he should have made a Voluntary Disclosure. It is unclear whether the taxpayer had U.S. based professional advise in establishing the offshore strategy. Fourth, his statements and documents delivered to his tax preparer will be subject to discovery by the US in the civil and criminal cases (there is no tax preparer privilege in the criminal case).
The lesson for other divorcing taxpayers, is that hiding assets offshore or through offshore structures, in anticipation or as a result of a divorce is a highly risky bet and the odds are overwhelmingly in favor of the house (the IRS).
Tags: Assept protection; divorce; FBAR; Money laundering; tax evasion; offshore account; voluntary disclosure, Forfeiture