by Brian Mahany
At least once a week I receive a call from a potential client asking whether or not he should come into compliance with the tax laws. Everyone wants to know the chances of getting caught. In 2009, the IRS held an amnesty program for taxpayers with unreported offshore accounts and income. There were relatively few takers. One of those people who did not participate was Arthur Eisenberg.
Eisenberg reportedly opened an account in the Cayman Islands with UBS bank in 1983. Later he would transfer the account to Switzerland and then to a corporation he controlled in Hong Kong. He would again transfer the funds to yet another Swiss bank.
Unfortunately, Eisenberg failed to file the required Report of Foreign Bank and Financial Accounts (FBAR) and failed to report the income earned from those foreign investments on his tax return. He, like many others, was caught.
Luckily, Eisenberg isn’t headed to prison, although filing a false return is a felony and he will find himself on probation for the next 3 years. He was also ordered to pay a $2.1 million dollar penalty. That penalty probably isn’t the last of his tax problems, however.
Federal law allows the government to assess a penalty of 50% of the highest dollar amount that was ever in the unreported foreign account. The IRS can also assess taxes on any unpaid income together with interest and fraud penalties of up to an additional 75% of the tax.
Eisenberg apparently did what many people do; he decided to play audit roulette. Admittedly, the IRS criminally prosecutes very few of the estimated millions of Americans who cheat on their taxes. Offshore account holders, however, particularly those with large accounts belonging to taxpayers with a long history of noncompliance face a much higher chance of prosecution.
Currently the IRS is offering another tax amnesty for offshore account holders. The present “offshore voluntary disclosure imitative” runs to the end of August. Although not as generous as the original amnesty, there is still the opportunity to avoid significant penalties. Avoiding becoming the next Arthur Eisenberg and the next convicted felon is an added bonus.
If you have unreported foreign accounts or unreported foreign source income, don’t delay. The IRS amnesty program only works if you file. Once identified by the IRS, it is generally too late to file and avoid criminal prosecution.
Mahany & Ertl is a boutique law firm concentrating in tax matters, fraud recovery (asset recovery) and white-collar criminal defense. We help our tax clients avoid jail, defend audits, reduce tax debts and fight for their rights in U.S. Tax Court. We can help taxpayers with a wide variety of foreign reporting and tax amnesty (voluntary disclosure initiative) matters.
For more information, contact Brian Mahany for a no obligation, no nonsense consultation. We accept clients anywhere in the U.S. and beyond. Brian can be reached at (414) 704-6731 (direct) or through the website, https://www.mahanyertl.com