Regular readers of this blog already know that offshore accounts over $10,000 must be reported annually on a Report of Foreign Bank and Financial Accounts (or FBAR for short). Unfortunately, millions of U.S. taxpayers don’t understand their offshore reporting responsibilities. Some do, however, and simply elect to ignore them. Choose to bury your head in the sand and deliberately avoid filing an FBAR and you could go to prison. One such individual who may soon see the inside of a jail cell is Moshe Handelsman of Saratoga, California.
According to a plea agreement filed in federal court, Handelsman pleaded guilty to a single felony of filing a false tax return. Prosecutors say that in 2007, Handelsman filed a false tax return. They say he failed to file an FBAR that year and did not disclose an Israeli bank account on his tax return. Federal law requires offshore financial accounts be reported both on an FBAR form and on schedule B of one’s individual income tax return.
Although millions of taxpayers have unreported foreign accounts, few face criminal prosecution. There are several reasons why the IRS probably chose Handelsman.
First, the amount of money involved is quite large. Prosecutors say that between 2003 and 2008, Handelsman moved approximately $1.8 million from the United States to Israel. We have not seen criminal prosecutions when the aggregate value of the foreign accounts is less than $100,000. Don’t get any ideas; with civil penalties of $100,000 per year or 50% of the account value per year for each year an account is unreported, deliberately not filing an FBAR certainly isn’t worth the risk of what happens when caught.
Next, Handelsman created a nominee entity to open the account. The feds have long looked at such arrangements suspiciously. Unless there is a valid business reason to open an account in another name, the IRS views such arrangements as “an affirmative act of tax evasion.” (Because of the plea agreement, Handelsman was only convicted of filing a false return – a 3 year felony – instead of tax evasion which carries 5 years.)
The indictment doesn’t name the bank or his preparer but we know that the feds have been actively investigating several Israeli banks (Mizrahi Tefahot, Bank Leumi, Bank Hapoalim) and at least one preparer – United Revenue Service or URS – alleged to have helped business owners hide money in Israeli banks. Usually when the feds target a foreign bank, it isn’t long before the bank or some of its bankers begin cooperating in an effort to avoid prosecution. Cooperation means turning over information about customers and their motives.
Perhaps most striking about this case is Handelsman actions in more recent years. At the time of his charges, he had no money offshore. The plea agreement says that in 2009 he expatriated the cash by transferring it to a second Israeli account and then to a Charles Schwab account in the name of a relative. Finally, the relative made him a nontaxable “gift.”
The message here is clear. Even if you brought your money 6 years ago, the feds can and will prosecute you. Many people we speak with have elected to repatriate their money instead of coming clean, filing back FBARs and working out an arrangement with the IRS. That may seem fool proof to some but the IRS routinely looks for accounts that were closed or transferred. Because they look back in time, no one is safe.
While many would argue that simply closing one’s unreported account and bringing back the money should satisfy the IRS, the Handelsman case proves the opposite.
Have an unreported offshore account? Give us a call. We can explain your responsibilities and explore your options. Our tax lawyers have helped many taxpayers with a wide variety of foreign reporting problems including the OVDP tax amnesty program and unfiled FBARs. In many cases it is possible to avoid all or most penalties.
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.
Need more information about FBARs? Our Due Diligence blog has a search engine located in the upper right hand corner. Our website also has an article titled FBAR 101 – Critical Information for FBAR Filers.
Post by Brian Mahany, Esq.