Paul Manafort, 68, is a veteran political consultant best known for his role managing Donald Trump’s presidential campaign from June through August of 2016. In October 2017, Manafort was charged with money laundering and tax fraud in connection with undisclosed offshore financial accounts and shell companies. Though Manafort denied the charges, pleading not guilty to all 12 counts of the indictment when he appeared in court in Washington D.C. following an FBI raid of his home, the allegations should sound a clear warning to all taxpayers who have financial interests in offshore accounts. Whether the country in question is Cyprus, Switzerland, Ecuador, or elsewhere, the federal government can impose severe penalties for non-disclosure of foreign bank and financial accounts, regardless of whether the foreign nation is traditionally considered a tax haven. In some cases, there can even be criminal consequences where foreign taxable investment or business income is also nonreported for tax purposes associated with the foreign account.
For those in need of a quick refresher on criminal law terminology, an “indictment” is simply a formal criminal charge. When a person is “indicted,” it means they have been accused of committing a crime. (Contrary to popular belief, private individuals may not “press charges,” as the determination to file charges lies solely at the discretion of the prosecutor.)
Though the indictment is only an accusation – not a trial or conviction – the defendant may opt to enter a guilty plea during the next step of the process, which is called “arraignment” (or, alternately, the defendant’s “initial hearing”). If, like Manafort, the defendant pleads not guilty at his or her arraignment, the case continues through the complex federal criminal justice process, which you can read about in detail here.
It would be inaccurate to suggest that Manafort has, at this early stage, been proven guilty of any tax crimes. However, regardless of the case’s ultimate outcome, the indictment alone should be a sobering reminder for any taxpayer who fails to file an FBAR: a serious Tax Code violation, which accounts for seven of the 12 charges against Manafort. But what is FBAR? What does it have to do with offshore accounts? And who is at risk of finding themselves in a situation like Manafort’s?
The acronym “FBAR” refers to “Report of Foreign Bank and Financial Accounts” – alternately, “Foreign Bank Account Reporting.” As the name suggests, taxpayers use the FBAR – and its supporting tax forms, such as Form 1040 (U.S. Individual Income Tax Return), Schedule B (Interest and Ordinary Dividends), Part III (Foreign Accounts and Trusts) – to disclose offshore income and assets, including bank accounts and real property. You are required to file an FBAR, which must be done electronically by submitting FinCEN Form 114 online, if both of the following statements describe you:
Failure to file an FBAR may result in civil and/or criminal FBAR penalties, depending on the context in which the alleged violation occurred – specifically, the taxpayer’s intent. Manafort is facing criminal penalties because the government alleges that he “willfully,” or intentionally, failed to file, as suggested by the following portion of the indictment:
“For instance, on October 4, 2011, Manafort’s tax preparer asked Manafort in writing: ‘At any time during 2010, did you [or your wife or children] have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account or other financial account?’ On the same day, Manafort falsely responded ‘No.’ Manafort responded the same way as recently as October 3, 2016, when Manafort’s tax preparer again emailed the question in connection with the preparation of Manafort’s tax return: ‘Foreign bank accounts etc.?’ Manafort responded on or about the same day: ‘None.’”
Generally speaking, willful tax violations are subject to harsher consequences than careless or accidental (“negligent”) violations. Negligent or non-willful violations may expose taxpayers to civil penalties, which – though often tremendously costly – do not threaten the taxpayer with incarceration.
The international tax lawyers at the Tax Law Office of David W. Klasing have years of legal experience representing clients charged with tax evasion, willful failure to file an FBAR, willful failure to file a tax return, filing a fraudulent tax return, failure to keep records, and related misdemeanor and felony tax offenses. Whether you require an aggressive tax defense attorney because you have been charged with a crime or are under IRS investigation, or you need guidance from an OVDP attorney about making a voluntary disclosure, it is in your best interests to consult with an experienced Attorney-CPA as soon as possible. The longer you wait to begin exploring your legal options, the fewer strategies will remain viable. For example, you will be barred from participating in the OVDP once the IRS has begun to audit or investigate you.
Do not wait to take action to protect yourself. If you have any concerns about unreported foreign income, unfiled tax returns, or other violations of domestic or international tax law, contact the Tax Law Office of David W. Klasing online, or call us today at (800) 681-1295 for a reduced-rate consultation concerning the international tax defense services we provide.
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Foreign income and information non-compliance
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