According to a press release by the Department of Justice, Masud Sarshar, a Los Angeles businessman was sentenced to 24 months in a federal prison for failing to comply with Foreign Bank Account Reporting laws. Sarshar allegedly hid nearly $24 million in Israeli bank accounts. Court documents read much like a script from a spy movie as Sarshar and his bankers took elaborate precautions to ensure that his illegal behavior would go undetected. But, it turned out that even the most thought-out scheme was discovered and Sarshar will have 24 months to figure out where his plan went wrong.
According to court documents, Sarshar maintained foreign bank accounts at Bank Leumi and at least two other Israeli banks. U.S. Foreign Bank Account Reporting (FBAR) laws require that U.S. residents with accounts at financial institutions outside of the United States with a high-balance of at least $10,000 report the existence of such accounts on an annual basis. The willful failure to comply with FBAR laws can lead to substantial prison sentences and hefty fines (of up to half of the high-balance of the undeclared account for each year of violation).
Akin to a James Bond film, Israeli bankers, known as “relationship managers”, flew to Los Angeles to meet with Sarshar. In order to avoid the discovery of certain financial records, Sarshar’s bank statements were not mailed to his home in the United States, but instead were transported via USB drive around the neck of one of the Israeli relationship managers. Further, meetings with Israeli bankers were typically conducted in Sarshar’s automobile. While meeting in Sarshar’s car, relationship managers pitched Israeli bank products that allowed Sarshar to bring back to the U.S. $19 million of his overseas assets without creating a paper trail. Lastly, Sarshar collected approximately $2.5 million in interest from his foreign bank accounts without paying any federal income tax in the United States.
In addition to spending two years in a federal prison, Sarshar will also serve three years of supervised release. In addition to interest and penalties, Sarshar will be required to pay $8.3 million in restitution to the IRS. Lastly, Sarshar agreed to pay an $18.2 million FBAR penalty for failing to declare the existence of his accounts, as required by U.S. law.
If you have a foreign bank account that has not yet been declared, it is in your best interest to contact an experienced tax attorney as soon as possible. The Foreign Account Tax Compliance Act (FATCA) has banks around the world lining up to share incriminating account information with the IRS. Through the Information Data Exchange Services (IDES), identifying information about U.S.-owned bank accounts will flow directly into the mailbox of the IRS and their Criminal Investigations Division.
The Offshore Voluntary Disclosure Program (OVDP) allows qualifying U.S. residents who are accepted into the program to avoid criminal prosecution for failing to disclose the existence of a foreign bank account. The OVDP allows a taxpayer to provide the IRS with extensive records relating to their foreign bank accounts, pay any back-taxes and interest, and pay a penalty in exchange for a deferred-prosecution agreement from the government. It should be noted that the OVDP may not provide protection to those who are already being investigated by the IRS for any tax matter. Thus, time is of the essence to seek admittance to the program before your foreign bank turns you in.
The OVDP is not right for all non-compliant residents. Meeting with an experienced FBAR attorney will ensure that all potential options are considered and a solid legal strategy is implemented. Unlike other tax professionals, a tax attorney can provide you with legal advice related to criminal procedure and Constitutional law as they relate to IRS investigations.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have assisted a plethora of taxpayers in their endeavors to come into compliance with FBAR laws. The Department of Justice and the IRS have made it clear that they will not stand idly by while U.S. residents hide money overseas. Do not lose any more sleep over the possibility of being hauled off to a federal prison for failure to disclose your foreign bank account. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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