In an effort to prompt United States taxpayers with hidden offshore accounts to come clean regarding the existence of those accounts, the Internal Revenue Service, or IRS, launched its “Offshore Assets Disclosure Program”. By 2012, the IRS claimed to have recovered over $5 billion in back taxes and penalties from 33,000 taxpayers as a result of the program. The benefit to taxpayers who voluntarily disclose offshore assets is a reduction in the amount of penalties and fines assessed as well as the avoidance of criminal prosecution in most cases.

People often make the mistake of considering tax issues to be civil in nature. While there certainly are substantial civil penalties and fines that can be imposed when a taxpayer intentionally fails to disclose income or assets, a taxpayer can also be prosecuted for the same conduct. Beanie Babies creator Ty Warner, for example, was recently sentenced to two years of probation and will spend the remainder of his life as a convicted felon for failing to disclose millions of dollars he had stashed away in Swiss bank accounts.

Like many wealthy Americans, Warner used the notoriously secretive Swiss banking system to hide a portion of his fortune from 1996 through 2008. More importantly, Warner failed to report over $24 million in income from those accounts, according to documents filed in the federal prosecution against him. By not disclosing the existence of the accounts or the income generated from those accounts Warner also failed to pay approximately $5.6 million in taxes that should have been paid on the undisclosed income.

Instead of voluntarily disclosing his offshore assets, Warner was arrested after a lengthy Department of Justice investigation that uncovered his hidden assets. After pleading guilty to one count of felony tax evasion Warner faced up to 57 months in prison at his sentencing. Ultimately, Warner was sentenced to two years of probation, 500 hours of community service work, and has agreed to pay a record fine of $53 million as well as back taxes of $16 million.

Warner’s experience should serve as a warning to all taxpayers who are currently hiding assets or who are considering Beanie Babieshiding assets in an offshore account. In the end, Warner’s non-disclosure cost him over $60 million dollars, a felony conviction, and the respect that was so important to him. “Unfortunately, I never realized that the biggest mistake (I) ever made in my life would cost me the respect that was most important to me,” said Warner.

Although the penalties and fines are higher in the most recent Offshore Voluntary Disclosure Program than in past years, a taxpayer will still benefit from participation. Along with dramatically decreasing the likelihood of criminal prosecution, disclosing assets through the program will ultimately be much less expensive than paying fines and penalties if the assets are discovered through a Department of Justice investigation.  

If you are a United States citizen with an offshore bank account or other types of assets offshore and would like assistance, then call our office immediately and ask for Andrew Brody at 305-231-2150.  Our South Florida CPA Firm is a highly respected firm that has operated for over 65 years throughout South Florida and can help you in delicate matters like this.