Government Seeks $2.7 million after Incomplete Offshore Disclosure

If you have undisclosed foreign accounts, perhaps the only thing worse than not coming forward voluntarily is submitting an incomplete disclosure. In United States v. Vinci, No. 8:19-cv-02441 (D. Md. 2019) the government alleges that the taxpayer willfully failed to file foreign bank account reports during his participation in the Offshore Voluntary Disclosure Program (OVDP).

The government assessed $2.7 million in FBAR penalties and interest against the taxpayer and then recently filed a complaint to reduce the penalty to judgment.

Background & facts

Here are some facts the government alleges in the complaint:

Taxpayer was born in Italy and lived in Venezuela from approximately 1955 until 1992, when he moved to the United States.

Taxpayer made a substantial amount of money in the auto parts business while living in Venezuela (and while he was not a U.S. resident)

Taxpayer was not employed while living and residing in the United States. He lived off his savings from prior to immigrating from Venezuela, and from rental income that he received from properties he still owned in that country.

After moving to the United States, taxpayer filed no federal income tax returns, or information returns for foreign corporations, or FBARs with the Internal Revenue Service until 2011.

In 2011, taxpayer applied for the IRS’s OVDP program. In taxpayer’s letter seeking admission to OVDP, he disclosed that he possessed foreign financial accounts in Venezuela; in Antigua; and in Switzerland through Citi Private Trust.

The taxpayer filed his delinquent tax returns, including Form 5471 to report his interest in foreign entities. He also filed his FBARs, but which did not include the Swiss accounts (which he had already informed the IRS of their existence). Those holdings concealed his interests in foreign financial accounts with balances as high as $5 million.

Foreign corporation and trust

Taxpayer incorporated a foreign entity, Mosquetero, SP, in Scotland, and created a grantor trust (“Trust”), the Trustee of which was Citi Private Trust, located in Zurich, Switzerland.

Taxpayer placed investment accounts in Mosquetero’s name with Citi Private Bank in Switzerland. The balances ranged from $3.5 million to $4.8 million between 2005 and 2009.

While still in OVDP, Taxpayer filed incomplete and inaccurate documents with the Service, including income tax returns and FBARs that did not disclose Mosquetero’s Swiss holdings that were controlled by Citi Private Trust on his behalf, as he suggested he would. Taxpayer did not file any FBARs for Mosquetero’s accounts for the tax years at issue.

The IRS then assessed FBAR penalties of $484,478 each year from 2005 through 2009, totaling $2,422,391. Taxpayer then opted out of the OVDP program.

Reporting foreign financial assets held by foreign entities

It’s hard to tell if the failure to report the Swiss entities on the FBARs was intentional or a mistake. It’s very puzzling why the taxpayer informed the IRS of those accounts in the pre-clearance process, but then failed to report them on the FBARs.

If a taxpayer has greater than 50% ownership or beneficial interest in a foreign entity that holds foreign financial assets, those assets are required to reported on the taxpayer’s FBARs.

What should non-compliant taxpayers do?

If taxpayers are non-compliant with the foreign asset and income reporting requirements, they should consider applying to one of IRS’ voluntary disclosure programs:

We assist taxpayers who have undisclosed foreign financial assets. Schedule an appointment to see how we can help.