Wednesday, September 28, 2016

Another Plea to Offshore Account Tax Crimes (9/28/16; 9/29/16)

DOJ Tax announced here a new information, here, and guilty plea today.  Excerpts:
New York City Resident Pleads Guilty to Using Sham Foreign Entity and Secret Foreign Accounts in Switzerland and Israel to Evade Taxes 
Used Secret Foreign Accounts to Hide over $7 Million in Funds and Evade Taxes
A New York City man pleaded guilty today to a criminal information charging him with tax evasion for tax years 2003 through 2005 and 2007 through 2010, announced Principal Deputy Assistant Attorney General Caroline D. Ciraolo, head of the Justice Department’s Tax Division, and U.S. Attorney Robert L. Capers of the Eastern District of New York. 
“Mr. Hager concealed over $7.3 million in undeclared foreign accounts in Switzerland and Israel and used a sham British Virgin Island entity in order to evade over $650,000 in U.S. taxes,” said Principal Deputy Assistant Attorney General Ciraolo. “As this case demonstrates, the Department and the Internal Revenue Service (IRS), together with our global partners, are successfully working on a daily basis to locate such undeclared accounts, identify those responsible and hold them accountable.” 
According to information presented in court, between 1987 through 2011, Markus Hager, 68, utilized a series of undeclared foreign financial accounts to evade his individual income taxes by concealing assets and income from the IRS in those accounts.  Between 1987 and 2008, Hager maintained several undeclared accounts at UBS, including two numbered accounts and an account held in the name of Contactus Partnership Associated S.A. (Contactus), a sham British Virgin Islands entity.  By the close of 2004, the value of Hager’s undeclared accounts at UBS exceeded $7.3 million.  
Hager closed the UBS accounts in 2008 and transferred the assets to a newly opened account at Clariden Leu, which he controlled and held in the name of Contactus.  Shortly thereafter, Hager closed the Contactus account at Clariden Leu and transferred the assets to a newly opened account held in the name of the same sham entity at a different Swiss bank.  Hager caused that Swiss bank to falsely record Hager’s Belgian cousin as the owner of the assets in the Contactus account.  Approximately six months later, Hager closed the Contactus account at the Swiss bank and transferred the assets to an account at a bank in Israel that Hager caused to be opened in the name of a different Belgian cousin.
From 2005 to 2011, Hager also controlled an undeclared account at Bank Leumi in Israel, which he falsely held under the name of a relative who was not a U.S. person and who resided outside the United States.  In February 2010, after obtaining an Israeli Identity Card, Hager opened an account in his own name at Bank Leumi in Israel but falsely reported that he lived in the United Kingdom and signed a document, under the penalties of perjury, on which he falsely claimed that he was not a U.S. citizen.
According to the information filed, Hager repatriated funds from his undeclared foreign financial accounts by having an attorney draft a sham loan agreement between himself and Contactus and wiring funds from some of his undeclared foreign financial accounts into his attorney’s escrow account. 
According to the information filed, Hager filed false federal and New York State income tax returns on which he failed to report the income from his foreign financial accounts and failed to pay tax on that income.  According to the information, Hager evaded approximately $652,580 in federal taxes for tax years 2003 through 2005 and 2007 through 2010.  Hager also failed to report his ownership and control of his foreign financial accounts to the Department of the Treasury on a Report of Foreign Bank and Financial Account even though an accounting firm had informed Hager of his obligation to do so and advised him of the civil and criminal penalties he could suffer for the failure to do so. 
* * * * 
Sentencing has been set for ­Jan. 4, 2017.  Hager faces a statutory maximum sentence of five years in prison, as well as a term of supervised release and monetary penalties.  According to the plea agreement, Hager agreed to pay restitution to the IRS.
JAT Comments (as amended 9/29/15 12:00pm):

1.  The information to which Hager pled, here, shows a single count.  After reciting the facts, the single charge is
15. The allegations contained in paragraphs one through 14 are realleged and incorporated as if fully set forth in this paragraph. 
16. On or about and between January 1, 2003, and April 20, 2012, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the defendant MARKUS HAGER did knowingly and willfully attempt to evade and defeat substantial income tax due and owing by him to the United States of America for the tax years 2003 through 2005 and 2007 through 2010, to wit: approximately $652,580, by various means, including, among others, concealing assets and income in foreign financial accounts, concealing assets and income in the names of nominees and sham corporations, filing and causing to be filed U.S. Individual Income Tax Returns, Forms 1040, for himself and his spouse with the IRS for the calendar years 2003 through 2005 and 2007 through 2010, that falsely and fraudulently omitted income generated by assets concealed in foreign financial accounts, and causing false statements to be made to an Internal Revenue Service Revenue Agent.
Note that Hager is subject to a single 5 year penalty that the multi-year charge of tax evasion was packed into a single count.  Most often, when evasion charges are made for multiple years, each year is charged as a separate count.  I have seen multi-year single counts of evasion, but there is usually a story behind that type of charge.  One thing that strikes me is the statute of limitations.  Are statute issues avoided by packing all years into a single count where some of the years might be outside the statute?  More likely, his actions, such as false statements to a revenue agent, after the years that appear to be outside the 6-year statute of limitations (e.g., 2003) may have refreshed the statute of limitations so that all years would be within the statute of limitations.  See United States v. Beacon Brass Co., Inc., 344 U.S. 43 (1952).  Of course, the single five-year count will likely permit the judge sufficient leeway under the Sentencing Guidelines to impose an appropriate Guidelines sentence, whether or not a Booker variance is made.

2. There is no indication that the FBAR penalty has been resolved by the plea.  (Caveat, I don't have the plea agreement; that plea agreement apparently is not available through Pacer, so I have made a request to the prosecutor for it; whether I will get it is another thing.)  However, the press release does state one high amount of over $7.3 million, which would mean that the usual plea requirement of a 50% penalty would require a $3.65 penalty and that would be the penalty normally required for the willful FBAR penalty in audits pursuant to the recent guidance now contained in the IRM.  But, that is the penalty normally applied and the IRS can go higher.  His conduct is pretty egregious, but I think his lawyers would have pressed as a condition of the plea agreement that the penalty not exceed 50% of the high amount.  I will also update this comment based on subsequent information.

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