The gravamen of the prosecution was for misdeeds that are atypical to the cases that DOJ Tax is prosecuting out of the current offshore account initiative. Hence, I view the case as an outlier for many readers of this blog. The Government's summary of the convictions in the press release is (with bold face for the FBAR information):
According to the indictment, which was returned on June 23, 2010, and the evidence admitted at trial, Rick Matsa, who in addition to being an attorney was also an architect, a real estate broker, and a licensed minister in Ohio, created and operated several nominee entities in order to disguise and conceal his income and assets from the IRS. The false trust return charges relate to filings for at least five separate trust entities during the tax years 2003 to 2005. In fact, the evidence at trial showed that the trusts had been filing similar returns dating back to 1990. Each of the trusts reported receiving significant amounts of interest income each year, generated from funds held in numerous bank accounts, yet no income tax was reported due as a result of fraudulently claimed deductions for distributions on the trust returns that were purportedly paid to a foreign beneficiary each year. However, the evidence at trial showed, instead, that Rick Matsa used funds from those trusts to purchase a 150-acre farm in Hocking County and a home in Worthington, both of which he used as a personal residence.
The evidence at trial also showed that Rick Matsa violated FBAR, the foreign bank account reporting requirements, by failing to disclose his ownership and control over a foreign bank account held in The Netherlands. The evidence at trial was that Rick Matsa maintained more than $300,000 in funds in that undisclosed foreign bank during 2003.
The evidence at trial further showed that after learning of the federal grand jury investigation into his business activities in May of 2006, Rick Matsa, together with Loula Matsa and others, conspired to obstruct the investigation by misleading and concealing evidence from the grand jury, making false statements to the grand jury, creating false documents, tampering with witnesses, and lying to federal investigators.
George Pappas, formerly an attorney in Urbana, Ohio, who previously pleaded guilty to making false statements to federal agents and during the grand jury investigation, testified at trial. Pappas testified that he falsely claimed ownership of Rick Matsa's law firm, located in the Short North area of Columbus, in their efforts to withhold records from the grand jury.
Rick Matsa's tenant, P. Maria Galloway, the owner of an art gallery next door to Rick Matsa's law firm, also testified after pleading guilty to conspiracy to obstruct justice. Galloway testified that she signed numerous documents at Rick Matsa's direction, including federal income tax returns for Rick Matsa's law firm and a number of his nominee entities, which Rick Matsa used as part of his scheme to obstruct the IRS.
"The evidence at trial was that Rick Matsa maintained more than $300,000 in funds in that undisclosed foreign bank during 2003. "
ReplyDeleteWow, I had around $100,000 (including RRSP) undisclosed fund in Canada in from 2003 to 2010. Lucky for not being in the list -:)
Jack,
ReplyDelete2003 is already out of SOL -- what is this evidence can be used for ?
Does it mean that those who is doing forward compliance running risk for past FBAR sin ?
tj, I am not sure what you are asking. Perhaps, you could restate the question in a different way.
DeleteJack Townsend
Jack,
ReplyDeleteIf someone has over 10K offshore for years (never FBAR filing) and now decides to go forward. Does he/she have a risk like this guy (300,000 in 2003) ?
I know you highlighted this section to alert readers -- maybe it really depends on other facts..
This is an atypical case -- I make that point in the beginning. It really has no application to people in the program because of all the bad acts involved. I only highlighted the FBAR portion to draw readers attention to that aspect of the case, not to suggest that it is relevant to any of the readers' situations. I seriously doubt that it is relevant, except perhaps for those readers who in addition to having unreported foreign accounts have a host of other, really more serious bad acts (obstruction, etc.).
DeleteJack Townsend
I'm the dutch socalled beneficiary, i helped Rick in 2003 to open a bankaccount. After a few months Rick told me the bank didn't want the money and the money went back. I don't understand what was so wrong about it. Ask me . I still have many questions. If i had known this would makehim a criminal i wouldn't have helped him to open a bankaccount in his name in the Netherlands.
ReplyDeleteSo are you saying that he did not open these accounts to intentionally hide it from the Govt?Did he sign any documents that instructed the accounts should not be revealed to Govt agencies.
DeleteHe told me he needed to store the money elsewhere so it would be safe from his wife who wanted a divorce, later he told me he was threatened by the friends of his wife who wanted money of him. In 2007 i had to tell the irs and the DOJ about it. At that time they didn't tell me that it was about taxevasion. Although i was the human shield, my friendship was abused i wouldnt want him to go to jail for this. I think those federal laws are much to harsh. If he goes to prison for a long time i dispise the usa and all the sheeple who make this possible. Happy to live in Holland, taxevaders have to pay but don't go to prison for a long time.
DeleteI don't know what he had to sign for the bank and if he did sign or not. I know someone of the ING bank had to come to testify last september. How is it possible that for 16 years there was never a problem and all over sudden after alarming the fbi they go after him and do everything, they spent 6 years of research, travel 2 to the Netherlands to frame him. Can anyone explain to me why in the usa they go after small crooks and big guys like Jon Corzine can walk scottfree? Do Americans think that justice is served?
DeleteIt seems to me that if actual criminal cases are brought forward on failure to file FBAR, then the filer could claim Fifth Amendment privilege, since the revelation of the account presents the jeopardy of belated FBAR charges from a previous year. The report of the existence of an account in 2012, for example, could result in a criminal charge in 2011.
ReplyDeleteIf the information was used for purposes under the Required Records, then why is the failure to file being condemned in this case: because it is a criminal act not to file! The Fifth Amendment therefore must apply.
Peter,
DeleteYou raise one of the dilemmas that remains in the Fifth Amendment jurisprudence. The law has been developed at the ends of the Fifth Amendment spectrum. You raise a question in the middle.
Middle questions may not have answers that are totally consistent with the rationale of the Fifth Amendment.
Read the dissent in Hubbell.
Thanks for your comment!
Jack Townsend
Re: The "middle areas" of the Fifth Amendment.
ReplyDeleteI would like to direct your readers to Scott Michel's article, entitled "Advising a Client with Secret Offshore Accounts - Current Filing and Reporting Problems", published in September 1999, in the Journal of Taxation (Available at: http://www.capdale.com/advising-a-client-with-secret-offshore-accounts-current-filing-and-reporting-problems) (Last Visited on 042512).
Mr. Michel makes the following compelling point regarding the Fifth Amendment option:
"Because of annual disclosure requirements, taxpayers engaged in ongoing concealment of foreign accounts are forced to "return to the scene of the crime" every year. This provokes a tricky set of issues for tax practitioners advising these clients, especially those already under IRS scrutiny. In such cases, lawyers must reconcile their professional responsibility to protect the client's interest with their legal and ethical obligations not to counsel, condone, or join in an unlawful cover up. Although there are no ideal answers, through the judicious and careful use of the taxpayer's Fifth Amendment privilege, the practitioner can recommend a course of action that complies with the tax and BSA reporting requirements, while disclosing the least amount of information that could damage the client."
I would also like to draw your readers attention to Scott Michel's more recent article, entitled "Criminal Tax Investigations and Current-Year Returns: New Thoughts on a Perennial Issue", published in December 2004, in Andrews Litigation Reporter (Available at: http://www.capdale.com/files/White%20Collar%20Crime%20Reporter.pdf) (Last Visited 042512).
Further, I would like to commend Baird v. Koerner, 279 F 2d 623 (9th. Cir. 1960), to your readers careful consideration.
Jack,
ReplyDeleteI would like to offer a compelling article authored by Richard B. Stanley, entitled "CONFLICT BETWEEN THE INTERNAL REVENUE CODE AND THE FIFTH AMENDMENT PRIVILEGE", published in the Spring, 1986 Issue of the University of Baltimore Law Review (15 U. Balt. L. Rev. 527, 555-560), for your's and your readers consideration.
Significantly, Mr. Stanley advances the following at p. 560:
"Although a taxpayer may not be privileged from filing a return, the IRS may engulf the filing requirement within the fifth amendment's protection. [FN304] If a taxpayer is privileged from disclosing incriminating information and the IRS refuses to accept a return without the incriminating information, Marchetti indicates that the taxpayer is privileged from filing the entire return. [FN305] There is essentially no difference between the IRS requiring incriminating information before accepting a return and the situation in Marchetti. In Marchetti, the Court found that gamblers were privileged from paying tax because the government refused to accept payment without a return, and filing a wagering tax return incriminated the taxpayer. [FN306] The theory in Marchetti is relatively simple-the government cannot require self-incrimination as a condition of complying with nonincriminating requirements without equally subjecting both the nonincriminating and the incriminating disclosures to the fifth amendment's protection."
(Citations omitted).
Mr. Stanley also offers the following (at pp. 560-561) as to failing to pay the tax due:
"Few situations arise that permit exercising the fifth amendment's privilege when failing to pay the tax due. Earning money from illegal activities does not make payment of federal income tax privileged. [FN307] Similarly, a legal obligation to make restitution or another form of repayment of illegal receipts does not prevent liability for income tax. [FN308]
In Marchetti, the Court relied on two factors to hold that a taxpayer properly exercised the fifth amendment by failing to pay the wagering tax. First, Marchetti was privileged from filing a return because every *561 disclosure on the entire return required self-incrimination. [FN309] Second, the government rejected tax payments made without an accompanying wagering tax return. [FN310] Even if a taxpayer is privileged from filing an income tax return, [FN311] an attorney may make an ‘undisclosed taxpayer’ payment against an individual's tax liability. [FN312] The argument used by Marchetti thus is not available for a failure to pay income tax. If the IRS refuses to accept an undisclosed taxpayer payment, however, the taxpayer should be privileged from the act of making payment. [FN313] The taxpayer's liability does not change; only the act of making payment becomes privileged.
A major question remaining is whether the undisclosed taxpayer system is sufficiently accessible to a taxpayer privileged from making most, if not all, of the specific disclosures required on a return so as to preclude a valid fifth amendment claim for failing to file a return or make a tax payment. A taxpayer who fails to file a return for fear of self-incrimination, also may fail to pay tax because he is unaware of a method to do so without incriminating himself. In any event, the government must obtain independent knowledge of a taxpayer's liability before the taxpayer needs to assert the privilege for failure to pay tax. [FN314]"
(Citations omitted).
I hope the foregoing comments further your's and your readers' understanding of the contours of Fifth Amendment jurisprudence as it pertains to tax compliance.
Presuming that increased punishment based on relevant
ReplyDeleteconduct must be criminal in nature as opposed civil misconduct I have difficulty
understanding how the increase in punishment for acquitted conduct or criminal conduct expressly denied
by Congress by the limitations period does not implicate the ‘double jeopardy’ since, as you state the government must prove the alleged‘tax loss’ under ‘preponderance of evidence’.
In Helvring the Court has ruledthat at Tax Court following a criminal prosecution the acquittal does not bar the government from proving ‘civil fraud’, by clear and convincing evidence, to impose fraud penalties because the civil proceeding is remedial in nature and requires proof by the lesser standard and thus does not implicate double jeopardy. Of course, the government can issue a notice of deficiency asserting fraud at any time so the criminal statute of limitations does not bar civil fraud penalties. Isn’t the sentencing hearing subsequent to the acquittal?
"Where the objective of the subsequent action likewise is punishment, the acquittal is
a bar, because to entertain the second proceeding for punishment would subject the defendant to double jeopardy; and double jeopardy is precluded by the Fifth Amendment
whether the verdict was an acquittal or a conviction. Murphy v. United States, 272 U.S. 630, 632." Helvring,303 US 920-21
So my question is: Doesn’t imposition of punishment for acquitted ‘criminal conduct’
(no tax loss from acquitted criminal conduct can be found by the Court) or punishment for ‘criminal conduct’ bared by Congress imposed limitations on punishment necessarily implicate freedom double jeopardy on acquitted criminal conduct and freedom from punishment by limitations period Toussie? And if not why not? In the end. If the Court can impose greater punishment for acquitted conduct and criminal conduct bared by Congress, why go to trial?