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Yet another UBS-related FBAR conviction

The US Department of Justice (DOJ) scored yet another victory in its crusade against Offshore tax evasion. Christopher B. Berg of Portola Valley, Calif. plead guilty in U.S. District Court in San Jose, California of one count of willful failure to file, in 2005, the required report of foreign bank account (FBAR) for a bank account he opened with UBS in Switzerland.

According to the information, in 1999, Berg began working as a consultant. In 2000, Berg met with Beda Singenberger, a Swiss financial consultant, and a vice president of banking at UBS in San Francisco regarding setting up a bank account at UBS in Switzerland to shelter a portion of his consulting income from taxation. Beginning in 2001 and continuing through 2005, funds representing $642,069 in compensation earned by Berg from consulting services were deposited by wire transfer to UBS accounts. Berg used the money in these accounts at UBS in Switzerland to purchase a vehicle, to obtain cash while in Europe, and to pay the balance on a Eurocard he used while traveling in Europe. Berg did not disclose the existence of his accounts at UBS in Switzerland to his certified public accountant, and did not disclose the income earned by these accounts or the consulting income deposited to the accounts.

 

My initial thoughts:

Excellent work by his legal team, considering some of the huge penalties the Department of Justice was able to squeeze out of other FBAR defendants

 

Click here to learn why 2013 could be the best time to disclose foreign bank accounts to the IRS

 

The DOJ likely didn’t have the leverage they did in other recent FBAR cases. It appears that the bulk of the tax evasion was from unreported earned income as a consultant, as opposed to unearned income from interest in dividends from a foreign bank account.  And because there is no “FBAR penalty” for failing to report worldwide wages so or international tax evasion, in cases where there are no unreported earnings from non-disclosed foreign bank accounts, the IRS basically has the same tools available for a domestic tax evasion case pursuant to 26 USC 7201. Which are typically  penalties of up to $250,000, and up to 5 years in prison (Note: most resources on the internet list the old fine amount of  $100,000; this was once the case, but was increased to $250,000 for individuals and $500,000 for  corporations  by the  the Criminal Fine Enforcement Act of 1984 (P.L. 92-596) for crimes that occurred after 1984)

The Department of Justice claims Berg’s conduct cost the US Treasury $270,757 in lost revenue off of a total of $642,069 in unreported income. This makes for a 42.2% effective tax rate? Something seems off here.

Was Mr. Berg one of the 4450 names the DOJ received from UBS? Did he have an opportunity to disclose in 2009 or did this investigation already start? I suppose we will find out more at sentencing.

If restitution is ordered, and Mr. Berg can’t pay, he will likely have a parallel civil tax assessment and an ugly tax problem. In order to settle the civil tax assessment with an Offer in Compromise, he must first pay the criminal restitution amount. The other hurdle is that the IRS does not like to settle back taxes if they feel someone is dishonest or not worthy of consideration. It is very difficult to settle back taxes due to tax evasion. Lastly, even discharging tax debts in bankruptcy (after waiting the appropriate time) is difficult as well, as the Chapter 7 bankruptcy code states that any tax arises from an willful attempt to evade or defeat tax is non-dischargeable.  So the best hope in cases where a defendant is given an order of restitution and civil assessment that he can’t afford to to pay is, on the civil side, to get into a Partial Payment Installment Agreement, or Currently Non-Collectable status, wait out the IRS civil statute of limitations and then seek to modify the criminal restitution (which has no statute of limitations) in criminal court. 

 

Again, a plea to those considering to use the IRS Offshore Voluntary Disclosure Initiative — criminal cases are very difficult to recover from financially. It is nothing like settling back taxes from such calamities as divorce, unemployment, or health problems. Criminal tax problems are usually fairly catastrophic — even without jail time. 

 

 

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3 Comments
  1. What triggered this post was a somewhat unhappy call I had with someone who was charged with tax evasion years ago. I wish I could have told him I could wrap up his case as quickly as someone without criminal charges, but I had to be honest with him. he had many more years, if not his whole life to have to contend with the DOJ order of restitution.

  2. If a debtor is eligible for a Chapter 13 (which this taxpayer is not, because of the amount of his debt), he could discharge the 50% fraud penalty, and set up a payment plan he could afford, even if the tax itself is not discharged. He'd have to meet certain requirements for the debt not to be priority debt. And if he waits 3 years from the event which caused the penalty, he can discharge the penalty in a Chapter 7 or 11.

  3. I don't consider the voluntary disclosure program to be a good idea for most people. The IRS DOES NOT take criminal prosecution off the table. The language is that there MAY be a REDUCED likelihood of criminal prosecution. Basically to qualify for the program you have to pull your pants down, let them poke around for a while and hope that what you did wrong wasnt egregious enough for them to want to throw the criminal prosecution book at you. If it was, they are armed with all the info you gave them and they will see a super easy win with little wiggle room for a beneficial plea bargain. Basically voluntary disclosure is BS. If the IRS was genuine with its program to simply get people to come clean, pay their due and get back in line with the system, they truly would have taken criminal prosecution off the table with no tricks or loopholes for them to use when they hit a juicy case.

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