In the recent past, we have covered a few stories that dealt with tax preparers that have been investigated and charged with crimes that relate to lying on a client’s tax return about the amount of income that he or she received or the extent to which the taxpayer had a business loss or expense. The IRS takes all instances of tax preparer fraud very seriously, but as you will see in this story, when a tax preparers illegal actions extend overseas, the government wastes no time and spares no muscle in its criminal investigations and prosecutions.
Last week, a Federal District Court Judge sentenced David and Nadav Kalai to a combined 86 months in federal prison for their role in a tax preparation company that hid their clients’ funds in secret overseas accounts. Last winter, a federal jury found that the Kalai father and son duo had committed conspiracy to defraud the Internal Revenue Service and counts related to failing to file a Report of Foreign Bank and Financial Accounts (FBAR). David Kalai was sentenced to serve three years in a federal prison, followed by three years of home confinement. His son, Nadav, was sentenced to serve 50 months in prison and serve three years of supervised, thereafter. Finally, the two were ordered to pay a combined fine of $296,000.
According to a Department of Justice Press Release, the Kalai’s owned and operated United Revenue Service (URS), a business that assisted taxpayers with the filing of their tax returns. URS was based in Newport Beach but also had offices in Costa Mesa and Maryland. Evidence that was presented at trial showed that URS would not only prepare tax returns for clients, but would also help them hide their money in foreign bank accounts. The Department of Justice states that the company would assist customers in the setting up of nominee corporations in Belize that had an interest in bank accounts that were set up through Israeli banks. URS falsely categorized the funds that were leaving the United States and being placed in the Israeli bank accounts as a business loss or expense.
Taxpayers are required to not only tell the truth about how much money they are earning, but are also required to disclose to the government the existence of foreign bank accounts that exceed a certain dollar amount. In fact, federal law requires that those filers that have signature authority or ownership in accounts at foreign financial institution with more than a $10,000 balance disclose it on their personal tax return (Form 1040) and in addition, file a Report of Foreign Bank and Financial Account. The IRS has been heavily cracking down on taxpayers that have taken steps to hide their money overseas, so the vigorous investigation and steep sentences for the Kalai’s are no surprise, considering that URS helped hide millions of client dollars overseas.
When taxpayers find themselves with money overseas in an account that hasn’t yet been declared, many panic. It is very possible that some visit a tax preparer like URS that makes promises that the money will never be found and if it is, the penalty will be a simple slap on the wrist. Many taxpayers that believed those types of pitches now reside in a federal prison. Many later came to realize that the willful failure to file an FBAR to disclose a foreign bank account is a felony and punishable by a lengthy prison sentence and a fine that could equal 50% of the high balance in the hidden foreign account. As you can tell, a tax preparer or other adviser that promises to keep your foreign account a secret for a fee is not the way to go, unless you are seeking an extended stay in a federal penitentiary.
What many taxpayers do not realize is that there are options that involve coming clean with the government about a foreign bank account that hasn’t yet been disclosed without facing all of the negative repercussions that come with being caught red-handed. The Offshore Voluntary Disclosure Program (OVDP) allows taxpayers to come forward and pay a reduced penalty in order to avoid criminal prosecution. But the OVDP is limited to those taxpayers that have not yet been investigated by the IRS. For instance, a taxpayer that has an open investigation or audit against him or her for any reason is not eligible to enter into the OVDP. This reality creates a very real incentive to seek out the advice and assistance of an experienced tax attorney immediately.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience in helping clients determine whether the OVDP is right for them, and if it is, assisting them through the sometimes-complicated process. Much like the father and son from the story detailed above, if the government comes to find out about your offshore activity through their Criminal Investigation Division, they will prosecute you to the fullest extent of the law. In an age where investigations can uncover incriminating evidence overnight, there is no time to lose. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.