The IRS FBAR audits and prosecutions have begun and the clock is ticking for those who have yet to come into full FBAR compliance with the IRS. A Connecticut man recently plead guilty to the offshore scheme he used to conceal income from the IRS. The man, a duty-free importer of alcohol and cigarettes, created a series of what he believed to be “unconnected” accounts and corporations in an attempt to secret assets and cash from the IRS. This case is a direct example of the IRS’ new ability to “connect the dots” and track individuals and offshore funds.
The man created a Panamanian corporation and used it to open an unreported bank account in Panama. The man used the Panama based corporation to buy and sell duty-free alcohol and cigarettes. He would ship the alcohol to a bonded warehouse in Ft. Lauderdale, Florida. He would ship the chinese cigarettes through a bonded warehouse in North Bergen, New Jersey. From 2006 to 2012 the man directed that his $1.6 million in profits be directed to the unreported bank account in Panama. He would then repatriate the money to purchase goods and services here in the United States.
The man failed to file FBARs for the years in question, avoiding $521,986 in taxes to the IRS. At the end of September, the man agreed to file updated and accurate tax returns for the years in question, pay all of those back taxes as well as an additional FBAR related penalty of $854,456 in an attempt to soften the prison sentence he faces at his hearing in January 2017. “Concealing income and assets offshore is not tax planning,” said Special Agent in Charge Jonathan D. Larsen of IRS-Criminal Investigation, Newark Field Office. “Plain and simple, this is international tax fraud.”
The IRS has the ability to track international bank accounts, foreign trusts, foreign corporations and the movement of money, goods and services around the world and connect the dots back to an individual US taxpayer. The man in this case, Saul Hyatt, faces a sentence of up to five years in prison, as well as a term of supervised release and additional financial costs and penalties.
What is the lesson we can draw from Mr. Hyatt’s experiences?
The IRS FBAR audits and prosecutions have begun and the IRS expects hundreds of thousands of US taxpayers may face draconian penalties and the genuine risk of criminal prosecution. You will not be able to hide behind a complex series of offshore trusts and corporations, spreading transactions through different companies located in different US states and hidden offshore bank accounts. If the IRS was able to connect the dots on Mr. Hyatt’s case, how easily do you think they will be able to find your offshore activities?
Had Mr. Hyatt considered the OVDP he would have in all likelihood paid the $521,986 in back taxes and a 27.5% FBAR penalty of approximately $432,000. He would have retained the rest of the $1.6 million and avoided criminal tax evasion prosecution.
While these numbers may or may not seem high to you, the math will still be the same in your case. The IRS doesn’t care if you have $1 million or $100,000 in unreported offshore activity – they will track it back to you personally and the price will be high.
Unfortunately IRS FBAR audits and prosecutions have begun in earnest. Protect yourself. We invite you to contact the experienced FBAR and international tax attorneys at Allen Barron or a free consultation at 866-631-3470. Ask about the protection of the attorney-client privilege and how we can help you to avoid Mr. Hyatt’s fate.