IRS Launches New Offshore Tax Evasion Investigation Connected to Stanford Ponzi Scheme

December 7, 2009 by David S. Seltzer

As a South Florida tax evasion criminal defense attorney, I have been keeping track on this blog of the investigation by the U.S. Internal Revenue Service into overseas tax evasion. Through much of 2009, the IRS actively pursued the names of accountholders at Swiss bank UBS, which had acknowledged helping U.S. taxpayers hide their assets to avoid taxation. The agency claimed throughout that its investigation was just part of a larger crackdown on tax evaders with overseas financial accounts. Now, news reports show that this was likely the truth. As a Dec. 3 article from Bloomberg News reported, the IRS has filed for the names of certain taxpayers in the ongoing fraud case of R. Allen Stanford, a Texas financial mogul accused of running a $7 billion Ponzi scheme involving fraudulent certificates of deposit. He also faces an SEC lawsuit.

According to Bloomberg, the IRS is interested in the names of Stanford investors who had overseas accounts between 2002 and 2008, in CDs at his Antigua-based Stanford International Bank Ltd. In a statement, the IRS claimed an unnamed taxpayer told it that statements from the Stanford bank and CD accounts did not state interest or income. Disclosing such income from overseas accounts is required under federal tax laws; failing to report it puts taxpayers at risk of criminal tax evasion charges, which carry up to five years in prison and six-figure fines. Stanford’s businesses are being managed by a court-appointed receiver because Stanford is imprisoned without bail; that receiver said he would comply with all legitimate requests. The court-appointed attorney representing Stanford investors said the anonymous disclosure suggested that Stanford “made an effort to keep CD investors from learning about the IRS reporting violations.”

Like that attorney, I hope the IRS keeps this in mind during its investigation. As I wrote during the UBS investigation, many taxpayers depend on their tax professionals and financial institutions for information about tax reporting. Someone without a financial background may genuinely not know that overseas income is taxable, especially if the bank fails to report it. Tax evasion is a serious charge, carrying up to five years in prison for each count, along with fines so high that they can even exceed the value of the account. As a Miami tax evasion criminal defense lawyer, I believe these are very serious penalties that may be disproportionate to the crime if the taxpayer genuinely didn’t realize there was a reporting requirement. And unfortunately, a tax crime investigation may literally add insult to injury for taxpayers who are already victims of Stanford’s Ponzi scheme. In fact, there may be nothing available for the IRS to take in some cases.

During the months-long UBS investigation, the IRS offered a voluntary disclosure program for taxpayers willing to come clean in exchange for substantially reduced penalties. These taxpayers would still have to pay back taxes and reduced penalties, but were not eligible for prison in most cases. This was an ideal offer for accountholders who never intended to evade their taxes, and the program saw an unprecedented flood of takers throughout 2009. That window of opportunity for UBS accountholders closed in mid-October, but the IRS offers a voluntary disclosure program year-round for people with any unreported legal income.

I offered my services as a Fort Lauderdale tax evasion defense attorney to UBS accountholders during their seven-month window. I suspect that this will remain an active practice for me in 2010, because these recent actions signal that the IRS is serious about tracking down tax evaders whenever it spots an opportunity to do so. The voluntary disclosure program is not available to people who are under investigation already, so if you may come under suspicion, it’s vital to make a move first. Admitting ignorance or wrongdoing, and paying the fines, may hurt -- but compared to the harsh consequences of a criminal conviction, voluntary disclosure seems like by far the better option.