The willful failure to report a foreign bank account of file FBARs is a felony. Congress beefed up the maximum penalties to a maximum of 5 years in prison for each violation. In reality, many folks do go to jail while others get probation. Rarely does the government appeal sentences because someone didn’t receive a prison sentence but they did in the case of H. Ty Warner, the billionaire tax cheat and founder of Beanie Babies.
Last year Warner was convicted of tax evasion after prosecutors say he failed to report offshore accounts totaling approximately $106 million. The accounts were believed to be at UBS Bank in Switzerland. Federal law permits Americans to maintain Swiss and other foreign bank accounts but most accounts must be reported annually on both one’s income tax form and a Foreign Bank Account Report or FBAR form. Willful failure to file an FBAR is a felony and whether or not criminal, the IRS frequently imposes huge civil penalties. (Warner agreed to pay $53,000,000.00 in penalties.)
Federal criminal sentences are governed by the U.S. Sentencing Commission’s guidelines. For the past decade, those guidelines are no longer mandatory but federal judges must still consider them when sentencing defendants. For tax cases, the guidelines consider the tax loss as well as whether “sophisticated means” were used in committing the crime. Hiding money in offshore constructs frequently results in an upwards adjustment of the sentence.
Under the guidelines, Warner should have received a sentence of 46 to 57 months. Instead of seeing an upward adjustment in his sentence, however, the judge simply gave him probation. Warner is not required to serve any time in prison.
After the sentencing which took place in January of this year, the Justice Department took the rare step of appealing the sentence. How rare? I can’t recall the last time the government was successful in reversing a judge’s sentence because it was too lenient.
Why is the government appealing?
We think the government was caught off guard at sentencing and that Warner’s lawyers made a compelling case surrounding Warner’s charity. Courts set a bad precedent, however, when acts of charity alone can be used to offset prison. While billionaires might have the ability to make huge donations, ordinary Americans convicted of tax evasion don’t have that luxury. In briefs just filed with the appeals court, the Justice Department claims that many of the letters of support for Warner came from his own employees and people he donated money to after his conviction. They also say that his generosity was misleading. In one example, Warner allegedly donated money for an aquarium yet didn’t disclose that he owned an neighboring hotel that stood to gain from increased tourism.
The government has a tough case on appeal. Although appellate courts will sometimes reduce a sentence they feel is excessive, rarely do they increase sentences believed to be too lenient.
Popular media has seized on the billionaire justice concept and the ability to buy one’s way out of prison. The court’s sentence, however, wasn’t based solely on Warner’s generosity and letters of support. From the judge’s comments at sentencing, however, it is clear that his charitable acts did carry considerable weight. At one point, Judge Charles Kocoras suggested that Warner’s charitable generosity “trumps all of the ill-will and misconduct he engaged in.”
Does this mean that we have established a system of billionaire justice in the United States? No. There have been several billionaires in the United States that have gone to prison including Bernie Madoff, Michael Milken, Alan Stanford and Alfred Taubman.
It could be many more months before the court rules on the Justice Department’s appeal of Ty Warner’s sentence. The handwriting on the wall is clear, however. No matter who you are or what you do, the IRS and Justice Department consider failure to file FBARs and report offshore accounts to be a serious matter. One in which the government will likely seek prison time.
If you have an unreported offshore account, time is running out to come into compliance. In less than 2 months, foreign banks will be required to search their accounts and identify those accounts with connections to the United States. As Ty Warner learned, there is no entering the amnesty program once the IRS has your name from a foreign bank. If you have unfiled FBAR forms, speak with an experienced IRS tax lawyer today.
Need more information about FBAR penalties and your responsibilities? Contact attorney Bethany Canfield at or by telephone at (414) 223-0464. The initial consultation with a tax attorney is confidential and without cost or obligation. Flat fees for most services are available.