For many years, Marc Mani enjoyed a successful career as a leading plastic surgeon in Beverly Hills, at one point earning national recognition in Forbes Magazine. However, Mani’s professional achievements did not prevent his arrest, prosecution, and ultimately, sentencing for tax crimes. Despite earning more than $1 million while working in Dubai over a three-year period, Mani failed to report the income – and the bank accounts which contained it – to the Internal Revenue Service (IRS). When done willfully, this constitutes a criminal violation of the Bank Secrecy Act, which, with some exceptions, requires U.S. citizens and resident aliens to disclose offshore bank accounts by filing an FBAR (i.e. FinCEN Form 114). Mani, who pleaded guilty in July 2017 to failing to file an FBAR, was sentenced earlier this month to one year in federal prison. This story is especially timely now that the IRS is on the cusp of ending its long-running Offshore Voluntary Disclosure Program (OVDP) – which, in the past, helped thousands of taxpayers like Mani avoid FBAR-related prosecution.
Though his legal troubles did not begin until 2017, the acts which preceded them dated back to 2011, the first of three consecutive years in which Mani traveled to the United Arab Emirates to perform medical work in Dubai. During his time in the U.A.E., Mani “earned nearly $1.3 million,” according to a press release issued last year by the Department of Justice (DOJ). While there is nothing illegal about earning income in a foreign country, serious issues arise when the taxpayer fails to disclose such income – a mandatory legal requirement, under the BSA, for all U.S. taxpayers who have an interest in or signature authority over a foreign bank account.
Of course, there are several exceptions to this general rule. For instance, the beneficiaries or owners of domestic IRAs are generally exempt from the BSA’s FBAR filing requirement, as are nostro or correspondent accounts. Moreover, FBAR filing requirements are not triggered until the value of the account or accounts surpasses, even briefly, $10,000 in aggregate.
However, none of these exceptions were applicable to Mani, whose accounts in Dubai contained over $400,000 as of February 2013 – 40 times the minimum amount needed to trigger FBAR obligations. Here it is worth noting that Mani’s $400,000 account also far exceeded the $50,000 reporting threshold under the Foreign Account Tax Compliance Act, or FATCA, a similar tax law which requires U.S. taxpayers with offshore income to file Form 8938 (Statement of Specified Foreign Financial Assets) in addition to submitting an FBAR online.
Mani was repeatedly cautioned against concealing income by his accountant, who was, like any competent tax professional, aware of the FBAR requirement – which happens to be aggressively enforced by the IRS and aptly-named Financial Crimes Enforcement Network (FinCEN). Nonetheless, Mani decided to proceed with the scheme, willfully failing to file an FBAR for the 2013 tax year. He also failed to indicate more than $1.2 million of offshore income made in Dubai on his 2012, 2013, and 2014 federal income tax returns.
Appearing before United States District Judge R. Gary Klausner in September 2018, Mani – whose offense was described by Assistant U.S. Attorney James Hughes as “a particularly brazen tax crime” – said the experience “shakes me to the core and I know I will be atoning for this crime for the rest of my life.” From a sentencing standpoint, Mani “will be atoning” for one year and one day: the length of the prison term he has been ordered to serve. In addition, Mani has already paid IRS restitution in excess of $500,000.
From 2009 to 2018, the IRS operated a program variously known as the “Offshore Voluntary Disclosure Program” (OVDP) or “Offshore Voluntary Disclosure Initiative” (OVDI). The purpose of this program was to curb offshore tax evasion, offering mitigated penalties to taxpayers who were willing to come forward about their assets and bank accounts overseas. One of the prime benefits of participating in the OVDP was that it could protect the taxpayer from criminal prosecution, or at least substantially cut the risk.
Unfortunately for an untold number of taxpayers, the IRS – citing both “a significant decline in the number of taxpayers participating” and “an increase in awareness of offshore tax and reporting obligations” – has decided to officially end the OVDP, as our international tax attorneys have written about on several occasions. While various alternatives may remain open to qualifying taxpayers, the demise of the OVDP means that strict FBAR compliance is now more important than ever before.
If you have questions about FBAR reporting, FBAR penalties, an upcoming FBAR audit, or other matters related to foreign income and bank accounts, be sure to discuss your tax issue with an experienced FBAR tax lawyer as soon as possible – before you find yourself in a situation like Mani’s. For a reduced-rate consultation with the criminal tax defense attorneys at the Tax Law Office of David W. Klasing, contact us online, or call (800) 681-1295 today.
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 Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland and Sacramento.
Helpful Q and A libraries: