Underreported Foreign Income Leads to Guilty Plea 2023

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Underreported Foreign Income Leads to Guilty Plea 2023

Underreported Foreign Income Leads to Guilty Plea 2023

Underreported Foreign Income Leads to Criminal Charges 

In general, IRS tax violations are civil in nature and not criminal in nature. In other words, the majority of the time, when a person violates the tax code — they will become subject to fines and penalties, but not criminal incarceration. Nevertheless, there are instances in which taxpayers may become subject to incarceration when they violate a criminal tax statute — such as federal tax evasion. When it comes to international tax matters it is pretty rare that a violation will result in criminal charges, but it can happen as it recently did in the case of a California man who admitted to committing felony violations involving the failure to report foreign bank accounts as well as filing false tax returns. In an April 25th, 2023 press release, the US attorney’s office for the Northern District of California provides the following summary of the case —

Defendant Admits Committing Felony Violations Involving Failure to Report Multimillion-Dollar Foreign Bank Accounts and Filing False Tax Returns

      • SAN JOSE –Roger Chi Quan, pleaded guilty to crimes related to a scheme to underreport his 2017 business income by over $4 million, announced United States Attorney Ismail J. Ramsey and Kareem Carter, Acting Special Agent in Charge of the IRS – Criminal Investigation Washington D.C. Field Office. The guilty plea was accepted by the Honorable Edward J. Davila, United States District Court.
          • Quan, 55, of Milpitas, Calif., owned and operated QXQ, Inc. (“QXQ”), a manufacturer of circuit board test fixtures based in Fremont, Calif. QXQ shipped its products to customers in the United States and Asia. According to his plea agreement, Quan admitted that since before 2014, QXQ maintained two sets of QuickBooks bookkeeping files. One set of books recorded sales to customers in the United States and all QXQ’s expenses.
          • The second set of books recorded sales to customers in Asia. Quan directed QXQ’s customers in Asia to wire transfer their payments to QXQ’s bank accounts in New Zealand. Quan admitted that he retained an income tax preparer but provided the preparer only with the QuickBooks bookkeeping file that recorded QXQ’s sales to customers in the United States and all of its expenses. Further, Quan acknowledged he knowingly did not provide his income tax return preparer with, or disclose to the tax preparer the existence of, the bookkeeping file that recorded QXQ’s sales to customers in Asia or the statements from his and QXQ’s foreign bank accounts. Quan agreed his actions caused his 2017 federal income taxes to be underreported by $1,783,339. 
          • The plea agreement contains further details of the scheme. For example, Quan admitted that he had signature authority over at least eleven foreign bank accounts in 2017. One of these accounts held a balance of at least $12,137,288.50 on April 15, 2018. Quan admitted that he knowingly did not report the existence of these accounts as required. For example, Quan was required to report the existence of the accounts on FinCEN Form 114, Report of Foreign Bank and Financial Accounts. Quan also did not report the interest earned in foreign bank accounts to his tax return preparer.
          • On March 27, 2023, Quan was charged by felony information with one count each of willfully aiding and assisting in the preparation of a false tax return, in violation of 26 U.S.C. § 7206(2), and willfully violating foreign bank account reporting requirements, in violation of 31 U.S.C. §§ 5314 and 5322(a). Quan pleaded guilty to both counts.
          • Judge Davila scheduled Quan’s sentencing for September 25, 2023. The maximum penalty for willfully violating foreign bank account reporting requirements, in violation of Title 31 U.S.C. §§ 5314 and 5322(a), is five years in prison and a fine of $250,000. The maximum penalty for filing a false tax return, in violation of Title 26 U.S.C. § 7206(2), is three years in prison and a fine of $250,000. Quan agreed to pay $8,167,733 of restitution to the Internal Revenue Service for the tax years 2014 through 2018.

Current Year vs Prior Year Non-Compliance

Once a taxpayer has missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.