In line with our recent coverage of the Internal Revenue Service’s initiatives to pursue illegal offshore tax havens, on May 16, 2013 a Florida couple – Drs. David Leon Fredrick and Patricia Lynn Hough – was indicted by a federal grand jury in Fort Myers, FL for conspiring to defraud the IRS. A U.S. Department of Justice press release on the indictment can be found here. Our recent coverage of the IRS’s recent efforts to pursue offshore tax evasion, including IRS’s John Doe Summons to Wells Fargo seeking information about the First Caribbean International Bank, may be reviewed here, here, here, and here.
According to the Department of Justice, the couple, both of whom work as physicians in the Sarasota area, conspired with a Swiss citizen currently under indictment in the Southern District of New York, and a banker from the United Bank of Switzerland (“UBS”) to defraud the IRS. The indictment goes on to describe that the couple used nominee entities and undeclared bank accounts in their names and the names of the nominee entities at several foreign banks, including UBS, for the purposes of illegal tax evasion. It is further alleged that the couples’ assets and income, including proceeds from real estate sales for more than $33 million, were deposited into undeclared foreign bank accounts. The Department of Justice claims the couple instructed Swiss bankers via email, telephone, and in-person meetings to make investments and funds transfers to undeclared accounts at UBS. Those undeclared funds were then allegedly used to purchase an airplane, several homes in North Carolina, a Florida condominium, and funds transfers of over $1 million to relatives.
The couple was additionally charged with falsifying tax returns between 2005 and 2008 by substantially underestimating their income and failing to report their foreign accounts. A trial date has yet to be set, but the charges carry the possibility of imprisonment for up to five years for the conspiracy charges and three years for each false tax return filing. The charges also carry penalties of $250,000 for each count.
This indictment offers a real world example of the severe consequences that U.S. taxpayers can face for the non-disclosure of foreign accounts to the IRS. Individuals who believe that they may be in violation of foreign account disclosure requirements under United States tax law should take a moment to read our discussion regarding the mitigation of possible criminal culpability, penalties, and fines under the IRS’s Offshore Voluntary Disclosure Program (“ODVP”) which can be found in Part II of our discussion of the IRS’s initiatives to curb offshore tax evasion in the Caribbean.
Furthermore, as noted in the Department of Justice’s press release, U.S. citizens, resident aliens, and legal permanent residents alike should be aware of their obligations to report their financial interest in, or signatory authority over, a foreign account in a particular year on Schedule B of the U.S. Individual Tax Return, Form 1040, when filing their tax returns.
This issue is a critical one for U.S. taxpayers holding foreign accounts, as well as the professionals advising them. The IRS is continuing to ensure that offshore tax evasion is eradicated and, based on recent history, it appears to have no intentions of leaving any stone unturned.
The attorneys at Fuerst, Ittleman, David & Joseph have extensive experience working with taxpayers who have undisclosed foreign bank accounts and have availed themselves of the IRS’s voluntary disclosure program. We also have considerable experience litigating against the Department of Justice and the IRS in civil and criminal tax matters. We will continue to monitor the development of this issue, and we will update this blog with relevant information as this issue continues to develop. You can reach an attorney by calling us at 305-350-5690 or emailing us at email@example.com.