A former U.S. citizen pleaded guilty to one count of filing a false income tax return. While the sums in this matter were large, they were not particularly exceptional in the world of offshore accounts and tax evasion. Rather, this matter is particularly interesting – and frightening for those who have yet to disclose – due to the lengths the convicted taxpayer went to conceal his accounts. The taxpayer used multiple accounts in multiple nations and even went so far as to renounce his U.S. citizenship. And yet, despite these efforts, the IRS and DOJ were able to identify the undisclosed funds and convict the taxpayer.
For taxpayers who have yet to disclose their offshore accounts, the window of opportunity is closing. The information garnered through the Swiss Bank Program’s Category 1 banks, FATCA agreements, and other ongoing investigations has significantly increased the reach of the IRS and DOJ. If you have yet to be contacted about undisclosed foreign accounts or assets, the time to protect yourself from criminal prosecution through OVDP is now.
Steps the Taxpayer Took to Conceal His Foreign Assets
In 2006, the taxpayer, Albert Cambata, opened an account at a Swiss bank. The account was not opened in his name, but rather in the name of a Hong Kong corporation, Dragonflyer Ltd. Mr. Cambata was not identified in the corporate documents, but he was identified as a beneficial owner in certain bank documents. Later in 2006, Dragonflyer received a $12 million payment that originated from a Panamanian corporation that was passed through an intermediary Belizean holding company. The money was held in the Swiss Dragonflyer account. In 2007 and in 2008, Mr. Cambata failed to report the interest income derived from the funds held in the Swiss account.
Thereafter in April 2008, he requested for his Swiss attorney to move €5 million in funds from the Swiss bank, whose identity has not been disclosed, to an account at another undisclosed Swiss bank branch in Monaco. In 2008, the Dragonflyer account at the first bank was closed. The funds were transferred to a Singapore branch of yet another Swiss Bank.
Despite these actions, Mr. Cambata was still identified and he still faced prosecution. Takeaways from his guilty plea include:
- The Swiss Bank Program, category 1 Swiss banks, and the John and Jane Doe summons process is providing the IRS and DOJ with significant amounts of information. Furthermore, the information sharing agreements with other nations under FATCA means the IRS and DOJ can now operate globally.
- The single charge for false tax returns in 2007and 2008 raises the possibility that the DOJ is pursuing criminal charges despite possible compliance with reporting laws in subsequent years.
- The normal six year statute of limitations on tax crimes is tolled when the taxpayer is “outside of the United States.”
- The prosecution — in light of the complex transactions used in a number of nations to conceal the funds and assets the IRS and DOJ are putting taxpayers on notice of its worldwide ability to track funds.
Furthermore, this prosecution puts international taxpayers on notice that becoming an expatriate and renouncing one’s citizenship will not provide protection.
Renouncing U.S. Citizenship Does Not Immunize Individuals from Past Criminality
After living in Switzerland for five year (2007 to 2012), Mr. Cambata traveled to the U.S. Embassy in Bratislava, Slovakia and renounced his U.S. citizenship. He stated that he had acquired citizenship in St. Kitts and Nevis by virtue of naturalization. Typically the process to renounce one’s citizenship is complex, but one factor to keep in mind is payment of an expatriation tax or emigration tax which is also referred to as an exit tax. Covered renouncing individuals are subject to the mark-to-market tax accounting method on the basis of as if they had sold their worldwide assets on the date prior to the expatriation date. The amount taxed is subject to exclusions that are adjusted yearly on the basis of inflation.
However, while renouncing one’s citizenship may, depending on the individual’s business activities, extinguish future tax obligations, it does not extinguish tax obligations already incurred. Furthermore, the renouncement of citizenship does not extinguish or shield the individual from criminal prosecution for offshore tax evasion or other forms of criminality. For individuals who renounced their U.S. citizenship in the belief that it would serve as a defense to past acts, this is an incorrect assumption and one should consult with a tax attorney regarding their continued potential exposure.
Rely on an Experienced Tax Attorney When Facing Offshore Tax Concerns
If you have failed to disclose foreign accounts, Acting Assistant Attorney General Ciraolo has stated that:
U.S. taxpayers have been given ample opportunity to come forward, disclose their secret foreign accounts, and come into compliance. Those individuals and entities who rolled the dice in the hope of remaining anonymous are facing the consequences.
If you have failed to achieve compliance, the window to use OVDP to fix your undisclosed accounts may soon be closing. To discuss the options you may have to avoid prosecution call the Tax Law Offices of David W. Klasing at 800-681-1295 today to schedule a reduced-rate, confidential consultation.
