Beanie Baby Founder Headed to Prison?
Several months ago we wrote about the arraignment of billionaire Ty Warner, founder of the Beanie Baby empire, on charges of tax evasion. Prosecutors claimed Warner evaded $885,000 in income tax after failing to file an FBAR form and pay taxes on income from an unreported account at Swiss bank UBS. Published reports said would be required to pay the IRS $53,000,000.00 in addition to any prison or criminal fines.
Shortly after his arraignment, Warner pleaded guilty to a felony tax crime. Under the federal sentencing guidelines, he is reportedly facing a recommended sentence of 46 to 57 months. Federal criminal sentences are governed by the U.S. Sentencing Commission guidelines. Although those guidelines have been advisory since 2007, federal judges are still required to begin every sentencing decision with a guideline calculation. In tax cases, the guidelines are heavily impacted by what is called the “relevant conduct tax loss.” In lay terms, the more you owe the greater the guideline sentence.
Notwithstanding a minimum guideline sentence of 4 years, Warner’s lawyers have asked for probation. While not impossible, a probation sentence on a case this large would be highly unusual.
Many court watchers are eager to see what the court does. Although we believe criminal sentences for most offshore reporting violations are excessive, the Justice Department and IRS worry that a light sentence or probation sends the wrong message to taxpayers who have failed to report their offshore accounts.
Warner’s lawyers disagree.
In a sentencing memorandum filed with the court, Warner contends that he was singled out solely because the IRS already had his name. Warner claims he tried to come into compliance and disclose his account through the IRS’ amnesty program called the Offshore Voluntary Disclosure Program (OVDP for short). Unbeknownst to him, however, the IRS already had his name.
The IRS encourages taxpayers to come forward before they are caught or before their identity is known to the IRS. The agency claims that if taxpayers are allowed wait until after being caught before filing for amnesty, no one would come forward voluntarily.
Warner also claims that the judge should consider mitigating factors when sentencing him. He claims that the court should consider his charitable giving and his pledge to pay penalties, back taxes and interest of more than $69 million. While the court can consider whether a taxpayer paid all back taxes and penalties prior to sentencing, the charitable gift giving probably won’t wash. That would suggest that wealthy defendants could simply “buy” their way out of prison.
What are the lessons in this story?
First, the Warner case is proof of just how serious Uncle Sam considers unreported offshore accounts. In the last few years there have been over 100 prosecutions of taxpayers who failed to report their offshore accounts. (Foreign bank accounts are reported on a Report of Foreign Bank and Financial Accounts – FBAR for short.)
The second lesson is one we repeat weekly. Don’t wait!
Amnesty is only available for people who come forward before they are caught and before the IRS has their name. With the new FATCA bank reporting program beginning this year, banks will soon be letting the IRS know the identities of account holders with ties to the United States. Even if IRS never contacts you, if your name is on a FATCA list it is probably too late to seek amnesty.
If you need more information about FBAR reporting issues, we offer no cost consultations. Our FBAR lawyers have helped dozens of taxpayers across the United States and worldwide. All inquiries are protected by the attorney – client privilege too. For more information, contact attorney Bethany Canfield at 414-223-0464 or by email at . You may also contact the author at (414) 704-6731 or by email at .
Post by Brian Mahany, Esq.