Ty Warner, the creator of Beanie Babies was charged this week with tax evasion for allegedly failing to report income he earned in a secret Swiss bank account. Prosecutors say that he evaded $885,000 in income tax after failing to file an FBAR form and pay taxes on income from an unreported account at Swiss bank UBS. If convicted he faces 5 years in prison and massive fines and penalties. Published reports say he will be required to pay the IRS $53,000,000.00.
Warner, 69, of west suburban Oak Brook, is the sole owner of TY Inc., an Illinois company that designs and sells stuffed animals including Beanie Babies.
Warner has not yet entered a plea. Prosecutors say, however, that he is cooperating and will plead guilty once he is formally arraigned.
“Regardless of wealth, everyone must pay taxes on all of their income, not just the amount they choose to report. The charge alleges that Warner went to great lengths to hide from his accountants and the IRS more than $3.1 million in foreign income generated in a secret Swiss account. Such conduct invites federal prosecution,” said Gary S. Shapiro, United States Attorney for the Northern District of Illinois.
“We encourage taxpayers to think of the serious consequences, including possible criminal penalties, for willfully presenting false information on their federal tax returns. All taxpayers must honor their obligation to report all of their income and pay all of the taxes they owe,” said James Lee, a Special Agent with the Internal Revenue Service’s Criminal Investigation Division.
Warner’s case stems from recent disclosures made by UBS after the bank was prosecuted by the U.S. Department of Justice in 2009 for helping Americans hide their foreign accounts. With FATCA – the Foreign Account Tax Compliance Act – scheduled to come on line next year, hundreds of foreign banks will soon be required to disclose the names of account holders with ties to the United States.
Warner’s prosecution is important because it shows the lengths of what some Americans will do to avoid detection. Obviously, his efforts failed. For example, as the feds began to look for unreported Swiss bank accounts, Warner moved his account from UBS to Zurcher Kantonalbank (ZKB). He also purportedly created a nominee name – Molani Foundation – to further hide his connection to the foreign funds. Finally, prosecutors say that he had statements held in Switzerland so that postal authorities and the IRS woudn’t discover his account. Unfortunately, for Warner, those ruses are well known to the IRS and failed.
U.S. law requires taxpayers with foreign bank accounts and other offshore financial assets to annually report those holdings on a Report of Foreign Bank and Financial Accounts – FBAR for short. Failure to file an FBAR is a felony. Use a nominee account like Warner and prosecutors can add tax evasion charges.
As noted above, in addition to a possible prison sentence, Warner purportedly must also pay $53 million in fines; all because he failed to pay $885,000 in taxes. Why so much? Great question. Willful failure to file an FBAR carries a civil penalty of the greater of $100,000 or 50% of the highest balance in the account. Prosecutors say that in 2002, Warner’s Swiss account had a balance of $93 million. Although the unpaid tax was less than a million, Warner now must pay tens of millions in penalties.
What’s the take home from this story? If you have foreign accounts and have yet to file an FBAR, seek help from an experienced FBAR lawyer NOW. For the last several years, the IRS and Justice Department have obtained the names of thousands of Americans with unreported offshore accounts. Officials have been looking at banks in Switzerland as well as Israel, India, Liechtenstein, the Caymans and many other countries. Time is truly running out.
Taxpayers that come forward before they are contacted by the IRS or prior to a criminal investigation stand a much better chance of participating in the government’s tax amnesty or other programs. If the feds find you first, however, all bets are off.
If you need more information about FBAR reporting issues, we offer no cost consultations. Our FBAR lawyers have helped dozens of taxpayers across the United States and worldwide. All inquiries are protected by the attorney – client privilege too. For more information, contact attorney Bethany Canfield at 414-223-0464 or by email at . You may also contact the author at (414) 704-6731 or by email at .
Post by Brian Mahany, Esq.