1. Ty Warner
On 7/11/15 Forbes reported that a three Judge 7th Circuit Court of Appeals Panel rejected Federal Prosecutors’ request that billionaire, Ty Warner, owner of Beanie Babies, Forbes 400 billionaire (worth $2.5B+) do jail time for hiding $107m in UBS/Switzerland from 1996-2007, failing to report $24.4m interest income (over the 11 tax years) and not paying $5.6m in US taxes. Instead, the 7th Circuit upheld the Trial Court Sentence: 2-years probation and 500 hours of community service. Warner also paid a fine of $69.5m ($16m in unpaid income taxes; $53.5m FBAR penalty i.e. 1/2 the balance in the undeclared UBS account). One of the Judges (J. Flaum) stated: he felt considerable unease with the decision and the signal that it may send about how the criminal justice system treats wealthy tax evaders.”
Warner had previously (in 2009) unsuccessfully attempted to enter the IRS/OVDP and was rejected and the evidence he submitted was used against him in his felony plea to one count of tax evasion. He was rejected because the IRS already had his name (disclosed by UBS), his personal Swiss banker had also been indicted, and Warner was under US/DOJ investigation.
Although, the IRS/OVDP may spare US taxpayers from criminal prosecution (for those who confess their off-shore accounts, pay back taxes and stiff penalties) it is not guaranteed, so if the Taxpayer like Warner is not accepted into the OVDP they face criminal prosecution based on the very evidence they gave the IRS as part of their submission to the OVDP i.e. the evidence is submitted without either transactional or use immunity.
So the lesson learned is this: the IRS/OVDP is highly risky and expensive and there is no guaranteed immunity from criminal prosecution for tax evasion. Although not jailed, Warner paid a 50% penalty for his failure to file FBARs (Report Foreign Bank Account), which is an annual penalty for each year the FBAR is not filed.
The 50% penalty is the highest civil penalty for willful failure to file FBARs. This 50% FBAR penalty on the highest offshore account balance must now be paid up front (with tax, interest and other penalties e.g. 20% accuracy-related penalty for underpayment of tax, 25% penalties for failure to pay tax/file tax returns), when submitting the IRS/OVDP application (See: IRS/OVDP 7/1/14 FAQ 7, 7.2, 20,25).
2. Carl Zwerner
Under IRS/OVDP FAQ 50.1, on 5/13/15 the IRS released a memorandum entitled: “Interim Guidance for Report of Foreign Bank and Financial Accounts (FBAR) Penalties” for IRS auditors which clarifies that for taxpayers under audit the maximum willful FBAR penalty is “100% of the highest aggregate balance of all unreported foreign financial accounts during the years under investigation”.
For those US taxpayers who choose to litigate the Civil FBAR penalty, the 5/14 case of Florida taxpayer, Carl Zwerner, held that his $1.69m Swiss Bank Account (ABN/AMR)) cost him $2.24 in FBAR penalties (approx 150% of the highest account balance).
As of 7/1/14 the IRS/OVDP imposes a 50% FBAR penalty on the highest account balance during the time the account was opened, which with other tax, interest and penalty may “wipe out” the account balance (and in the case of Zwerner) still leave a large sum due. If there is an audit it may have a 100% FBAR penalty.
3. George Landegger
George Landegger, multi-millionaire former owner of Monroe Paper Mill Owner (Conn. resident) was sentenced to prison and fined (5/15) for hiding $8.4m in Swiss Bank in Zurich for nearly 2 decades.
Landegger pleaded guilty to defrauding the IRS and his plea bargain included: $4.2m in civil penalties, a sum equal to 1/2 of the $8.4m he hid on account (the “FBAR 50% penalty”); $71,284 in tax; $30,000 fine. In addition, Landegger, age 78, was sentenced to two months in prison, followed by a year of home release, with the first 6 months under home confinement.
Landegger was refused participation in the IRS/OVDP because in 2009 he rejected the OVDP amnesty, emptied the Swiss accounts and moved the money out of Switzerland and did not seek to participate in the amnesty until 2013, some 3 years later. It appears that the evidence he submitted for the IRS/OVDP was used against him.
In the words of the prosecutor: “This case involves a man who…. enjoyed benefit from the taxes honestly and accurately paid by others but who decided… he would thumb his nose at the tax system and the IRS by hiding money overseas and evading taxes.”
He saved $71k in income taxes and paid over $4.3m for his tax crimes. Was the crime worth the price? I don’t think so.