Questions? Feedback? powered by Olark live chat software

Man Sentenced for Offshore Tax Evasion for Failing to File FBAR

Pennsylvania Businessman Faces 25 Years for Tax Evasion, Wire Fraud
July 29, 2015
Tax Preparers Face Life Altering Consequences for Fraud
July 31, 2015

Man Sentenced for Offshore Tax Evasion for Failing to File FBAR

In December 2014, Atlanta businessman and entrepreneur Gregg A. Kaminsky pleaded guilty to offshore tax crimes. Specifically, Mr. Kaminsky pleaded guilty to willfully failing to file a Foreign Bank Account Report (FBAR) regarding the income he had accumulated in financial accounts based in Switzerland, Thailand and Hong Kong. Likely drawing from the decision in Hom where online poker accounts and online payment brokerage accounts were found to constitute foreign accounts covered by the Banking Secrecy Act (BSA), Mr. Kaminsky’s failure to report income in the virtual world of Second Life also formed a basis for his conviction. While it has long been public knowledge that Americans have an obligation to report and pay taxes on all income regardless of where it was earned in the world, this matter serves as additional notice that this obligation extends to income earned in virtual worlds.

How did Kaminsky’s Tax Crimes Occur?

Mr. Kaminsky is what most would describe as an internet entrepreneur. He currently works as the Chief Executive Officer of Circlenet LLC. From approximately 200 to 2008, Mr. Kaminsky had control over a foreign financial account with union Bank of Switzerland (UBS). In 2006, the account contained balance of approximately $1.1 million. Fraudulent or suspicious activities undertaken by Mr. Kaminsky regarding the account included:

  • Failure to disclose the existence of the foreign financial account, at any time, to the U.S. Treasury Department. In general US taxpayers with an interest in or signature authority over a foreign financial account containing $10,000 or more at any time in the tax year must disclose the existence of the account.
  • Kaminsky would wire-transfer funds from this account to intermediary accounts based in Thailand and Hong Kong.
  • Kaminsky diverted US-based income from at least 2 companies to the foreign UBS account.
  • Kaminsky failed to include the UBS account and the sources of income being deposited into the account on his 2007 and 2008 FAFSA applications. The more than $500,000 dollars that were contained within the account would have made Mr. Kaminsky financially ineligible for need-based aid.

Mr. Kaminsky also failed to disclose his business activities in the virtual world of Second Life. Kaminsky failed to report nearly $150,000 in taxable income earned through the game to the US government. In all, Kaminsky failed to report roughly $400,000 in taxable income.

Mr. Kaminsky’s evasion scheme began to fall apart in June of 2008. At that time the US Department of Justice (DoJ) requested that the courts compel UBS to disclose the identities of US taxpayers who were utilizing the Swiss bank to evade taxes.  UBS and the US government reached an agreement and UBS began to disclose the identities of US-linked account holders.

Mr. Kaminsky then, ostensibly, attempted to both conceal and correct his past noncompliance with tax reporting, payment and FBAR obligations. After the UBS news became public he closed his accounts with the bank and moved his money to an account with HSBC in Hong Kong. He also filed FBARs for the foreign accounts in Switzerland and Hong Kong for the first time in 2010. Finally, Mr. Kaminsky amended past returns to report the previously undisclosed income that was flowing into the UBS account.

Both because of and despite these actions, Mr. Kaminsky faces serious consequences. As part of his plea deal, he owes a civil fraud penalty of $250,635.20. This amount is equal to fifty percent of the value of the balance the HSBC account during the relevant time period. Mr. Kaminsky has also been sentenced to 4 months in prison, a two year supervised release period, 200 hours of community service, two months of home confinement, and additional restitution of $91,983. However the consequences for Mr. Kaminsky could have been significantly more severe.

What are the consequences for FBAR Disclosure Failures?

Examining only the FBAR consequences, the outcome could have been significantly less favorable for Mr. Kaminsky. For a willful failure to file FBAR – a failure that involves a knowing or voluntary disregard of a known legal duty – penalties can quickly exceed the amounts originally contained within the offshore accounts. A willful violation of FBAR can result in a penalty of the greater of $100,000 or 50% of the account value to be imposed per tax year where the account went unreported. Willful FBAR violations have a 5 year look back period. Meaning that if you have $100,000 in a foreign account, that could mean a $50,000 penalty per year. $50,000 a year for 5 years would equal a $250,000 penalty or 250% of the original account balance.

However, taking corrective action before you come under investigation often results in a more favorable outcome. Taking action early can permit a taxpayer to make an Offshore Voluntary Disclosure which can mitigate much of the civil or criminal consequences.  Delay will only harm your position when you do have to face your tax problems. To discuss how an experienced Tax Attorney and Accountant like David W. Klasing can work to correct your offshore tax problems call 800-681-1295 or contact us online.