Fighting Offshore Tax Evasion Charges in Federal Court in New York

Fighting Offshore Tax Evasion Charges in Federal Court in New York

Getting charged with offshore tax evasion in federal court in New York can be scary. The penalties are harsh and the government seems to have unlimited resources. But with the right defense strategy, these cases can be beat.

The government started cracking down hard on offshore tax evasion after passin’ the Foreign Account Tax Compliance Act (FATCA) in 2010. FATCA basically forced foreign banks to report on accounts held by U.S. citizens. So now the IRS has a treasure trove of information about offshore accounts that weren’t bein’ reported.

Armed with this info, the Justice Department started goin’ after people with undeclared foreign bank accounts in a big way. We’re talkin’ criminal prosecutions, huge fines, even jail time. They’ve netted some big fish too, like Swiss bankers and billionaires with secret Caribbean accounts.

But the government’s had some trouble in court. Offshore tax cases are complex, and smart defense lawyers have poked holes in the prosecution’s arguments. Here’s an overview of offshore tax evasion charges, how the cases work, and some successful defense strategies that have scored wins.

Common Offshore Tax Evasion Charges

There’s a few main charges the government brings in offshore tax cases:

• Failure to file FBAR reports
• Tax evasion
• Conspiracy to defraud the IRS
• Money laundering

Let’s break these down:

Failure to File FBAR

The main weapon is the Report of Foreign Bank and Financial Accounts, or FBAR. This is a report taxpayers have to file if they have foreign accounts over $10,000. The IRS can hit you with huge fines, like 50% of the account balance, for each unfiled FBAR. They love stackin’ these fines up over multiple years.

But these fines are really hard to justify in court. The FBAR rules are complex and plenty of taxpayers don’t realize they need to file. The IRS has lost some big cases after juries heard this.

Tax Evasion

If the IRS thinks you intentionally hid foreign income, they’ll charge you with tax evasion. This is a felony with up to 5 years in prison. They have to prove you knew about the reporting requirements and intentionally violated them.

This can be hard to prove, especially if you relied on professional advice about foreign accounts. It’s a high bar and juries have acquitted on tax evasion charges in FBAR cases.

Conspiracy to Defraud the IRS

Now we’re talkin’ serious charges – conspiracy carries up to 5 years per count. This requires proving you intentionally conspired with others to impede the IRS. FATCA has given them more ammo by uncovering networks of bankers and advisors facilitating tax evasion.

But again, proving intentional misconduct and not just negligence is difficult. The government has to show you knew about the reporting requirements and tried to get around them.

Money Laundering

Finally, they’ll often stack on money laundering charges. This requires showing you transferred funds internationally to promote illegal activity. Typically they’ll point to transfers that hid the money’s origins or ownership.

The defense here is showing the transfers were for legitimate personal or business reasons, not to hide illegal activity.

How the Government Builds Its Case

The IRS and Justice Department have developed an effective playbook for these prosecutions:

1. Follow the money using FATCA data
2. Identify potential enablers like bankers and advisors
3. Offer cooperation deals to enablers to get evidence
4. Use cooperators as witnesses against account holders
5. Portray account holders as rich tax cheats

This can make for a formidable case on paper. But the actual evidence may have holes when scrutinized in court. And juries don’t always buy the narrative of foreign account holders as greedy tax evaders.

Winning Defense Strategies

Based on recent trials, we can identify some defenses that work:

Lack of intent – negligence vs criminal conduct

A good defense will argue the taxpayer was negligent but did not intentionally break the law. Maybe they relied on foreign advisors who misled them. Or they didn’t realize FBAR rules applied. Negligence leads to civil penalties, not jail.

Dismiss cooperating witness testimony

Flippers who cut deals will say anything to help the prosecution. But their credibility can be undermined on cross-examination. Successful defenses expose cooperators’ motives and inconsistencies.

Focus on complexity of rules

FBAR and FATCA rules are convoluted, even IRS agents get confused. So how can they expect average taxpayers to understand and comply? Juries have been receptive to this, it resonates with their experience dealing with taxes.

Appeal to jury’s sense of fairness

Portraying someone as a rich tax cheat can backfire. Juries understand people keeping money offshore for legitimate reasons, like protecting assets. A defense focused on fairness, not greed, can win over a jury.

Recent trials have shown offshore tax cases are far from slam dunks for the government. With experienced counsel, a well-planned defense strategy can beat the charges.

The climate is improving for account holders who made honest mistakes. The IRS has offered amnesty programs to encourage people to declare foreign assets. And we may see more losses in court forcing the government to pursue fewer cases.

So if you find yourself facing offshore tax evasion charges, don’t despair. With the right strategy, you can fight the government and win.

References

[1] Four Individuals Charged with Conspiring to Defraud the United States by Failing to Comply with Foreign Account Tax Compliance Act

[2] Former Swiss banker agrees to face U.S. tax charges

[3] Court Authorizes IRS to Issue Summonses for Records Relating to U.S. Taxpayers with Offshore Bank Accounts

[4] 6 executives charged in $500 million offshore securities fraud, money laundering scheme

[5] U.S. jury finds former Swiss banker not guilty of aiding tax fraud