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Three Orange County, California Taxpayers Plead Guilty to Offshore Tax Fraud through Foreign Bank Accounts

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Three Orange County, California Taxpayers Plead Guilty to Offshore Tax Fraud through Foreign Bank Accounts

Three Orange County, California Taxpayers Plead Guilty to Offshore Tax Fraud

At one point in time, wealthy Americans routinely kept their assets in foreign accounts. For previous generations, distributing assets in nations throughout the world seemed to be a common sense hedge against instability in any one nation. For a time, the practices of the IRS and Department of Justice deferred to this worldview and long existing obligations such as the duty to file FBAR were not routinely enforced.

However, following the Great Recession and truly ramping up in 2010 with the passage of FATCA, Congress turned its attention to cracking down on offshore tax evasion. Routine enforcement of FATCA, FBAR, and additional informational reporting obligations now means that it is unreasonable for taxpayers to expect a secret account or accounts to remain undiscovered by the government. The IRS and DOJ can discover concealed foreign accounts through the utilization of information that was beyond its reach even a decade ago. Taxpayers who gamble on concealing income and assets overseas, frequently find that their assets cannot effectively be hidden due to new transparency in the international tax and banking system.

California Taxpayers Stashed Undisclosed Funds in Swiss Bank Accounts

Three family members, Dan Farhad Kalili, of Irvine, California, along with his brother, David Ramin Kalili, and his brother-in-law, David Shahrokh Azarian, who are residents of Newport Coast, California pleaded guilty to federal tax evasion charges stemming from the use of foreign bank accounts.

Starting as early as 1996, Dan and David Kalil opened a number of undeclared Swiss accounts. These accounts were opened at several Swiss banks including UBS and Credit Suisse. David Azarian also opened personal accounts at the Swiss branches of Credit Suisse and UBS. These accounts or successor accounts were generally maintained until roughly 2008 by all parties.

However, in the interim, the parties would engage in steps to conceal their foreign accounts. In July 2006, Dan Kalili came into contact with Beda Singenberger. Singenberger is a Swiss citizen who, through a financial advisory firm Sinco Truehand AG, opened a foreign account for Kalili in the name of “Colsa Foundation.” Through this account and other accounts opened at an unidentified Israeli bank and at  Israel’s Bank Leumi, Dan Kalili attempted to conceal his offshore assets. David Kalili and Azarian engaged in similar behavior intended to conceal their offshore accounts. Each defendant made a partial disclosure of these accounts on their income tax return but failed to satisfy other reporting obligations.

The Taxpayer’s Failures to File FBAR

Taxpayers are generally obligated to disclose foreign accounts through an FBAR filing when the aggregate value of their covered foreign accounts exceeds $10,000. In this matter, each taxpayer had well over $1 million in his foreign accounts. As of December 2009, Dan Kalili’s held about $1.5 million in undeclared funds at an unidentified Israeli bank. In his undeclared account at Bank Leumi, Dan Kalili held assets valued at approximately $2,497,931. Similarly, in December 2009, David Kalili had just under $1.5 million in his undeclared foreign account while Azarian held just under $2 million in foreign accounts.

Due to the three taxpayer’s foreign accounts, each taxpayer had an obligation to file a Report of Foreign Bank Account (FBAR). From 2006 through 2009 an obligation to file FBARs existed. However, the taxpayers willfully failed to file this report each year.

What Penalties will the Taxpayers Face for FBAR Filing Failures?

The taxpayers have yet to face sentencing. Sentencing for their failure to file FBAR is scheduled to be held before U.S. District Judge Andrew J. Guilford of the Central District of California on April 24, 2017. While the exact nature of their penalty is yet to be determined, each defendant faces the potential of a prison sentence of up to five years followed by a supervised release period. Dan Kalili has already agreed to pay a civil penalty of $2,674,329, David Kalili agreed to pay a civil penalty of $1,325,121 and Azarian agreed to pay a civil penalty of $951,607. Additional restitution and other penalties may still apply.

Concerned about FBAR Reporting Failures?

If you are concerned about potential failures to file FBAR, you can face significant penalties. When your conduct is believed to have been willful, a prison sentence is a possibility and offshore penalties can consume much of the wealth held in the foreign account. However, taxpayers who come forward and voluntarily correct their mistakes or overly aggressive tax positions can avoid the harshest penalties. However, if the taxpayer comes under investigation prior to entering into OVDP, the program will not be available.

The tax attorneys of the Tax Law Offices of David W. Klasing can help your correct FBAR and offshore tax mistakes. To schedule a private and reduced rate consultation, please call our Los Angeles or Irvine law offices at 800-681-1295 today.