Russian Bank Founder Sentenced for Crimes Related to Expatriation to Avoid Tax (10/30/21)

I recently wrote on the plea deal for Oleg Tinkov for evading tax on renouncing his citizenship.  See Plea Deal with Russian Bank Founder for Tax Perjury Requiring Payment of More than $500 Million (Federal Tax Crimes Blog 10/2/21), here.  Tinkov has been sentenced consistent with the plea deal.  See DOJ Tax Press Release titled Founder of Russian Bank Sentenced for Felony Tax Conviction Arising from Scheme to Evade Exit Tax while Renouncing his U.S. Citizenship (10/29/21), here.

Key Excerpts from the sentencing press release are:

The founder of a Russian bank was sentenced today for his felony conviction for filing a false tax return. As required under his plea agreement, prior to sentencing, Oleg Tinkov, aka Oleg Tinkoff, paid $508,936,184, more than double what he had sought to escape paying to the U.S. Treasury through a scheme to renounce his U.S. citizenship and conceal from the IRS large stock gains that he knew were reportable. This includes $248,525,339 in taxes, statutory interest on that tax and a nearly $100 million fraud penalty. Tinkov was additionally fined $250,000, which is the maximum allowed by statute, and sentenced to time served and one year of supervised release.

Tinkov was indicted in Sept. 2019 for willfully filing false tax returns, and was arrested on Feb. 26, 2020, in London, United Kingdom (UK). The United States sought extradition, and Tinkov contested on medical grounds. In public records, Tinkov has disclosed that he is undergoing a UK-based intensive treatment plan for acute myeloid leukemia and graft versus host disease, which has rendered him immunocompromised and unable to safely travel in the foreseeable future.

On Oct. 1, 2021, Tinkov entered a plea to one count of filing a false tax return. According to the plea agreement, Tinkov was born in Russia and became a naturalized United States citizen in 1996. From that time through 2013, he filed U.S. tax returns. In late 2005 or 2006, Tinkov founded Tinkoff Credit Services (TCS), a Russia-based branchless bank that provides its customers with online financial and banking services. Through a foreign entity, Tinkov indirectly held the majority of TCS shares.

Plea Deal with Russian Bank Founder for Tax Perjury Requiring Payment of More than $500 Million (10/2/21)

I previously reported on the Indictment of Oleg Tinkov and move to extradite him.  U.S. Taxpayer Renouncing U.S. Citizenship Indicted And Extradition Started (Federal Tax Crimes Blog 5/11/20), here, where I discussed the DOJ press release.  I noted in the blog that the indictment charged two counts of tax perjury, § 7206(1), although, as his overall conduct was described, it seems that there could be other counts as well for which the grand jury could approve a superseding indictment.

Tinkov has now pled to a single count of tax perjury.  DOJ Press release “Founder of Russian Bank Pleads Guilty to Tax Fraud: Admits to Concealing More Than $1 Billion in Assets when Renouncing U.S. Citizenship and Agrees to Pay More Than $500 Million Penalty” (10/1/21), here.  I tried to access the plea agreement on PACER (Dkt Entry 25), but the link said, “You do not have permission to view this document.”  I suppose it is under seal.  When it is unsealed, it will be available on PACER (fee required) and, likely soon thereafter, free on CourtListener, here.

In the meantime, I offer excerpts from the press release.  I focus first on the damning facts of his conduct:

According to the plea agreement, Oleg Tinkov, also known as Oleg Tinkoff, was born in Russia and became a naturalized United States citizen in 1996. From that time through 2013, he filed U.S. tax returns. In late 2005 or 2006, Tinkov founded Tinkoff Credit Services (TCS), a Russia-based branchless bank that provides its customers with online financial and banking services. Through a foreign entity, Tinkov indirectly held the majority of TCS shares.

In October 2013, TCS held an initial public offering (IPO) on the London Stock Exchange and became a multi-billion dollar, publicly traded company. As part of going public, Tinkov sold a small portion of his majority shareholder stake for more than $192 million, and his assets following the IPO had a fair market value of more than $1.1 billion. Three days after the successful IPO, Tinkov went to the U.S. Embassy in Moscow, Russia, to relinquish his U.S. citizenship.

As part of his expatriation, Tinkov was required to file a U.S. Initial and Annual Expatriation Statement. This form requires expatriates with a net worth of $2 million or more to report the constructive sale of their assets worldwide to the IRS as if those assets were sold on the day before expatriation. The taxpayer is then required to report and pay tax on the gain from any such constructive sale.

Tinkov was told of his filing and tax obligations by both the U.S. Embassy in Moscow and his U.S.-based accountant. When asked by his accountant if his net worth was more than $2 million for purposes of filling out the expatriation form, Tinkov lied and told him he did not have assets above $2 million. When his accountant later inquired whether his net worth was under $2 million, rather than answer the question, Tinkov filled out the expatriation form himself falsely, reporting that his net worth was only $300,000. On Feb. 26, 2014, Tinkov filed a false 2013 individual tax return that falsely reported his income as only $205,317. In addition, Tinkov did not report any of the gain from the constructive sale of his property worth more than $1.1 billion, nor did he pay the applicable taxes as required by law. In total, Tinkov caused a tax loss of $248,525,339.

JAT Comments:

Renunciation of Citizenship (8/17/13)

Renunciation of citizenship has been much in the news recently, as the periodic reports indicate that record numbers of citizens are renouncing.  For readers interested in this subject, I recommend this timely and good article Lacey E. Strachan, Tax Consequences Resulting From Renouncing U. S. Citizenship (Tax Controversy (Civil and Criminal) Report 8/9/13)), here.  This article is on a blog sponsored by the law firm of Hochman, Salkin, Rettig, Toscher & Perez, P.C, here, which has a strong team in tax controversy matters, including specifically offshore account civil and criminal representation.  Ms. Strachan's bio page is here.  Readers might also want to review the firm's publications web site, here.

IRS Releases Names of Citizenship Renouncers (11/2/12)

The IRS has published here the names of U.S. persons renouncing citizenship.  There is a person named Lisa Ann Townsend on the list, but I don't know who she is.

The explanation is as follows:

SUMMARY: This notice is provided in accordance with IRC section 6039G of the Health Insurance Portability and Accountability Act (HIPPA) of 1996, as amended. This listing contains the name of each individual losing United States citizenship (within the meaning of section 877(a) or 877A) with respect to whom the Secretary received information during the quarter ending September 30, 2012. For purposes of this listing, long-term residents, as defined in section 877(e)(2), are treated as if they were citizens of the United  States who lost citizenship. 

For a chart showing the renouncers over the years 2005 to present, see Andrew Mitchel's International Tax Blog here.

Hat tip to Tax Prof Blog, here.

Truly Offshore Solutions to Offshore Bank Accounts May Not Be So Good

In the latest highly publicized spate of IRS initiatives against the use of offshore accounts to mitigate U.S. tax liability (that sounds better than to cheat on U.S. tax liability, although it is semantics), some U.S. persons decided that they would just avoid the problem (including past problems) by leaving the U.S. There are some downsides to that U.S. tax mitigation strategy.  One was a topic of comment at the recent ABA tax section meeting in San Antonio.  Practitioners were cautioned to make sure those persons who are or become their clients are advised about the potential tax costs of leaving the U.S. See § 877A. So, I pass this tip on to my readers.

The IRS has recently provided guidance under Section 877A in Notice 2009-85. And, the ABA Tax Section Newsquarterly has a point to remember article discussing this new guidance - Michael A. Spielman, Service Issues Guidance on Section 877A Exit Tax. Here is some excerpts from the article to whet your appetites (I have cut and paste this out of order for readability purposes here, but it is all in the article except as I indicate in brackets).

Under new section 877A [enacted in June 2008], Tax Responsibilities of Expatriation, covered expatriates (generally, U.S. citizens or long-term residents with a five-year average income tax liability exceeding $124,000 as indexed for inflation ($145,000 in 2009 and 2010) (“tax liability test”) or net worth of $2 million or more (“net worth test”), are immediately taxed on the net unrealized gain in their property exceeding $600,000 ($626,000 in 2009 and $627,000 in 2010) as if they sold the property for fair market value the day before relinquishing U.S. citizenship or terminating their U.S. residency (“expatriating”). This mark-to-market tax regime applies to all property of the covered expatriate, other than deferred compensation items, specified tax deferred accounts, and interests in a nongrantor trust of which the covered expatriate was a beneficiary on the day before the expatriation date. Separate provisions apply with respect to these items.

In addition to section 877A, HEART also introduced a new succession tax under section 2801 that imposes a tax on U.S. persons who receive a gift or bequest from an expatriate who was subject to the rules of section 877A. Generally, the rules under section 2801 require the recipient of the gift or bequest to pay tax on the fair market value of the property received at the highest gift or estate tax in effect on the date of receipt. Gifts or bequests to a qualified charity or U.S. spouse are exempt from the tax if made in a form that would be eligible for a deduction under the relevant estate or gift tax Code section. Although Notice 2009-85 does not provide guidance on section 2801, it indicates that future guidance on section 2801 will be issued separately.

Prior to the enactment of HEART, covered expatriates were subject to a 10-year alternative tax regime (1) on their U. S. source income and gain under section 877 and (2) a modified estate and gift tax regime under sections 2107 and 2501. In its most recent incarnation, as modified by the American Jobs Creation Act of 2004 (“AJCA”), section 877 became applicable solely on the basis of objective tests that measured an expatriating individual’s net worth and net income tax liability, without regard to whether the individual had a tax avoidance purpose for expatriating. AJCA also added a third test, which caused expatriating individuals to become subject to the 10-year alternative tax regime if they failed to certify compliance with all U.S. federal tax obligations for the five preceding taxable years. In addition, AJCA added section 877(g), which caused covered expatriates to be treated as U.S. citizens for all federal tax purposes for any year during the 10-year period in which they spent 30 days or more in the U.S. This 30-day rule was not carried over to new section 877A.