by Brian Mahany
The feds are on a roll. Two more Americans have been sentenced for failure to report foreign bank accounts. According to press releases and court documents, Miami Beach resident Luis Quintero was sentenced to 4 months in prison and given $2,020,000 in fines and penalties. Miami Lakes resident Humberto Gomez received 3 years of probation for the same conduct.
Prosecutors say that Quintero opened two accounts in October of 2004. Both accounts were opened in the names of foreign businesses. The government claimed that Quintero formed a company in Panama and a second company in the British Virgin Islands. These companies then opened accounts in a Swiss bank. Quintero reportedly had customers write checks in the name of the foreign businesses.
Press reports say that Gomez also used a foreign British Virgin Islands corporation to open a Swiss account. Instead of paying approximately $10,000 in taxes, Gomez is now a convicted felon and likely owes the IRS hundreds of thousands of dollars in penalties.
Taxpayers often try to hide offshore accounts from the IRS by creating foreign corporations or international business companies (IBC) and then using those entities to open accounts. Creating a so called nominee makes it harder for the IRS to find the account but once discovered, the ruse is usually an invitation for a criminal prosecution.
Opening a foreign bank or brokerage account is completely legal. There are many valid business and personal reasons for sending money offshore. The government does not prevent taxpayers from sending money overseas but those accounts must be reported annually on a form called a Report of Foreign Bank and Financial Accounts or FBAR for short. Any interest, dividends or capital gains must also be reported as well.
The penalties for not filing an FBAR are steep. As Quintero and Gomez learned, failure to report a foreign account is a felony. Taxpayers can be charged with willful failure to file an FBAR, filing a false return and often in the case of nominee accounts, tax evasion. Each charge is a felony punishable by 3 to 5 years in prison.
In addition to a possible felony criminal record, taxpayers who do not properly file may receive penalties of $100,000 or 50% of the high account balance for each year the account was unreported. Because Gomez’ account may have contained as much as $1.4 million, his penalty could be $700,000 for each year the account was unreported!
While the IRS usually does not say how people get caught, Quintero’s money was allegedly at Swiss bank UBS. UBS agreed a couple years ago to disclose the names of Americans with accounts there. Other methods of discovery include interviews of individual foreign bankers, review of wire transfers into the United States from offshore banks and records detailing credit and debit card charges in the United States on cards issued by foreign banks.
The IRS is currently offering an amnesty program designed to help U.S. taxpayers with unreported accounts avoid jail and many of the high penalties. The amnesty program, called the Offshore Voluntary Disclosure Program (often called “OVDI” or “OVDP”), permits taxpayers to pay a single penalty of 27.5% of the high balance instead of yearly penalties of 50%.
OVDP is not the best answer for every taxpayer. Like many government programs, there is lots of fine print. Taxpayers with balances less than $75,000 and those who inherited offshore accounts, for example, may get a much lower penalty under the OVDI amnesty program. And taxpayers who can prove that they did not act willfully may avoid all penalties or face a reduced $10,000 penalty. Many of our clients are foreign born or dual nationals who simply never learned of the offshore reporting rules. Often these taxpayers are better off using traditional disclosure methods.
Anyone with an unreported offshore account should consult with an experienced tax attorney immediately. The costs of noncompliance are simply too great to take any chances.
The tax lawyers at Mahany & Ertl have helped many people with foreign reporting questions. FBARs, OVDI, tax amnesty, the new FATCA law, foreign gifting and foreign corporation taxes are some of the many things we handle. Much of our practice is geared to assisting folks with unreported accounts.
If you wish to learn more about unreported accounts, simply type in the word “OVDI” in the search box of our blog located in the upper right corner.
Have an unreported account or received an audit notice from the IRS and need to speak with a lawyer? Contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in confidence.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon, San Francisco, California (tax matters only). IRS tax services available worldwide.