by Brian Mahany
Opening an account in Israel or any other foreign country is legal. Not filing required FBARs for that account is a crime, however. Guity Kashfi of Los Angeles is learning that lesson the hard way. Prosecutors charged her with conspiracy to defraud the United States, a charge that carries a 5 year prison sentence and a $250,000 fine. She is expected to plead guilty later this spring.
Holders of foreign accounts must report those accounts each year. Offshore bank and brokerage accounts are reported by filing a Report of Foreign Bank and Financial Accounts (FBAR) by each June 30th of the following year. Prosecutors say that Kashfi, a U.S. citizen, moved money in 2008 from Israel to a second Israeli bank, this one located in Luxembourg. The following year she flew to Europe and was promised by bankers there that her accounts would remain private. In 2011, she repatriated the money to the United States.
The IRS says that not only did Kashfi fail to file FBARs, they say she also didn’t report $221,000 of interest income during the years the account was overseas. For approximately $70,000 in taxes, Kashfi is facing prison, a huge fine and penalties that could exceed the original $2.5 million account balance. In our opinion, the risk just wasn’t worth it.
In addition to possible criminal sanctions, failing to file an FBAR carries a maximum civil penalty of the greater of $100,000 or 50% of the account balance for each year an account is unreported. In Kashfi’s case, avoiding tax of $10,000 to $20,000 in one year can subject her to a $1,250,000 IRS civil penalty. That’s just for 1 year!
Kashfi obviously believed what we she was being told by her bankers. The IRS, however, has become extremely adept at finding people with unreported accounts. “We will continue to work aggressively to uncover and prosecute those who hide unreported income in secret offshore bank accounts as well as the employees of financial institutions and the financial institutions themselves who facilitate such crimes,” said Los Angeles’ U.S. Attorney, André Birotte Jr.
Remember, if you are a U.S. taxpayer (that includes Americans living overseas and resident alien “green card” holders) and have an interest in, or signature or other authority over, a financial account in a foreign country with assets in excess of $10,000, you must disclose that information on Schedule B of your individual income tax returns and file an FBAR.
What happens if you haven’t filed? If last year was the first year you had a foreign account, there is still time to file an FBAR. They are due on June 30th. You may have to amend your 2012 tax return, however, if already filed. If your unfiled FBARs go back even longer, speak with an experienced tax attorney or CPA that specializes in foreign reporting requirements. Don’t delay!
The IRS is running an amnesty program called the Offshore Voluntary Disclosure Program (OVDI or OVDP for short) that can help you avoid criminal prosecution and the heaviest penalties. If your failure to report foreign accounts was not “willful”, there may also be other alternatives available. Unfortunately, all amnesty options are off the table if the IRS finds you first.
[Have an unreported account at Bank Leumi and Mizrahi Tefahot? Call us today. The IRS may already have a customer list from these banks.]
The tax lawyers at Mahany & Ertl have helped many taxpayers with a wide variety of foreign reporting problems. From unfiled FBARs to the new FATCA legislation to the OVDI amnesty program, we can help. We are the exclusive legal services provider to the CPAmerica organization for foreign reporting issues meaning we are the lawyers that other professionals turn to with questions.
For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence. Whether you hire or us or not, we will gladly discuss your options at no cost and without obligation.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax services available worldwide.
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