Manafort (Update) – How You Avoid Criminal Charges for Foreign Accounts
After several days of deliberations, the Manafort jury came back with a guilty verdict on eight (8) separate charges, including:
- Filing False tax returns (1040, Schedule B)
- Failing to Report his Foreign accounts (FBAR)
- Bank Fraud
FBAR & Foreign Accounts
Oftentimes, even the most intricate crimes fall apart because of relatively small issues. In this case, Mr. Manafort specifically has three major strikes against him.
– He told his CPA directly that he did not have foreign accounts.
– He marked “No” on Schedule B regarding ownership or signature authority over foreign bank accounts.
– He never filed an FBAR.
Manafort Used a CPA
One of the biggest hurdles Mr. Manafort will have to overcome when it comes to willfulness (an element required for Criminal Tax Liability) is the fact that he had a CPA prepare his taxes and this CPA issued him a Questionnaire, asking him to complete the necessary information so they can complete his tax return.
These questions are not confusing. The questionnaire will ask you (normally multiple different ways and in simple terms) whether you have foreign accounts, accounts in other countries earning income, and/or any other type of investments from abroad (these questionnaires typically steer clear of the term “offshore” since it connotes someone sipping margaritas in the Bahamas and not the reality of foreign account reporting).
If this person proactively answered “No” in writing for all of these questions, this sets up a very difficult case to defend a claim of willfulness.
Manafort Misrepresented His Accounts on 1040 Schedule B
Schedule B is a relatively common schedule that is filed along with a 1040 tax return.
There are two main purposes for filing this form:
-The first purpose is when a person has more than $1,500 in interest or dividends (but no foreign account authority). When a person has less than $1,500, they are not required to identify each specific institution or the amount of the interest/dividend from each institution. But, once a person exceeds the threshold, they are required to parse the total aggregate into an itemized list, detailing the institution, the amount of the passive income, and whether it was interest or dividend.
– The second situation is when a person has ownership or signature authority over foreign accounts during the tax year. It does not matter if the person has ownership of the funds or mere signature authority — they still must file Schedule B. This is true, even if the person does not have any interest or dividends from U.S. or Foreign Sources.
Manafort Never Filed the Annual FBAR
In fact, neither Defendant in this indictment filed the FBAR detailing the amount of money they had overseas. Based on the fact that it appears they each had several million dollars abroad, each defendant would have been required to file his own separate FBAR Report for each year his annual aggregate total in the accounts exceeded $10,000.
OVDP May have Changed Manafort’s Outcome
Presuming the money was legally sourced, Manafort may have warded off any potential criminal charges by entering the traditional OVDP (Offshore Voluntary Disclosure Program) and significantly reduced any fines and penalties – and almost completely avoid a criminal investigation.
OVDP is Ending
OVDP ends on September 28, 2018, but the last day to submit an OVDP Preclearance Letter is August 24, 2018 (this Friday).
There is currently no substitute OVDP ‘program’ being put into place following the termination of OVDP.
Golding & Golding, A PLC
We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.