In recent years, the IRS has come under fire from some prominent critics in Congress about the fact that the agency seems to have disproportionately been targeting low-income taxpayers for audits and criminal tax investigations while letting wealthier Americans get away with tax crimes that cost the agency exponentially much more money. As a result, the agency has doubled down in the last few years in its efforts to crack down on tax fraud by the wealthiest Americans, announcing a program aimed at auditing those in the highest income brackets and doubling down on its commitment to the “Wealth Squad” unit.
Recent articles have indicated that IRS criminal tax investigations into the activity of two prominent billionaires, Robert Smith, and Robert T. Brockman, are in the late stages, and indictments could soon be brought. Our skilled dual licensed Tax Lawyers and CPAs at the Tax Law Offices of David W. Klasing have been following these developments and what they might mean for other billionaires or high net worth individuals who have been filing fraudulent or incomplete tax returns, especially those related to foreign or offshore assets or bank accounts.
Robert Smith may be best known as the African-American billionaire who announced during his 2019 commencement speech at Morehouse, a prominent HBCU, that he would be paying off the loans of the entire graduating class. According to a new in-depth report by Bloomberg Law, this major philanthropic gesture happened at the same time that Smith was being targeted in a years-long IRS criminal tax investigation into his apparent failure to report over $200 million in taxable foreign income that he moved through a series of offshore structures and institutions before it ended up deposited in a bank account for one of his charitable foundations.
Robert Brockman, meanwhile, is a Texas businessman and major Republican donor, who, as per the same Bloomberg Law article, is also under IRS criminal tax investigation. This unlikely duo became intertwined when Brockman convinced Smith, then at Goldman Sachs, to launch his own firm, Vista Equity Partners, and buoyed its early successes with a $1 billion-dollar commitment from an entity held by a charitable trust in Bermuda, of which Brockman was the beneficiary. The two worked together on several large financial investments and projects over the years, including Smith’s Vista providing Brockman’s equity financing for a buyout of one of their biggest rivals.
As noted above, the crux of the IRS’s at-least 4-year-old criminal investigation into Smith is an attempt to figure out whether Smith was actually the beneficial owner of Caribbean entities that received the $200 million in proceeds from his company’s first private equity fund. If so, he would have been required to report this amount on his FBAR, the form that individuals with a certain amount of money in offshore bank and financial accounts are required to file as part of their tax return with the IRS each year. FBAR violations could come with major civil penalties as well as the potential of jail time if the violation was willful. Smith and his legal team are said to be working to convince the Justice Department to forgo criminal tax charges and resolve his case with a civil settlement, but it is unclear if this IRS will be willing to do so.
One interesting tidbit of information from the Bloomberg Law report caught the eye of a tax law blogger. He notes in his blog that Smith is said in the article to have become concerned after his wife filed for divorce in 2013 about scrutiny into his tax returns as lawyers on both sides of the divorce pored over the family finances. In 2014, Smith is alleged to have approached the IRS to try to get back into compliance through the agency’s Offshore Voluntary Disclosure Program, or OVDP, which has helped thousands of Americans get back into compliance by voluntarily disclosing their past failures to file complete and accurate FBAR in exchange for a near-certain pass on criminal tax prosecution. The IRS supposedly rejected Smith, potentially because he was already on their radar. This is a critical reminder to those with potential FBAR issues seeking to use voluntary disclosure to get back into compliance that you must do so before the IRS begins an audit or criminal tax investigation into your conduct, not once one has already begun. At this point, the agency will usually reject your application as it did with Smith’s.
Meanwhile, the IRS has also been pursuing Robert Brockman in a separate, but intertwined, tax case regarding as much as $1.5 billion in revenue concealed from the IRS through offshore holdings. The IRS has allegedly empaneled several grand juries, applied for and been granted search warrants of Brockman’s lawyer’s home in Bermuda, and granted immunity to the former lawyer who has agreed to testify against him. In a sign that the Brockman and Smith cases are considered linked, both cases are said to be being handled by a veteran Tax Division prosecutor, Corey Smith. Reportedly, because the case against Brockman is even larger than the one against Robert Smith, prosecutors are attempting to work out a deal where Smith turns into a cooperating witness against Brockman in exchange for leniency.
The IRS is pursuing more audits and criminal tax investigations against billionaires and other high-income earners than ever. The reporting on the Smith case also makes it clear that the IRS is willing to turn down attempts from such billionaires who have failed to properly report offshore accounts and assets on their FBAR to get back into compliance if they do not come forward before the agency has already started looking into their issues. As such, if you are a wealthy individual who has filed false or incomplete FBARs in past years, you should get in contact with an experienced tax attorney like those at the Tax Law Offices of David W. Klasing as soon as possible to try to remedy the situation before it goes from bad to worse. Call our office today at (800) 681-1295 to set up a consultation.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed returns coupled with affirmative evasion of payment) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
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