Much of mainstream media has been focused on the government’s efforts to ferret out unreported Swiss bank accounts. Indeed, the government has scored huge wins with its high profile cases against UBS and Wegelin. The unreported story concerns undeclared accounts in Israel, India and a host of other countries. Americans are required to report all foreign accounts if the aggregate total balance of those accounts exceeds $10,000. Reporting is done by filing an FBAR form – Report of Foreign Bank and Financial Accounts. The latest battle ground for missing FBARs is Israel.
Last week a California businessman pleaded guilty to having an unreported bank account in Israel. According to a plea agreement filed in the case, Aaron Cohen became a U.S. citizen in 1983. He and his brother operated a perfume business in the U.S. and Mexico. In the late 80’s or early 90’s, Cohen met an Israeli banker in Mexico. He subsequently opened accounts at both Mexican and Cayman Islands branches of that bank.
In 2009, Cohen opened an offshore account at a different Israeli bank. Although the indictment doesn’t name either bank, we believe that one of those banks is Bank Leumi.
Use of Nominee Account
At one point, Cohen had $3.4 million in the offshore accounts. The indictment says that he failed to file an FBAR for any of these accounts. Making the case more difficult, the IRS says that Cohen opened accounts in the names of third party entities. The IRS considers titling money in the name of a fictitious entity or one without any valid business purpose to be an affirmative act of tax evasion. Using so called nominee accounts is a sure ticket to a criminal indictment.
Worse, at sentencing the court can enhance a prison sentence if it finds that a nominee account was used. Under the U.S. Sentencing Guidelines, use of a third party account to hide money is considered the use of “sophisticated means” and can add a year or more to a prison sentence.
Other Recent FBAR Cases Involving Israeli Banks
Cohen isn’t the only taxpayer recently prosecuted not filing an FBAR and hiding money in an Israeli account. In July, we reported on the case of Moshe Handelsman and in April we reported the indictment of Guity Kashfi.
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.
The plea agreement indicates that Cohen knew of his FBAR reporting obligation and instead actively worked to hide his money from the IRS. As can be noted from all these cases, the IRS has become extremely adept at finding people with unreported accounts in Israel. In announcing Cohen’s plea, a Justice Department spokesperson said, “Today’s guilty plea is but the latest example that attempting to hide income and assets from the United States in offshore accounts is a bad gamble. The Internal Revenue Service will find the hiding places and the Department of Justice will criminally prosecute these tax cheats, who face potential jail time, still owe the taxes due and may lose those hidden assets and more to severe civil penalties.”
As part of the plea deal, Cohen faces a maximum prison term of 5 years and will have to pay a civil FBAR penalty of approximately $1.7 million. This is in addition to any taxes and other penalties he owes as a result of not paying tax on the interest generated by the accounts.
The lesson in these cases is obvious. 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 Israel or any other foreign country, you must disclose that information on Schedule B of your individual income tax returns and file an FBAR.
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.
[If you have an unreported account at Bank Leumi and Mizrahi Tefahot call us immediately. The IRS may already have a customer list from these banks.]
The IRS lawyers at Mahany & Ertl have helped many taxpayers with a wide variety of foreign reporting problems. From an unfiled FBAR to the new FATCA legislation, we can help.
For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. You may also contact the author at or by telephone at (414) 704-6731. 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.
Need more information? See our cornerstone article Offshore Accounts and FBAR Compliance or visit our Due Diligence blog has a search engine located in the upper right hand corner. For more information on specific tax topics, just click the tax tab or type in the name of a particular tax topic in the search bar. We have posted hundreds of informative articles on our site.
Post by Brian Mahany, Esq