One Of The Richest People In United States Sentenced For Failing To Disclose Offshore Account
Since the UBS offshore account scandal, and the implementation of the Offshore Compliance Initiative in 2008, the IRS has made no secret of its efforts to enforce the foreign bank account and investment reporting requirements under the Internal Revenue Code. In furtherance of this initiative, the Department of Justice successfully obtained a felony conviction to tax evasion against the 209th richest person in the United States. Specifically, last week the Northern District of Illinois’s District Judge, Charles Kocoras, sentenced Mr. Ty Warner, the maker of Beanie Babies, to a two year term of probation, 500 hours of community service, and $100,000 fine (United States District Court Northern District of Illinois Case No. 13 CR 731) for his failure to report earnings from his undisclosed Swiss offshore bank accounts. This sentence came as a result of Mr. Warner’s guilty plea to one count of tax evasion (26 U.S.C. §7201) related to his failure to properly disclose the earnings from his offshore Swiss UBS AG and Zuercher Kantonalbank bank accounts. In addition to the criminal sentence, Mr. Warner will also be required to pay millions of dollars in taxes and penalties related to his foreign bank accounts.
Mr. Warner joins some of the other “unfortunate 500”in his felony conviction involving offshore bank accounts. Specifically, Mr. Igor Olenicoff (who was the 184th richest person in the United States) pled guilty in 2007 to filing a false tax return related to his failure to report $200M in the Swiss UBS bank and other banks. Similarly, the founder of Conair, Mr. Leandro Rizutto (the 296th richest person in the United States), was convicted in 2002 of depositing kickbacks into foreign bank accounts. Also, Mr. Warner’s conviction comes after the successful prosecution of successful toy manufacture, Mr. Jeffrey Chernick. Mr. Chernick plead guilty to tax evasion related to his failure to report earnings and income deposited and earned in his Swiss UBS AG account. Mr. Chernick was sentenced in October 2009 to a three month sentence term followed by a year of supervised release.
The most recent sentencing of Mr. Ty Warner came as a result of an extensive federal investigation into UBS foreign bank account holders. Here, as part of his plea agreement, Mr. Warner admitted that he failed to report income from his offshore accounts maintained at UBS AG and Zuercher Kantonalbank (“ZKB”) in excess of $24 million. According to the Government’s Sentencing Memorandum in this case, the accounts maintained by Mr. Warner at these Swiss banks were managed by the infamous Swiss banker, fugitive Hansreudi Schumacher. (Case No. 1:13cr00731, Doc. #26 Filed January 7, 2014).
The Government’s Sentencing Memorandum reported that Mr. Warner had tried, unsuccessfully, to enroll in the IRS’s Offshore Voluntary Disclosure Program (“OVDP”) in 2009 prior to his conviction. According to the Government’s Sentencing Memorandum, Mr. Warner admitted that when he submitted the request for eligibility into the IRS’s OVDP, he knew of the UBS AG investigation and the Schumacher indictment. Mr. Warner was not permitted entry into the IRS’s OVDP in 2009 based upon the fact that the Government was already investigating him, or at least had information concerning his offshore account.
Unfortunately, for Mr. Warner, his attempt to voluntarily disclose his offshore accounts came too late. For many taxpayers who are still hiding these types of accounts, the clock is ticking. There is a safety net available and waiting to assist taxpayers in making a voluntary disclosure of their offshore bank accounts. Specifically, the IRS’s OVDP can insulate taxpayers from criminal prosecution related to their offshore accounts. However, if the government already has a taxpayer under investigation, or his or her name has already been provided to the IRS with a listing of taxpayers with secret accounts, he or she will not be eligible for the Offshore Voluntary Disclosure Program. The current OVDP program opened in January 2012 following the very successful programs in 2011 and 2009. Unlike the previous two programs, the 2012 program does not provide for any deadline date and could close at any time in the near future. Accordingly, time is of the essence for purposes of disclosing these types of foreign offshore bank accounts or other foreign investments or entities.
The 2012 OVDP provides taxpayers with undisclosed bank accounts and income from offshore accounts and other offshore investments (including businesses, partnerships, trusts, and estates) to voluntarily disclose the existence of these offshore accounts and holdings and to avoid criminal prosecution related to the failure to disclose them on their previously filed tax returns. Under the current program, taxpayers are required to file all informational type returns and amended tax returns for the eight previous tax years and pay a 27.5% penalty on the highest aggregate account balance in the offshore accounts during the disclosure period. In addition to the offshore voluntary disclosure penalty, the taxpayers must also agree to pay any applicable failure to file, failure to pay, and/or accuracy related penalties related to their disclosure. There is also a possibility, under the 2012 OVDP, that certain taxpayers may qualify for a reduced OVDP penalty at either 12.5% or 5% depending on the particulars of their offshore holdings and involvement with these accounts.
The attorneys at Terrence A. Grady and Associates are specially trained to assist taxpayers in determining whether the offshore voluntary disclosure is a viable option for dealing with any undisclosed offshore holdings. Please contact the firm immediately if you have any concerns regarding your previous reporting of any foreign bank accounts, financial accounts, or offshore entities.