In U.S. v. Canale, DC NY, 115 AFTR 2d ¶2015-851, the United States District Court for the Southern District of New York decided that an indictment charging a defendant with conspiracy to defraud the United States and to commit substantive tax offenses was not time-barred under the applicable six-year statute of limitations because overt acts in furtherance of the conspiracy occurred within the six year timeframe. The conspiracy charge related to acts by the defendant to establish and maintain undeclared accounts at Swiss banks, filing false and fraudulent federal income tax returns which failed to report interest in, and income from, the accounts, and failing to file Reports of Foreign Bank and Financial Accounts (“FBARs”) disclosing authority over the accounts. The court determined that the alleged act of filing, and causing to be filed, subsequent tax returns that falsely and fraudulently claimed that defendant did not maintain an interest in or signature or other authority over a financial account in a foreign country was clearly within the scope of—and committed in furtherance of—the charged conspiracy to defraud the IRS.
The court’s ruling regarding the conspiracy charge highlights the vast array of charges and penalties available against taxpayers who fail to comply with their foreign reporting requirements, whether willfully or unintentionally. The ruling also highlights the IRS’s focus on prosecuting taxpayers unwilling to disclose foreign accounts, and the increasing risks associated with failing to disclose such accounts. Fortunately, there are several programs available for taxpayers who were not willful in their omissions which impose more limited penalties, including the “Streamlined Domestic Offshore Procedure” (SDOP) for qualifying resident taxpayers and the “Streamlined Foreign Offshore Procedure” (SFOP) for qualifying nonresident taxpayers. Additionally, although it imposes steeper penalties, the “Offshore Voluntary Disclosure Program” (OVDP) remains available for qualifying taxpayers who may have been willful in their failure to report foreign accounts. Although the OVDP penalties are financially steep, participation in the program can eliminate criminal exposure.