Yesterday, the Department of Justice announced that Ashvin Desai was sentenced to six months in federal prison and six months and one day of home confinement. This sentence was doled out even after, according to Desai, the IRS sought collection of a $14,229,744 penalty against him! Desai is a recent example of how the IRS has expanded its reach overseas to bring tax evaders to justice and collect taxes on hidden offshore income generating assets.
Ashvin Desai owns a medical device company that services urological and gynecological medical professions. In October of 2013, Desai was convicted for failing to report his family’s foreign bank accounts on income tax returns and failing to file a Report of Foreign Bank and Financial Accounts (FBAR) for tax years 2007-2009. He failed to disclose accounts that he held in Dubai and India both under his name and the names of family members. Tax attorney David W. Klasing says that although these countries are not “traditional” tax havens, we should expect to see more prosecutions coming as a result of funds being held in Asia and the Middle East. He explains that Congress implemented the Foreign Account Tax Compliance Act (FATCA) to “encourage” foreign banks and countries disclose U.S. taxpayers with overseas accounts by having U.S. banks withhold 30% of all payments to institutions that fail to comply with FATCA standards. “With nearly 100 countries agreeing to comply with FATCA, we’re going to start seeing people prosecuted for failure to disclose accounts in a variety of different countries.”
Failure to disclose only made up a portion of Desai’s errors. Desai also failed to disclose $1.2 million in interest income from his overseas accounts. Furthermore, he funneled funds directly overseas by having customers wire funds directly overseas, at times directing up to $1.1 million per year into his offshore accounts while he only reported $115,810.91 on his U.S. income tax return. Klasing explains that Desai manifested several signs of intentional failure to file an FBAR. “The court harped on the fact that he did not want his Indian bank statements to be sent to his home address. This is just one thing that courts have found to be indicative of willful non-disclosure of foreign accounts.”
In light of FATCA and the wide agreement among foreign countries to disclose foreign account holders to the IRS, Klasing recommends that U.S. taxpayers with overseas account seek counsel of a qualified criminal tax defense attorney. Recent changes in tax law have made the process of coming clean and avoiding prison time increasingly difficult to navigate. At The Tax Law Offices of David W. Klasing, we have all of the accounting, planning and compliance capabilities of a traditional CPA firm but operate as a Tax Law Firm. Our Tax Attorneys and CPA’s can help you bring yourself back into tax and foreign information reporting compliance so that you do not serve time in prison and also strive to reduce the financial aspects of doing so.