We write many stories about FATCA – the Foreign Account Tax Compliance Act. That law, which essentially makes foreign banks the eyes and ears of the IRS, is immensely unpopular. Many think it is over-reaching and unfair.
Our other specialty is FBAR reporting. The United States requires its taxpayers – that includes green card holders and expats even if they are living abroad – to report their offshore financial holdings. The penalty for failing to report an account can be the greater of $100,000 per account or 50% of the highest historic account balance. Again, many say those penalties are ludicrous and have no nexus to unreported income or taxes.
In 2009 or 2010, we wrote about the Peoples Republic of China and its decision to no longer execute people for tax evasion. Like many repressive regimes, however, conspiracy to defraud the government is still a capital offense. Is there really a difference between those two crimes? I wouldn’t want to defraud Chairman Xi Jinping of any tax dollars to find out.
What’s the point of this story? Governments take their money seriously. That is especially true with people caught not paying their fair share (or who the government perceives hasn’t paid their fair share.)
Recently a story about a money laundering case in the United States generated some media attention. Money laundering has become run-of-the mill news but this story was different because it involved the Americans prosecuting people for alleged money laundering involving money taken from a huge tax fraud scheme in Russia.
The United States and Russia don’t get along very well these days. Although both countries take their tax dollars seriously. The story about money laundering and tax evasion involving two countries at political odds is somewhat newsworthy. The story behind the story is where things really get interesting, however.
In the United States and most countries, a criminal prosecution ends if the defendant dies. That makes sense; what good does it do to incarcerate a corpse. Russia, however, is a rare exception.
Don’t believe us? Ask Sergei Magnitski.
Actually, you can’t ask Magnitski. He is dead.
According to the Russian Legal Information Agency, Magnitski was charged with tax evasion by Russian authorities in 2008. They claim he was the mastermind behind a massive corporate income tax evasion scheme. Arrested in 2008, Magnitski was held in lieu of bail at a Moscow pretrial detention facility. A year late he was found dead of an apparent heart attack.
While Magnitski was being detained by Russian authorities, the United States was bringing its own case against him. U.S. prosecutors say that he engaged in an elaborate scheme to launder money by moving funds through Moldovan and Russian shell companies and ultimately wound up being invested in New York real estate.
How big was the money laundering operation? U.S. prosecutors claim that Magnitski defrauded Russian taxpayers of approximately $230 million. Because he was dead, U.S. officials are content with pursuing civil forfeiture charges. They want the property allegedly purchased with illegal source income.
If the story ended there it would still be interesting. More bizarre is that the Russians decided to re-charge Magnitski criminally after his death. Apparently Russian law allows dead people to be criminally prosecuted. Shortly thereafter, his corpse was convicted. (Technically, he was convicted in absentia meaning “in his absence” but in this case he wasn’t absent because he fled, he was absent because he is dead.)
What is the take away from this story? Obviously, be thankful if you live in the United States or other developed country that offers safe lock ups.
Second, understand that wherever you are in the world, most countries take tax evasion very seriously. While the laws may differ widely from country to country, if the tax authorities set their sites on you, things can get ugly quickly.
At the beginning of this post I said that the government does like people that it perceives have cheated the system. Perception plays a big role in whether a tax case goes civil or criminal. The IRS simply doesn’t have enough resources to criminally prosecute everyone who cheats on their taxes. Therefore they select certain people and make examples of them. They also use a wide array of civil remedies such as penalties, wage garnishment, tax liens and property seizures to provide an incentive to others to promptly pay taxes.
If you find yourself facing a tax audit or criminal investigation for tax evasion, don’t wait to seek experienced legal help. Often the intervention of a skilled attorney early in the process is the difference between prosecution and early resolution with minimal penalties.
While you may have very good reasons why you couldn’t pay taxes, by the time the IRS understands your version of events – if they ever understand – they have invested hundreds of hours of hours of time and resources. By then it is often too late to turn a case from criminal to civil. Early intervention can often fix a problem before a case becomes a full blown tax evasion prosecution.
If you are facing a tax audit or are being investigated criminally by the IRS, seek the services of an experienced criminal tax attorney immediately. Our criminal tax attorneys have helped people allover the United States avoid prosecution. For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). All inquiries are kept in strict confidence and protected by the attorney-client privilege. Legal services provided nationwide.
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Tagged as: Tax Evasion, IRS Criminal Tax, IRS Tax Attorney, Tax Audit Defense