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FATCA Crime (2018) – How Foreign Accounts Can Lead to U.S. Prosecution

FATCA Crime (2018) -  Foreign Accounts Can Lead to U.S. Prosecution by Golding & Golding

FATCA Crime (2018) – Foreign Accounts Can Lead to U.S. Prosecution by Golding & Golding

FATCA Crime (2018) – Foreign Accounts Can Lead to U.S. Prosecution

Unfortunately, short term motives sometimes result in long-term consequences.

FATCA Crimes are on the rise, and this summary will provide you an example of how foreign accounts can lead to U.S. prosecution.

Criminal enforcement is becoming much more of a reality for individuals who may have been illegally moving money offshore into a foreign country in order to avoid reporting requirements – only to get nabbed as a result of FATCA Reporting, Structuring and AML (Anti-Money Laundering) initiatives.

It Does Not Need to Be “Manafort” Sized Fraud

By this time, many people are aware that Paul Manafort, the former campaign manager for Trump, has been indicted for international money-laundering/evasion/disclosure crimes, and as of the writing of this article has had his bail revoked for other reasons.

Nevertheless, even though Manafort had put together a very in-depth and intricate scheme to avoid disclosing or reporting foreign income, assets, investments, and accounts to the Internal Revenue Service, laundering does not always have to be that complicated.

A Quick Reminder: 1040 Schedule B, Question 7

It is very important to note that despite Manafort’s grand scheme, a simple lie to his CPA regarding his foreign accounts was a major contributing factor to what did him in.

Many of his problems stem from knowingly marking off “No” on Schedule B, Question 7 in his tax return. This is a question that asks about ownership or signature authority over foreign accounts.

If you knew you had a reporting requirement but lied to your CPA, you were willful (but there is still hope). It does not matter if you were willful for 1-year, 2-years or 10-years — you cannot go Streamlined or Reasonable Cause.

If any Attorney (typically inexperienced attorneys without any significant OVDP or Streamlined experience) recommends that you go Streamlined or Reasonable Cause when you were willful, you should take caution, and continue researching for firms who are very experienced in this area of law.

If you have mitigating factors, the proper strategy is to go OVDP, and then Opt-Out. 

Click Here to read about what happens if you go Streamlined when you were willful.

Click Here to read about one of Golding & Golding’s recent OVDP Opt-Out success.

Click Here to read about How to Find and Interview an OVDP Lawyer.

What Should the Manafort Situation Teach You?

If the Manafort situation teaches you anything, it is that no matter how much power you wield, and how complicated and intricate your illegal tax scheme may be – in the end, the IRS and US government have many ways and means to find your money, regardless.

What is Evasion?

There are many different types of penalties that the IRS can issue depending on the facts and circumstances of a person’s non-compliance.

While some IRS penalties are relatively minor and can be easily abated by using a reasonable cause submission, offshore disclosure, or domestic disclosure — other tax penalties are much more serious and may result in significant fines and penalties.

What is IRS Tax Evasion – Tax Evasion Definition

Tax Evasion is when a person intentionally artificially reduces their tax liability to the IRS. A person typically commits tax evasion when they:

  • Do not submit a tax return when they know they should
  • Artificially reduce or omit Income
  • Include false personal deductions on the tax return
  • Include false business deductions on the tax return

Since the goal of the individual is to falsely reduce the tax liability, it is considered an attempt to “evade” taxes, and hence a potential criminal tax evasion charge.

What is Money Laundering?

Money laundering is typically the process of taking money that was earned illegally and trying to clean the money by investing it or using it for other means.

As provided by the IRS:


Money laundering is the process of disguising criminal proceeds and may include the movement of clean money through the United States with the intent to commit a crime in the future (e.g., terrorism). Common methods include disguising the source of the proceeds; changing the form of the proceeds; or moving the proceeds to a place where the proceeds are less likely to attract attention. The object of money laundering is ultimately to get the proceeds back to the individual who generated them.


Money laundering is a necessary consequence of almost all profit generating crimes and can occur almost anywhere in the world. Money laundering is a threat to the United States tax system in that taxable illegal source proceeds go undetected along with some taxable legal source proceeds from tax evasion schemes.


Both schemes use nominees, currency, multiple bank accounts, wire transfers, and international “tax havens” to avoid detection. This untaxed underground economy ultimately erodes public confidence in the tax system.

Simple Example of Money Laundering

Peter received illegal income from selling stolen jewelry. He wants to avoid detection and therefore transfers the money abroad to invest in legitimate investments. (aka “washing the money”) This would be considered Money Laundering. Obviously, Peter would not want to just take $1 million and deposit it to his bank without explanation…unless Peter is looking to get arrested and charged.

Peter is Not Money Laundering – He’s Structuring

In the current situation, Peter is not actually laundering money, because Peter received the money legally from selling family jewelry.

The problem is the earnings were in cash. And like most people with extravagant habits, Peter does not want to deposit his $1,000,000 of cash earnings he received into the bank, and doesn’t intend to pay income tax on it either.

Rather, he wants to avoid reporting the income and/or avoid the bank issuing either a CTR (Cash Transaction Report) or SAR (Suspicious Activity Report) as a result of depositing the money into the bank.

Therefore, Peter Hatches a Plan

Instead of depositing the money into a U.S. Bank, Peter recruits some of his friends who live overseas and asks them to deposit the money into their own accounts. These individuals are careful to avoid currency transaction (CTR) “reports” by engaging in structuring (which is also a crime, in which individuals structure transactions typically below the $10,000 reporting requirement to avoid CTR, and hopefully SAR).

Two years later, the money has been transferred to Peter. Thereafter, Peter takes the million dollars, purchases multiple homes outside of United States, and earns rental income on those properties.

In addition, Peter has his brother, a non-US person with no ties to the United States to open a Sociedad Anonima, into which Peter’s brother deposits all the money  – avoiding any reporting by Peter.

Peter is in the clear, correct?

…. Not so fast.

Peter’s Friend was a Legal Permanent Resident

Even though the friends Peter use to mo ve the money when it was initially transferred from the United States abroad are citizens of the foreign country, they are actually U.S. Legal Permanent Residents as well. 

They never thought to tell Peter about this, because they do not reside in the United States and do not have any ties to the United States, other than the fact that they maintain rental properties in the United States and travel to the U.S. every so often.

One of Peter’s Friend’s had an Extended Stay in the U.S.

Many years ago, one of Peter’s friends, who was tasked with smurfing about $500,000 (which he placed into his account briefly), had updated the Foreign Financial Institution at the time he received his green card  (more than 15 years ago).  He updated the bank at that time only because he would be staying United States for about 6-12 months in order to finish the paperwork, and purchase the rental properties — and wanted to track his families spending habits (in days before everyone could access statements online)

Peter never thought to ask his friend about U.S. Status, and his friend never thought to tell Peter because the friend has a property manager in the United States, the U.S. rental business runs on autopilot — and the friend never visits for more than 2-weeks in any given year.

FATCA Reporting

Since 2017, the foreign country at issue began FATCA Reporting. 

Most of the time Peter’s friends’ Accounts that he used for the structuring had relatively small amounts (they don’t trust the banks) and therefore there was never much to worry about regarding reporting.

But, in this particular year  and due to the fact that he was holding nearly $500,000 of Peter’s money for more than 30-days, the Financial Institution reported the information to the United States, along with tens of thousands of its other customers.

In other words, Peter’s friends were not singled out, they were just part of the wave of reporting at that time.

Peter’s Friend Gets Divorced

As with many couples, Peter’s friend’s marriage takes a turn for the worse, and they divorce. Unfortunately, Peter’s friend is a known as a local philanderer and the wife was very upset.  This is compounded by the fact that Peter’s friend was refusing to negotiate a fair marital settlement agreement (MSA).

Moreover, until recently, the wife was unaware of the significant assets that peters friend maintains in the United States.

Peter’s friend tells his soon-to-be ex-wife to go pound sand. In response, the soon to be ex-wife decides to contact the IRS and become a whistleblower against the ex husband.

Why Does Any of This Matter to Peter?

Because now, the IRS is involved. The agent that spoke with with the soon-to-be-ex-wife went through a nasty divorce herself and has some sympathy.  She takes a few additional minutes out of her day to research whether there has been any FATCA reporting regarding the husband, and learns that a Foreign Bank Account of his was reported with a high balance of $500,000 in it.

The agent also notices that individual never filed an FBAR, and did report under FATCA (he filed Married Filing Separate, so he has a Form 8938 requirement).

Moreover, the agent also learns that the rental company Peter’s friend uses to hold his own properties is an Sociedad Anonima, and that Peter’s friend was not filing a form 5471.

She decides to issue an examination notice to Peter’s friend… along with an IDR (Information Document Request). And, while Peter’s friend is loyal, he is not loyal to the tune of paying a $500,000 FBAR penalty in a muiti-year audit when he could be found willful.

So Peter’s friend decides to come clean to the IRS…

What Can You Do?

Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.

We Specialize in Safely Disclosing Foreign Money

We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)

Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Examples of areas of tax we handle

Who Decides to Disclose Unreported Money?

What Types of Clients Do we Represent?

We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.

You are not alone, and you are not the only one to find himself or herself in this situation.

Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist

Our Managing Partner, Sean M. Golding, JD, LLM, EA  holds an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

*Click Here to Learn about how Attorneys falsely market their services as “specialists.”

Less than 1% of Tax Attorneys Nationwide

Out of more than 200,000 practicing attorneys in California, less than 400 attorneys have achieved this Certified Tax Law Specialist designation.

The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. It is a designation earned by less than 1% of attorneys.

IRS Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

A Penalty for failing to file Form 8938

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

What Should You Do?

Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.

Be Careful of the IRS

With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.

4 Types of IRS Voluntary Disclosure Programs

There are typically four types of IRS Voluntary Disclosure programs, and they include:

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