According to various media outlets, the Department of Justice have set their sights on a Fort Collins, Colorado family that are suspected of having kept millions of dollars in overseas bank accounts a secret from the U.S. government in violation of federal law.
The Foreign Bank Account Reporting (FBAR) regime requires U.S. residents to report foreign bank accounts that have a balance of $10,000 or more at any point in the year. Willful failure to follow FBAR laws can result in penalties of 50 percent of the high-balance of the account giving rise to the penalty for each year that the account went undisclosed. Additionally, offenders can face a federal prison sentence, supervised release, and additional monetary sanctions.
Prosecutors filed lawsuits against Stephen Brown Sr., Stephen Brown Jr., and Margie Garrigues Brown (Stephen Brown Jr.’s stepmother) alleging that they knowingly failed to report the existence of foreign bank accounts established in their names at Scottish and Swiss banks. The lawsuits demand nearly $2 million in back taxes, interest, and penalties.
According to the lawsuit, Stephen Brown Sr. formed Matrix Investment Corporation in Colorado in 1982. The aluminum company produced T-squares and other precision aluminum instruments. Matrix’s annual sales are well over $4 million. Stephen Brown Jr. owns 43 percent of the company.
In 2003, Stephen Brown Jr. and Sr. formed Beeston Limited in the Isle of Man and in 2004, Stephen Brown Jr. deposited $2 million in a Scottish bank account. The Browns would go on to incorporate other businesses and in 2005, they sold one of those businesses, Rushdene, for a whopping $8 million. After the sale, the entity they sold hired the Browns as consultants and paid them over $600,000.
Shortly after the sale of Rushdene, the entity opened a Swiss bank account in the names of Stephen Brown Sr. and his son. Beeston did the same. In total, deposits to those accounts exceeded $6.8 million, well over the $10,000 FBAR threshold. The U.S. government says that the Browns never told their tax preparer about the bank accounts and thus failed to report their existence on an annual basis.
Tens of thousands of Americans have foreign bank accounts that haven’t been disclosed. This is a big problem for the government. Because Americans are taxed on their worldwide income, federal authorities are incentivized to keep a finger on the pulse of Americans’ foreign economic activities. As the IRS, Department of Justice, and State Department crack down on FBAR violators, those that haven’t been compliant with the FBAR rules are looking for a way out.
The Offshore Voluntary Disclosure Program (OVDP) was established when the government began heavily cracking down on those with undeclared foreign bank accounts. The OVDP allows a person that has an obligation to disclose the existence of a foreign bank account to come forward, disclose the previously undisclosed account, pay any back-taxes, interest, and penalties. In return, the government will not levy a criminal prosecution against the participant.
A significant amount of Americans have taken part in the OVDP over the past several years, but two factors may hinder taking advantage of the OVDP. First, if the government is already looking into a taxpayer’s affairs, an applicant will generally be denied full participation in the program. This incentivizes those who have reason to participate to do so early and not only when the IRS has already caught on to potential criminal behavior. Second and most important, the OVDP is ending soon. According to a press release by the IRS, the OVDP will sunset this September.
Seeking the guidance of an experienced tax defense attorney should be the first action item for anyone who is being targeted or may be targeted in the future by the IRS or a state taxing authority. In addition to having knowledge of technical tax rules and procedures, a tax attorney has an extensive education in and understanding of criminal law and procedure, constitutional law, and the rules of evidence. These skill sets will come in handy when dealing with tax authorities and the Department of Justice, should they become involved.
The accounting and tax professionals at the Tax Law Offices of David W. Klasing have extensive experience in assisting taxpayers come into conformity with federal and state tax laws. Whether you are a business owner with a desire to comply with federal employment tax laws or whether you have undeclared offshore bank accounts that need to be disclosed, our team of zealous advocates is ready to help formulate a strategy that will aim to minimize the negative consequences that come along with tax noncompliance. Don’t lose sleep over tax trouble. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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