About California Criminal International Tax Investigations

California Criminal Tax Attorneys

California Criminal International Tax Attorneys

In general, violations of the Internal Revenue Code and other tax-related statutes are civil in nature. In other words, when a person runs afoul of US tax law, the majority of the time the penalties are limited to civil penalties. This may include monetary penalties as well as enforcement protocols to collect those penalties, such as levies, liens, seizures, and even passport revocation. Sometimes though, a tax violation is criminal in nature. Criminal tax violations are much more serious, because not only may the taxpayer become subject to monetary fines and penalties, but they may also become subject to incarceration. In recent years, the IRS and Department of Justice have turned their attention to international and offshore-related violations. Let’s take and introductory look at some examples of common potential international criminal tax violations to be aware of.

Criminal FBAR

Hank is a US citizen who conducts business in various countries. Hank is fully aware that he is required to report his foreign bank and financial accounts to the US government. Hank does not want to report these accounts to the IRS and therefore devises a scheme to use fake foreign corporations in order to open bank accounts across the globe. Hank does not report these accounts to the US government — even though he knows he is required to. This may be a criminal willful FBAR violation.

FBAR Criminal Statute 31 U.S.C. 5322

• • • (a) A person willfully violating this subchapter or a regulation prescribed or order issued under this subchapter (except section 5315, 5324, or 5336 of this title or a regulation prescribed under section 5315, 5324, or 5336), or willfully violating a regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508, shall be fined not more than $250,000, or imprisoned for not more than five years, or both.

    • (b) A person willfully violating this subchapter or a regulation prescribed or order issued under this subchapter (except section 5315, 5324, or 5336 of this title or a regulation prescribed under section 5315, 5324, or 5336), or willfully violating a regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508, while violating another law of the United States or as part of a pattern of any illegal activity involving more than $100,000 in a 12-month period, shall be fined not more than $500,000, imprisoned for not more than 10 years, or both.

Criminal FATCA

Luanne is a Lawful Permanent Resident who resides outside of the United States. She does not make any treaty election to be treated as a foreign person. She knows that she is required to file Form 1040 each year. She is also aware that the institutions that she banks with report US taxpayers to the IRS. To try to avoid reporting her foreign assets, she opens up foreign bank accounts using a foreign ID and completes a W-8 BEN instead of a W9. In addition, she files a form 1040-NR instead of a 1040 Form, since the former does not necessitate the filing of a form 8938. Since she was willful, this may be investigated as a criminal violation.

FATCA Criminal Penalties

• • • In addition to the penalties already discussed, if you fail to file Form 8938, fail to report an asset, or have an underpayment of tax, you may be subject to criminal penalties. In on recnent cases, the IRS won a conviction for conspiracy to defraud re: FATCA.

International Tax Evasion

Peggy is a US citizen who operates a foreign business. For many years, Peggy did not turn a profit. Then, in the past two years, Peggy earned significant amounts of money. The money is earned overseas and remains overseas — but it is in a country in which taxes are not required on this type of income. Since Peggy does not have any foreign tax credit — and does not want to pay this substantial tax liability in the US — she intentionally omits the income from a tax return in order to artificially reduce her income when she files her tax return. This may be a form of tax evasion since she performed the affirmative act of intentionally falsifying her tax return to evade tax.

Tax Evasion Criminal Statute: 26 U.S.C. 7201

• • • Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.

Tax Fraud

Bobby is a US citizen who files annual tax returns each year. Bobby has several foreign accounts and assets. He spoke with a CPA who informs Bobby that the tax returns he files should include all of this information on various international information reporting forms. He also tells Bobby that the income generated overseas is reported on his US tax return even if he paid taxes overseas or not (albeit at a very low tax rate overseas). Bobby decides not to file any forms at all in hopes that he can stay under the radar. In this type of situation, Bobby may become subject to a criminal tax fraud investigation.

Tax Fraud Criminal Statute: 26 U.S.C. 7206

• • • Any person who—

      • (1) Declaration under penalties of perjury

        • Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or

      • (2) Aid or assistance

        • Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document; or

      • (3) Fraudulent bonds, permits, and entries

        • Simulates or falsely or fraudulently executes or signs any bond, permit, entry, or other document required by the provisions of the internal revenue laws, or by any regulation made in pursuance thereof, or procures the same to be falsely or fraudulently executed, or advises, aids in, or connives at such execution thereof; or 

      • (4) Removal or concealment with intent to defraud

        • Removes, deposits, or conceals, or is concerned in removing, depositing, or concealing, any goods or commodities for or in respect whereof any tax is or shall be imposed, or any property upon which levy is authorized by section 6331, with intent to evade or defeat the assessment or collection of any tax imposed by this title; or

      • (5) Compromises and closing agreements

        • In connection with any compromise under section 7122, or offer of such compromise, or in connection with any closing agreement under section 7121, or offer to enter into any such agreement, willfully—

          • (A) Concealment of property

            • Conceals from any officer or employee of the United States any property belonging to the estate of a taxpayer or other person liable in respect of the tax, or

          • (B) Withholding, falsifying, and destroying rec­ords

            • Receives, withholds, destroys, mutilates, or falsifies any book, document, or record, or makes any false statement, relating to the estate or financial condition of the taxpayer or other person liable in respect of the tax; shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution.

Structuring and Smurfing

Dale inherited money overseas and does not want to report the information on his US tax return. In addition, he does not want to report a significant amount of income that was generated from the foreign accounts. Therefore, Dale utilizes local residents abroad to open several bank accounts across the country at different institutions and for values below $10,000 hoping to avoid both a Currency Transaction Report (CTR) or Suspicious Activity Report (SAR) from being generated. In this type of situation, Dale intentionally tried to keep his bank account below the $10,000 reporting threshold, this may be a form of structuring — which is a crime.

Structuring Criminal Statute: 31 USC 5324

• • • (a) Domestic Coin and Currency Transactions Involving Financial Institutions.—

      • No person shall, for the purpose of evading the reporting requirements of section 5313(a) or 5325 or any regulation prescribed under any such section, the reporting or recordkeeping requirements imposed by any order issued under section 5326, or the recordkeeping requirements imposed by any regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508—

        • (1) cause or attempt to cause a domestic financial institution to fail to file a report required under section 5313(a) or 5325 or any regulation prescribed under any such section, to file a report or to maintain a record required by an order issued under section 5326, or to maintain a record required pursuant to any regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508;

        • (2) cause or attempt to cause a domestic financial institution to file a report required under section 5313(a) or 5325 or any regulation prescribed under any such section, to file a report or to maintain a record required by any order issued under section 5326, or to maintain a record required pursuant to any regulation prescribed under section 5326, or to maintain a record required pursuant to any regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508, that contains a material omission or misstatement of fact; or

        • (3) structure or assist in structuring, or attempt to structure or assist in structuring, any transaction with one or more domestic financial institutions.

Current Year vs Prior Year Non-Compliance

Once a taxpayer has missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.