by Brian Mahany
A few months ago, a reader of Due Diligence wrote to us and said we were being “alarmist.” Many readers can’t fathom how the government can and will impose huge penalties against taxpayers with unreported offshore accounts. Unlike other IRS penalties, those imposed on undeclared foreign bank accounts are based on the asset value not the tax deficiency. If you think this is just some arcane legal mumbo jumbo, it’s not. The IRS recently assessed a 79 year old woman $21,666,929 in penalties. The tax loss to the IRS? Somewhere around $500 thousand. That’s a penalty of around 4000%
Now that we have your interest, let’s share the details of the story.
Meet Mary Estelle Curran, age 79 and living in Florida. Lest you think Mary is some sophisticated money launderer or drug runner, she is a widow. She inherited a foreign account in a Lichtenstein Foundation from her deceased husband. Published reports say that her husband handled the family finances while alive. Mary had a high school education and no experience with finances. Apparently after his death, Mary moved the money from Lichtenstein to Swiss bank UBS and placed the account in the name of a Panamanian corporation.
Whether she did that to protect her inheritance from creditors or to defraud the IRS is up for debate. The IRS says she did it to avoid taxes. Ultimately Mary Estelle pled guilty to 2 counts of filing a false tax return, 3 year felonies. Had she been convicted of failing to file FBARs, the amount of time she faced could have been higher. According to the plea agreement filed with the court last week, the federal sentencing guidelines call for a prison sentence of 31 to 37 months.
Opening a foreign account isn’t illegal. Failing to tell the IRS about the account is against the law, however. Foreign bank and brokerage accounts must be reported annually on a Report of Foreign Bank and Financial Accounts, more commonly known as an FBAR.
While the sentencing is still several months away, the IRS penalty for her account is almost $22 million even though the unpaid tax was less than a million dollars. Why so high? The civil penalties for failing to file an FBAR are based on the size of the unreported account. Under current law, the penalty is the greater of $100,000 per year or 50% of the highest account balance for each year the account is unreported.
According to published reports, Curran tried to come clean and enter the IRS’s foreign account amnesty program (called the “Offshore Voluntary Disclosure Program” or “OVDI”.) That program gives you a huge break on penalties and a get-out-of-jail free card. There is a catch, however, as Curran found out. In order to qualify for the program you must contact the IRS before they contact you or obtain your name from a cooperating bank. For Ms. Curran, that delay has cost her tens of millions of dollars and perhaps her freedom.
Our tax attorneys have helped many taxpayers with a wide variety of foreign reporting matters including the offshore voluntary disclosure program, opt outs, FBAR filings, FATCA compliance and foreign real estate transaction reporting. In most instances, services can be handled for a reasonable flat fee.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and our satellite office in San Francisco, California. Services available worldwide.
[Want more information immediately? We have posted hundreds of articles on a wide variety of foreign reporting topics on our Due Diligence blog. Just type in “FBAR” or “OVDI” – or any other tax topic – in the search engine bar located in the upper right hand corner of our blog home page.]