From the Tax Law Offices of David W. Klasing - CFO of Offshore Company Sent to Federal Prison over Undisclosed Foreign Accounts and Unreported Offshore Income

IRVINE, Calif., April 9, 2024 /PRNewswire/ -- Tax evasion occurs among individuals across all income brackets, irrespective of their financial status. For instance, low-income earners might engage in tax evasion by underreporting their income or overstating deductions to minimize tax liability. Meanwhile, high-income earners may employ more sophisticated methods, such as utilizing undisclosed offshore accounts to deposit unreported taxable offshore income or shell companies, to conceal offshore taxable income and evade taxes owed to the government.

In 2023, a former offshore Chief Financial Officer, "CFO" received an 86-month prison sentence for concealing assets and income from tax authorities. He was charged with failing to file foreign bank account reports, making false statements to the IRS, and willfully failing to file tax returns. As a result of this misconduct, He improperly evaded taxes on millions of dollars of income.

The Case Against the offshore CFO

The case against the offshore CFO stems from the defendant's concealment of substantial offshore assets between 2005 and 2015. Ultimately, this concealment resulted in the offshore CFO facing a substantial prison sentence, among other consequences.

Background

The offshore CFO was born in Orange, New Jersey, graduated from Arizona State University with an accounting degree in 1981 and later obtained a CPA license in Colorado. His career led him to Moscow, where he worked for an accounting firm that merged with PricewaterhouseCoopers LLP. In 2003, he became CFO of a prominent Russian natural gas company.

Offshore Accounts and Tax Evasion

The offshore CFO maintained accounts at Coutts Bank in Geneva, Switzerland. He concealed ownership of these accounts by assigning them to his then-wife. After Coutts Bank made an initiative to comply with U.S. tax reporting requirements, The offshore CFO moved the funds to Hyposwiss. Again, The offshore CFO used his wife's information to evade reporting. Funds from these accounts were used to finance various personal expenditures, including property renovations and luxury purchases.

Failure to File FBARs and Tax Returns

Additionally, the offshore CFO failed to file Reports of Foreign Bank and Financial Accounts (FBARs) for 2005-2007 and filed late for subsequent years. His tax returns, prepared by him personally, were also filed late and contained false information, further contributing to his evasion scheme.

Attempts at Compliance and Subsequent Actions

In 2010, the offshore CFO attempted to appear compliant. However, evidence suggests that he was motivated by aiding his wife's United States residency application, rather than by a desire to correct his wrongful behavior. He tried to explain away years of filing errors by informing his new accountant that he had misplaced financial records during a move.

However, in the years that followed, the offshore CFO continued to mislead his accountant regarding his foreign accounts. Furthermore, he failed to file his tax returns in a timely manner from 2011 through 2013.

Indictment, Trial, and Sentencing

A grand jury indicted the offshore CFO on multiple counts of tax fraud and failure to file reports. Following trial, he received a substantial prison sentence, fines, and restitution orders. The court imposed these severe penalties despite the offshore CFO's arguments for minimal sentencing based on self-correction and tax repayment.

Civil Suit and Ongoing Legal Proceedings

Following his conviction, the government pursued civil action to recover FBAR penalties for the 2014 tax year, highlighting the substantial financial liabilities resulting from the offshore CFO's fraudulent activities.

Tips for Ensuring Compliance with Tax Laws

As evidenced by the case of the offshore CFO, the penalties for tax fraud can be highly disruptive to a defendant's life. Thankfully, there are certain tips that may help you ensure compliance with applicable tax laws.

Understanding Tax Obligations

First, you must comprehend your tax obligations thoroughly to ensure compliance with tax laws. Familiarize yourself with various types of taxes applicable to your situation, including income, property, and sales taxes.

Staying Informed

Attempt to stay updated on changes to tax laws and regulations in order to remain compliant with current requirements. This may involve regularly reviewing updates from government agencies and consult reputable sources for accurate information regarding tax legislation.

Maintaining Accurate Records

Maintaining accurate records is also crucial for fulfilling your tax obligations correctly. You should keep detailed records of all income sources, expenses, deductions, and credits. It will help to organize your documents systematically to facilitate tax preparation and minimize the risk of errors or omissions.

Utilizing Available Resources

Take advantage of available resources such as tax software, online tools, and educational materials to streamline your tax compliance efforts. These resources can help simplify complex tax calculations, provide guidance on deductible expenses, and offer support in navigating tax forms and filings.

Seeking Professional Guidance with a willingness to knock on the government's door before they bang down yours!

If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.

Note:  As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply. 

It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process.  Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.

Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth.   See our Testimonials to see what our clients have to say about us!

Finally, our Dual-Licensed International Tax Lawyers & CPAs can provide valuable guidance and insights into navigating complex tax laws. Our professionals can offer personalized advice tailored to your specific circumstances, helping you optimize your tax strategy while ensuring compliance with legal requirements.

How Do Courts Determine Prison Terms in Tax Evasion Cases?

In tax evasion cases, there are several factors that the court may consider when determining prison terms. The severity of the offense, including the amount of tax evaded and the duration of the evasion scheme, plays a significant role in sentencing. Repeat offenses or instances of deliberate and calculated fraud may also result in harsher penalties.

However, the court also considers the defendant's level of cooperation with authorities, remorse, and willingness to rectify the situation.

Assessing Plea Bargains in Tax Fraud Cases

In tax evasion cases, plea bargains can serve as crucial tools for resolving legal matters, facilitating agreements that satisfy both prosecutors and defendants. Through plea bargains, individuals accused of tax-related offenses can admit guilt to specific charges in exchange for more favorable outcomes, such as reduced fines, shortened probation terms, or mitigated sentences. Meanwhile, prosecutors benefit from the streamlined process and resource preservation that plea bargains offer, circumventing prolonged trials.

If you stand accused of a tax crime, then our experienced legal team can help assess the possibility of a plea bargain.

We Are Here for You

Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.

In addition to our fully staffed main office in downtown Irvine California,  the Tax Law Offices of David W. Klasing has unstaffed (conference room only) California based satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad, Sacramento. We also have unstaffed (conference room only) satellite offices in Las Vegas Nevada, Salt Lake City Utah, Phoenix Arizona & Albuquerque New Mexico, Austin Texas, Washington DC, Miami Florida and New York New York that solely handle Federal & California Tax issues.  

Our office technology allows clients to meet virtually via GoToMeeting. With end-to-end encryption, strong passwords, and top-rated reliability, no one is messing with your meeting. To schedule a reduced rate initial consultation via GoToMeeting follow this link. Call our office and request a GoToMeeting if you are an existing client.  We also now offer a convenient scheduling option, where you can secure David W. Klasing, Esq M.S.-Tax CPA's undivided attention for a 4-hour consultation at any of his satellite offices. 

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Public Contact: Dave Klasing Esq. M.S.-Tax CPA, [email protected]

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