While millions of Americans celebrate Independence Day, Alexei Iazlovsky is worried about going to prison. Earlier he pleaded guilty to filing a false tax return, a felony punishable by 3 years in prison and a $250,000 fine. What did Iazlovsky do? The IRS says he failed to file an FBAR on an account held in a Luxembourg branch of an Israeli bank.
Opening an account in a foreign country is completely legal if properly reported. The IRS says, however, that Iazlovsky conspired with a tax preparer to intentionally hide money offshore. The preparer and his other clients should be concerned. As part of a plea deal, Iazlovsky has agreed to cooperate with prosecutors in exchange for a better sentence.
According to facts taken from court records, Iazlovsky was born in Russia. In 2002 be became a U.S. citizen. Iazlovsky produces documentaries for both U.S. and Russian television. The IRS claims that in 2000 or 2001, Iazlovsky’s tax preparer, United Revenue Service (URS) suggested opening an offshore account.
Shortly thereafter, Iazlovsky paid URS $4000 to incorporate a holding company in Belize. His URS rep told him that he did not have to report this account to the IRS because it was “off the books.” The same rep also suggested another United Revenue Service representative could help open an account with an Israeli bank. Iazlovsky understood he was breaking the law by diverting income into a nominee account at that offshore bank.
If the alleged actions by the URS tax preparers weren’t already bad enough, Iazlovsky says that the Israeli banker also knew of the illegal arrangement.
Over the next several years, Iazlovsky would divert about $2.6 million in income into his Belize corporation. In 2008 or 2009 when the entire UBS scandal made national news, Iazlovsky consulted again with his URS preparer. Once again he was told that he would not get caught.
During this entire time period, Iazlovsky never filed an FBAR. The Bank Secrecy Act requires all U.S. taxpayers to annually report offshore financial holdings if at anytime during the year those holdings exceed $10,000. Reporting is done on a Report of Foreign Bank and Financial Accounts (FBAR for short) and on schedule B of one’s individual income tax return.
Failing to disclose an offshore account and file an FBAR is a felony. The civil penalties associated with missing FBARs are also enormous.
What is interesting is the plea agreement filed in this case. The feds plan on recommending a lighter sentence in exchange for Iazlovsky’s cooperation. It is obvious to us that the government wants him to provide information about his banker and United Revenue Service. (Last summer we wrote about URS after the Justice Department indicted several of their preparers.)
The Justice Department has been very successful in getting criminal tax defendants to cooperate. The goal in prosecuting Iazlovsky isn’t a million dollars in penalties and fines, it is finding the accountants, tax preparers, lawyers and bankers who helped other set up nominee accounts and evade taxes. One banker or one preparer could potentially yield hundreds of names of other clients.
If you have offshore accounts and haven’t filed FBARs, time is running out. The chances of getting caught increase daily. There is an amnesty program currently offered by the IRS but it is only available if you seek amnesty before the IRS finds you. Once they have your name, it is too late.
Have an unreported foreign account in Israel, Luxembourg, Switzerland or India? 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.
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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Post by Brian Mahany, Esq.