US professor hit with US$100m FBAR penalty for hiding US$200m in assets

In what could be the largest Foreign Bank Account Report penalty thus far levied for tax evasion, an emeritus professor of business administration from Rochester, New York has been hit with a US$100m FBAR penalty by the US Internal Revenue Service.

The US$100m was part of a plea agreement with the professor, a 71-year-old named Dan Horsky, the US Justice Department said in a statement, which penalty, it noted, was separate from any restitution that the court may eventually also order.

Horsky pleaded guilty on Friday to hiding US$200m in assets by using offshore accounts, using “false expatriation documents” and “conspiring with others” in his efforts to keep his wealth out of the US tax net, the Justice Department statement said.

It said Horsky – a citizen of the US, the UK and Israel – was employed for more than 30 years as a professor of business administration. He began his foray into offshore investing in 1995 by taking stakes “in numerous start-up businesses through financial accounts at various offshore banks, including one bank in Zurich, Switzerland”.

The Justice Department statement didn’t name the Zurich bank, but a Bloomberg report said it was Credit Suisse, citing as its source three people familiar with the case. Credit Suisse didn’t immediately reply to a request for comment.

According to the Justice Department, “Horsky created ‘Horsky Holdings’, a nominee entity, to hold some of the investments and he used the Horsky Holdings account, and later, other accounts at the Zurich-based bank, to conceal his financial transactions and financial accounts from the IRS and the US Treasury Department”.

US Justice Department Principal Deputy Assistant Attorney General Caroline Ciraolo said Horsky’s  guilty plea “[proved], once again, that taxpayers will pay a heavy price when they choose to secrete funds in foreign bank accounts and evade tax and reporting obligations”.

Horksy is due to be sentenced on February 10, and faces a maximum prison sentence of five years, as well as a period of supervised release and monetary penalties.

The obligation to file FBARs with the US tax authorities came into force in 1970 with the Bank Secrecy Act, although the law wasn’t often enforced until a few years ago. As many expatriate Americans have discovered to their cost, it is being enforced now, with severe penalties often being handed out.

Failure to file FBARs can result in both civil penalties and possible imprisonment. The statutory civil penalties might be $10,000 per year for a non-willful failure, but a failure to file that is deemed to be “willful” could leave an individual subject to a penalty of US$100,000 or 50% of the balance in the unreported foreign account, whichever was greater, per year, for up to six tax years.

David Treitel, a London-based tax expert and principal of American Tax Returns Ltd, noted that the word in the expat American community is out now about the size of the potential penalties faced by anyone found guilty of willfully failing to file FBARs on time, with the result that “many people are more scared these days of FBAR penalties than tax returns”.

He noted that the size of potential FBAR penalties are a legacy of the last Republican president, George W Bush, and are unlikely to be reduced anytime soon, given the lack of political desire in the US “to be even a tiny bit nice to people perceived as tax cheats”.

Treitel recommends any financial advisers or wealth managers who advise Americans on investments outside of the US to include wording in their client documents “which reminds [these] US citizen clients that they may have tax or reporting requirements back in the United States”.

To read the Justice Department’s statement on its website, click here. 

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