Though the Internal Revenue Service (IRS) suspects that tens of thousands of Americans are hiding money in offshore bank accounts and not paying taxes on it, the IRS has only recently started cracking down on it. One example is the federal case of Mobil Oil executive Bryan Williams. Tax attorneys have been closely watching Williams' case to see how courts would treat those who intentionally failed to disclose foreign accounts.
Bryan Williams' problems arose well before the IRS' 2009 lawsuit against him. In 2003, Williams pled guilty to criminal fraud and conspiracy charges for receiving $2 million in covert funds for helping Mobil acquire a stake in a Kazakhstan oil field in 1996. Williams held the money (plus another $5 million) in two accounts at Credit Agricole Indosuez, a French bank, from 1993 to 2000. Williams was sentenced to 46 months in prison with an agreement to pay back taxes and interest on the funds.
With his guilty plea on those counts, the IRS sued Williams in 2009 for willfully failing to file Foreign Bank and Financial Accounts reports (known as "FBARs") in 2000. The statute of limitations prevented the IRS from suing over earlier failures. As a sanction, the IRS asked for two separate $100,000 payments (one for each account) for the willful failure to file FBARs in 2000.
Under U.S. Treasury rules, a willful violation of the FBAR requirement carries a penalty of the greater of $100,000 or half the value of the account for each year of violation. FBARs must be filed by June 30th for every foreign account exceeding $10,000 in value. While willful failure to file carries a penalty of $100,000 or more, a non-willful failure to file will result in a $10,000 penalty. These penalties are in addition to any back taxes and interest owed the IRS.
In 2010, a United States District Court in Virginia found in favor of Williams, striking a significant blow to the IRS' attempts to tighten the reigns on the taxation of foreign accounts. However, a Fourth Circuit Court of Appeals reversed the lower court, siding with the IRS. Citing Williams' 2003 conviction relating to the accounts, the panel said Williams could not claim "he was unaware of, inadvertently ignored, or otherwise lacked the motivation to willfully disregard the FBAR reporting requirement."
The decision was closely watched for its legal precedent regarding the willfulness of failing to file an FBAR. While many tax attorneys argue that their clients did not know about the FBAR requirements, the IRS claims that proper notice is provided in the fine print on tax documents and failing to read it is simply "willful blindness."
While Williams' case is specific to the willful failure to file an FBAR, tax evasion can include willfully failing to file a tax return, failing to pay the required tax amount or even failing to report income. Tax evasion is a felony with a prison term of up to five years and a $100,000 fine. Failing to file a return is a misdemeanor, but can result in a year in prison with a $25,000 for each year a return was not filed. Filing a false return is a felony resulting in up to three years in prison and a $100,000 fine per offense.
Tax evasion allegations and the associated civil and criminal penalties are serious and potentially life-altering. For this reason, if you or a loved one is under investigation or charged with tax evasion or other criminal tax violations, it is crucial to contact an experienced criminal defense attorney to discuss your situation and your options.
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