On this tax law blog, we frequently discuss how taxpayers come to believe that their actions are beyond reproach or suspicion. Generally, individuals who are high-achievers or who have developed a particularly close relationship with a community may come to believe that others will never suspect them of committing illegal actions. They may further reason that even if someone did detect an inkling of impropriety, they would be willing to overlook the action due to the individual’s charitable or humanitarian works.
Unfortunately, taxpayers who make this type of assumption are frequently shown to be mistaken as events unfold. Time and time again, their reputation and social standing do not provide the extent or level of protection they assumed. Auditors and prosecutors merely follow the money trail to any illegal acts. One’s activities as a former professor or as a successful businessperson will not protect you from criminal tax charges. Rather, you will face charges and penalties that comport with how the IRS agent perceives your actions and activities.
For more than 30 years, Dan Horsky served as a professor of business administration at the University of Rochester in New York. During this time he was engaged in an array of entrepreneurial activities and acted as an angel investor for numerous start-ups. These investments were organized under a nominee account (Horsky Holdings) held at a Swiss bank.
In nearly all of these investments, the start-up did not gain traction and failed. However, one of the investments, made in 1995, was extremely successful. In 2008, when Horsky decided to liquidate his stock, he received roughly $80 million in income. However, Horsky’s 2008 federal tax return indicated that he had only received about $7 million from the sale and underreported his total income by more than $40 million.
Simultaneously, Horsky reinvested his proceeds into a second company. This investment was also successful. The IRS stated that, by 2010, Horsky had more than $220 million in secret offshore accounts.
To conceal his burgeoning fortune, Horsky engaged in an array of tactics. In 2012, he arranged for a third-party to become a fictitious nominee in response to his Swiss Bank’s decision to close accounts held by U.S. persons. In 2014, the fictitious nominee filed a fraudulent IRS Form 8854 as he attempted to relinquish U.S. citizenship to protect Horsky’s account from being discovered. Horsky also filed false tax returns that did not include his interest in the foreign accounts or his investment income. Horsky also failed to file related FBAR disclosures.
Horsky’s activities came to light in 2015. While it is unclear what tipped off investigators, the IRS and Department of Justice have focused significant compliance and enforcement resources to address Swiss Banks. The Swiss Bank Program provided prosecutors with an array of account information to identify Americans who engage in offshore tax evasion.
As punishment for his tax evasion, Horsky faced the potential of a lengthy federal prison sentence. However, in light of a number of sentencing factors, including his age, Horsky will spend seven months serving a federal prison sentence. In addition, Horsky has agreed to pay restitution for his unpaid taxes, and a civil penalty of $100 million. Horsky is also subject to a separate fine of $250,000 and will serve one year of supervised release following his release from prison.
If you are concerned about mistakes on offshore taxes, it is wise to seek legal guidance as soon as is practicable. While taxpayers can correct offshore mistakes through OVDP, such relief is not available if the taxpayer has come under investigation. Furthermore, U.S. Attorney Boente, who played a role in the Horsky tax prosecution noted that “Horsky went to great lengths to hide assets overseas in order to avoid paying his share of taxes to the IRS. Today’s sentence shows that we will continue to prosecute bankers and U.S. citizens who engage in this criminal activity.
For professional guidance in assessing whether you have offshore account or tax evasion concerns, contact the tax lawyers of the Tax Law Offices of David W. Klasing. Schedule a reduced rate tax consultation by calling 800-681-1295.