Vaibhav Dahake was sentenced yesterday by a federal judge in New Jersey to a year probation after pleading guilty to not filing FBARs for accounts in India and the British Virgin Islands. Press reports indicate he received a lighter sentence as part of a plea agreement and assistance he gave the government on other tax investigations. Dahake could have received a 5 year prison sentence.
Holders of foreign financial accounts – or those who have signature authority on those accounts – must declare the accounts on Schedule B of their income tax form and must also file a Report of Foreign Bank and Financial Accounts (often called an FBAR or referred to by its form number, TD F 90.22-1). The definition of foreign accounts includes bank accounts, CDs, foreign brokerage accounts, offshore hedge funds and even annuities or insurance products with an investment component.
According to the indictment, Dahake was born in India and became a U.S. citizen in 2006. Prior to 2006, he was a resident alien (green card holder). Between 2001 and 2010, prosecutors say that he had bank accounts in both India and the British Virgin Islands. The indictment suggests the bank was HSBC, a fact confirmed by press reports.
Prosecutors say he created a nominee entity in the British Virgin Islands to conceal his identity and hide money from the IRS. A nominee entity is an entity such as a corporation or trust which holds property for another. The IRS considers them an affirmative act of tax evasion if there is no valid business purpose for the entity.
At first, his account in the British Virgin Islands paid no interest. The bank later solicited him, however, to transfer money to an affiliate in India. The IRS says that his bankers promised that earnings in the new account would not be subject to a 1099. They also counseled him on how to bring cash into the U.S. without getting caught.
How Dahake was caught has not been revealed. We know, however, that HSBC worldwide and especially in India and the Caribbean has been subject to several investigations by the IRS and is reportedly cooperating with the government.
The indictment and subsequent plea agreement point out how one lead often blossoms into several cases. In return for a promise of leniency, prosecutors will seek to get cooperation from both taxpayers and individual bankers. The IRS uses these plea deals to obtain the names of others who are hiding money offshore.
Like the old saying about there be no honor among thieves, white collar defendants are usually very quick to cooperate in an effort to avoid prison.
That points up the obvious lesson in this case. If you have failed to file FBARs or believe you can outsmart the IRS, the odds are against you. While not every unreported foreign account holder will get caught, many will. Although not going to prison, Dahake is now a convicted felon and still must pay massive penalties on his foreign accounts.
Having a bank or brokerage account in a foreign country is completely legal if properly reported. To avoid penalties and the possibility of criminal prosecution, simply file an FBAR by June 30th each year. If you already have unreported accounts, however, it is best to speak with a qualified tax attorney. With such high penalties and so many compliance options available, navigating the complex rules without counsel is dangerous.
The tax lawyers at Mahany & Ertl have helped many taxpayers with a wide variety of offshore tax reporting services including FBAR preparation, FATCA compliance, foreign real estate transactions and more. 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.
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Post by Brian Mahany