Whether you’re a self-described “political junkie” or simply a person who likes to stay current on tax and financial news, you are no doubt aware of the long-running scandal surrounding former Trump campaign manager Paul Manafort, who in October 2017 was indicted for conspiring against the United States, conspiring to launder money, acting as an unregistered agent of a foreign principal, making false and misleading statements, and – of greatest relevance to a discussion of tax laws and income reporting requirements – failing to file an FBAR (Foreign Bank Account Report) for the years 2011 through 2014. In February 2018, Robert Mueller released a superseding indictment alleging 32 counts of bank and tax fraud, followed later by another superseding indictment in June 2018. Manafort, who initially denied the allegations against him, later changed strategic gears, entering a plea agreement with federal prosecutors in September 2018. Our criminal tax defense attorneys explore some provisions of Manafort’s deal, while taking a closer look at the FBAR charges that precipitated his guilty plea.
Timeline of the Criminal Case Against Paul Manafort
If your memory needs some jogging, you can review the timeline of the case against Manafort by perusing some of our previous articles on this subject, which are listed chronologically below.
- November 2017 – Manafort and Gates Facing FBAR Charges
- December 2017 – Manafort Accused of Hiding Offshore Accounts in 3 Countries Known as Tax Havens
- April 2018 – Updates on the Criminal Tax Cases Against Ex-Trump Associates Paul Manafort and Rick Gates
Back in December 2017, our FBAR attorneys also discussed whether Manafort’s indictment would impact the then-developing tax reform bill. As time has since told, the final version of the Tax Cuts and Jobs Act did not substantially alter FBAR filing requirements, though there have been other tax changes for U.S. expats under the TCJA.
While the full timeline extends as far as back as 2007 – the year Manafort’s involvement with foreign lobbying began – the aforementioned articles provide a window into the development of this case over the past few years.
Conditions of Manafort’s Plea Agreement with Prosecutors
If accepted, plea bargains generally enable defendants to receive lesser charges and thus lighter penalties in exchange for admitting their guilt voluntarily. This practice, though sometimes criticized for being too lenient on the guilty and too harsh on the innocent, is widely utilized in criminal cases at both the state and federal levels of the justice system. For this reason, it is perhaps unsurprising that the case against Manafort should, despite his initial determination to fight the charges, ultimately end with such an agreement.
Just as each criminal case is unique, so is each resulting plea deal. In Manafort’s case, some notable provisions of the agreement, which can be viewed in full here, are as follows:
- Manafort was required to plead guilty to two types of conspiracy: a “conspiracy to commit offense” and a “conspiracy to defraud the United States,” the latter of which is colloquially referred to as a “Klein conspiracy.” Such conspiracies are distinct from one another, though established by a single statute, namely 18 U.S. Code § 371 (conspiracy to commit offense or to defraud United States).
- Manafort may not attempt to appeal (challenge) certain convictions.
- Manafort will be subject to a sentence “determined by the Court, pursuant to the factors set forth in 18 U.S.C. § 3553(a), including a consideration of the applicable guidelines and policies set forth in the Sentencing Guidelines.” This refers to the Base Offense Level determinations established by 2S1.1(a), which are typically harsher than those established by SG 2T1.1. Our international tax attorneys have touched on this subject in previous articles on:
According to the plea deal linked above, Manafort’s “estimated Sentencing Guidelines range is 210 months to 262 months’ imprisonment,” which is equivalent to a sentencing range of approximately 17.5 years to 21.8 years. “In addition,” the document continues, “the [Special Counsel’s] Office calculates that, pursuant to U.S.S.G. § 5E1.2, should the Court impose a fine… the estimated applicable fine range is $40,000 to $400,000.”
What is FBAR, and How Did Manafort Break the Law by Failing to File One?
Though this case primarily captured the public’s attention due to Manafort’s close involvement with the Trump campaign, from a tax perspective, the case’s most meaningful elements are the FBAR charges. However, readers may be surprised to learn that FBAR is not a law, but rather a tax form. The FBAR is unique from many other tax forms, for two reasons:
- Unlike Form 1040 (U.S. Individual Income Tax Return), Form 941 (Employer’s Quarterly Federal Tax Return), Form 9465 (Installment Agreement Request), or other tax documents, the FBAR is submitted not to the IRS (Internal Revenue Service), but rather, to the Financial Crimes Enforcement Network (FinCEN), which is why the FBAR is also called FinCEN Form 114 (or FinCEN Form 114a).
- There is no way to mail a physical FBAR to FinCEN. The only way to file an FBAR is to submit the document online using FinCEN’s BSA E-Filing System.
The law that requires taxpayers to file an FBAR is the Bank Secrecy Act, or BSA. Though originally passed in 1970, the BSA (and specifically its FBAR component) has received more attention – and greater enforcement – from the IRS in recent years, spurred by the Swiss Bank Program, Offshore Voluntary Disclosure Program (OVDP), and a recent law from 2010 called the Foreign Account Tax Compliance Act (FATCA). Though the OVDP and Swiss Bank Program are now both defunct – the Swiss Bank Program ended in February 2016, while the OVDP ended in September 2018 – the IRS’ emphasis on FBAR compliance has only intensified, with the Service announcing new IRS enforcement programs to focus on foreign accounts earlier this year.
Manafort was required to file an FBAR because he (1) controlled overseas bank accounts, whose contents – reportedly more than $65 million – obviously (2) exceeded the $10,000 FBAR filing threshold. Note that offshore accounts valued at $50,000 or more will additionally trigger FATCA obligations, namely the requirement to file Form 8938 (Statement of Specified Foreign Financial Assets). By failing to file multiple FBARs and falsely indicating to the U.S. government that he controlled no foreign income, Manafort violated the BSA while engaging in offshore tax evasion.
International Tax Attorneys Can Help You File an FBAR and Avoid Penalties
If you own or control a foreign bank account whose contents have ever exceeded $10,000, you may be required to file an FBAR. Likewise, if the foreign accounts’ aggregate value ever exceeded $50,000, you may be required to file Form 8938. You are also required to indicate the existence of foreign income on your personal income tax return. If you have failed to do so in the past, it is urgent that you review your situation with an international FBAR lawyer as soon as possible – particularly now that the OVDP, which once offered substantial protections for noncompliant taxpayers, is no longer a viable option as it ended on September 28, 2018.
With over a dozen offices spanning Northern and Southern California, the Tax Law Office of David W. Klasing serves U.S. citizens, residents, expats, and business entities in countries around the world. If you need help reporting foreign bank accounts and complying with international tax laws, contact us online, or by calling (800) 681-1295, to schedule a reduced-rate consultation today.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland and Sacramento.
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