California Man Admits Hiding Over $1 Million from IRS in Foreign Bank Accounts

Anyone who reads our tax blog on a regular basis knows that foreign account disclosure laws are widely violated by U.S. taxpayers. Some of these violations result from honest misunderstandings of our tax laws, while others, such as those of Los Angeles resident Ben Zion Birman, are willful attempts to evade tax liabilities. By intentionally concealing financial accounts he held with Israeli institution Bank Leumi – accounts whose aggregate value, according to the Department of Justice (DOJ), exceeded $1 million – Birman violated federal tax laws that make foreign account disclosure mandatory for “U.S. persons,” including citizens and resident aliens, if the assets surpass certain value thresholds. If you have a checking, savings, or business account at Bank Leumi, Bank Hapoalim, First International Bank of Israel, or any other Israeli bank, you may be subject to the same reporting laws. U.S. persons must report all sources of offshore income, no matter where the accounts are located – or otherwise, face serious penalties.

L.A. Man Fails to File FBAR, Report Foreign Income in Israeli Bank Accounts

On August 20, 2018, the DOJ issued a press release announcing that, at an appearance in U.S. District Court for the Central District of California, Birman pleaded guilty to charges alleging willful failure to file FinCEN Form 114. This form is more commonly known as the “FBAR,” an acronym for Foreign Bank Account Reporting. Taxpayers may also encounter the phrase “Form TD F 90-22.1,” which is simply an obsolete title for what is now called the FBAR.

Though the FBAR seldom receives the same degree of attention as tax issues like employment taxes or property taxes, there may be millions of U.S. taxpayers who currently have FBAR obligations, with the Internal Revenue Service (IRS) reporting “a record high 1,163,229 FBARs” received by FinCEN as recently as 2015. Unfortunately, not all taxpayers take the initiative to fulfill these obligations – to their own eventual detriment. (As our international FBAR attorneys will discuss momentarily, the government’s FBAR penalties for offshore tax evasion can be severe.)

Birman was one example. According to a press release issued last month, the defendant willfully failed to file an FBAR for 2010 – despite keeping more than $1 million in financial accounts Birman held with Bank Leumi during the period from 2006 to 2011. Though many taxpayers inadvertently fail to file timely FBARs, whether out of confusion or lack of awareness, the nature of Birman’s actions indicate willful conduct in this particular case – what the IRS commonly refers to as “badges of fraud.” For example, the press release noted that Birman specifically “instructed Bank Leumi to hold bank mail from delivery to the United States.” Birman accessed the funds using “back-to-back” loans, which are sometimes associated with tax avoidance and tax evasion.

Though the financial accounts in question date back to 2006, the scheme can be traced to a point as early as 2000: approximately the time Bank Leumi, according to DOJ records, began “conspiring… to aid and assist U.S. taxpayers to prepare and present false tax returns by hiding income and assets in offshore bank accounts in Israel and other locations around the world.” This conspiracy continued until 2011, meaning Bank Leumi’s scheme spanned more than a decade.

As part of a deferred prosecution agreement (DPA), in which the government agrees not to pursue prosecution if the defendant complies with certain terms, penalties for Bank Leumi have already been imposed: a fine of $270 million, with the ongoing expectation that the company will “cooperate with respect to civil and criminal tax investigations.”

The penalties for Birman, who is expected to be sentenced in December 2018, may also include a substantial fine, potentially up to $100,000. (Had the failure to file an FBAR been accidental, the maximum fine would have been one-tenth of that amount: up to $10,000.)

In addition to FBAR fines, Birman will likely be ordered to pay the IRS restitution, which can add thousands (or in some cases, millions) of dollars to a tax defendant’s final bill. Beyond various court fines and IRS payments, Birman also risks a prison sentence of up to five years – which could be supplemented by one or more years of supervised release.

International FBAR and Criminal Tax Defense Lawyers in California

As our criminal tax defense attorneys have often discussed, it is essential for individuals and business entities to comply with foreign income reporting and information disclosure requirements, such as the federal requirement to file an FBAR under the Bank Secrecy Act. FBAR filing requirements are triggered when (1) a U.S. person has authority or control over one or more foreign bank accounts, and (2) the total value of the account or accounts surpassed $10,000 at any time during the year. If this describes your situation, you are required to file an FBAR. For example, you may need to file an FBAR if you served overseas in the U.S. military, hold dual citizenship with the United States, or recently immigrated to the U.S. and have accounts in your country of origin.

At the Tax Law Office of David W. Klasing, FBAR compliance and international tax laws are two of our primary focuses. Our international tax lawyers have decades of experience counseling U.S. citizens, resident aliens, and international business owners on their income reporting duties. We are prepared to provide FBAR audit and criminal tax representation, identify ways to mitigate penalties, evaluate eligibility for foreign tax credits, and provide other tax services for expats, business entities, and other taxpayers. For a reduced-rate consultation about FBAR or related filing requirements, contact our tax firm online, or call the Tax Law Office of David W. Klasing at (800) 681-1295.

Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices San BernardinoSanta BarbaraPanorama CityOxnardSan DiegoBakersfieldSan Jose, San FranciscoOakland  and Sacramento.

Helpful Q and A libraries:

https://klasing-associates.com/topics/ovdi-faq/

https://klasing-associates.com/topics/fbar-compliance-and-disclosure-faq/

https://klasing-associates.com/topics/foreign-audit-faq/

https://klasing-associates.com/topics/international-tax-law-faq/

https://klasing-associates.com/topics/ovdp/