Jeffrey B. Kahn, Esq. Discusses IRS Criminal Tax Investigations and Undisclosed Foreign Bank Accounts On ESPN Radio – April 24, 2015 Show

Topics Covered:

1. Lessons learned from the criminal tax evasion Conviction of Rashia Wilson a/k/a “Queen Of IRS Tax Fraud”.
2. What should you do where you have undisclosed foreign bank accounts and unreported foreign income?
3. Understanding the IRS Criminal Investigation Process and what signs to be on the lookout for that you may be subject to an IRS Criminal Investigation.
4. Questions from our listeners:

• When would I need to hire a tax attorney?
• What constitutes IRS and State Tax Disputes that a tax attorney should be involved?
• What constitutes Complex Legal Tax Issues that a tax attorney should be involved?
• What questions should I ask when interviewing tax lawyers?
• My CPA who I have been going to for years has never told me that I had to report my foreign income. Now that I know I have to report my foreign income and disclose my foreign bank accounts, do I accept my CPA’s offer to represent me in OVDP or do I hire you?

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Yes we are all working for the tax man!

Good afternoon! Welcome to the KahnTaxLaw Radio Show

This is your host Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.

You are listening to my weekly radio show where we talk everything about taxes from the ESPN 1700 AM Studio in San Diego, California.

When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

It is my objective to make you smarter so that you legally pay the least tax as possible, avoid tax problems and be aware of the strategies and solutions if you are being targeted by the IRS or any State tax agency.

Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into our website at www.kahntaxlaw.com.

I have a lot to cover today in the world of taxes and helping me out will be my associate attorney Amy Spivey who will be calling in later.

The story of Rashia Wilson of Tampa, Florida also known as the “Queen Of IRS Tax Fraud”.

You know that crime doesn’t pay. Despite using money from crime to temporarily fund a lavish lifestyle, Rashia Wilson of Tampa, Florida, learned her lesson the hard way before a Federal District Court Judge in the summer of 2013 when she was sentenced to 21 years of prison for Tax Fraud and Weapons Charges. She is also ordered to pay restitution of more than $3 million.  Rashia committed tax fraud by stealing personal information from taxpayers and using it to file tens of thousands of fraudulent returns, cheating taxpayers out of millions. You know identity theft is still prevalent today and stopping identity theft and refund fraud is a top priority for the IRS. Last year the IRS initiated 1,492 identity theft related criminal investigations, an increase of 66% over the previous year. But let’s get back to Rashia who stole more than $3 million dollars from the Federal government.

How Rashia Spent Her Millions

Although Rashia still claimed food stamps during her fraud, she used the ill-gotten gains to fund a lavish lifestyle which included:

• $90,000 on an Audi A8.
• $30,000 on her son’s first birthday party, which included carnival rides for children to play on.
• Designer handbags from Prada, Gucci and Louis Vuitton.
• Jewelry, including a custom-made necklace spelling out her name in jewels, which she wore in a photograph that showed her posing with stacks of money.
• High end electronic goods, including large flat-screen TVs.

At the time of sentencing Rashia was just 27. When she is released 21 years later, her children, currently all in elementary school, will all have graduated from high school. Her youngest child will be 23.

While Rashia was briefly able to cash in on her crimes before landing a record prison sentence, the details of her spree read like a “What Not To Do” map when stealing from the government. If you’re one of those folks pondering how best to stay out of jail, take a lesson from Rashia and heed these few tips:

Lesson 1 – Don’t steal. That should be obvious but clearly, it’s not. Stealing from the government – in particular, identity theft – is on the rise and as a result, the IRS put identity theft to commit tax fraud at the top of its list. In this scheme, thieves like Rashia access your personal information including your name, address and Social Security number to fraudulently file a tax return and claim a refund without your consent. Rashia gleaned much of the information she used to file fraudulent returns from medical records: in addition to printouts of medical records, investigators found thousands of ID numbers at her home.

Lesson 2 – If you did steal, don’t talk about it. Rashia had a big mouth. She liked to talk about herself and her money. She also liked to throw it around. She used the millions she stole from others to finance a showy lifestyle, including as I said earlier $30,000 on her 1-year-old’s birthday party, and $90,000 on a 2013 Audi (which she bought using money orders). Rashia wanted to show off. And that’s exactly how she caught the eye of investigators. Her behavior prompted the U.S. District Judge to remark at her sentencing, “She knew what she was doing was wrong. She reveled in the fact that it was wrong.”

Lesson 3 – If you did steal, don’t expect your privacy settings on Facebook or use of a fake name to protect you. I don’t care what you think you know about privacy settings, when you put something out there on Twitter or on Facebook, it’s not protected. As a taxpayer, that means you should avoid posting personally identifying information like tax ID numbers and your address. And you should certainly avoid posting photos of yourself surrounded by stacks of cash.

In addition when you sign up for Facebook, the terms of use indicate that “Facebook users provide their real names and information” and you agree that “you will not provide any false personal information on Facebook.” Apparently, this is about the only rule that Rashia followed. She used her real name to create a personal page on Facebook where she regularly bragged that she couldn’t be arrested and teased the police, posting entries like:

I’M RASHIA, THE QUEEN OF IRS TAX FRAUD… I’m a millionaire for the record, so if you think indicting me will be easy it won’t, I promise you! You need more than black and white to hold me down. I have the Tampa Police Department under my spell. I run Tampa right now.

Now we are on the radio so I have cleaned up the lyrics and put in proper grammar. But in case you’re wondering, Rashia isn’t college educated. Or high school educated. Or even middle school educated. She failed the 5th and 6th grades and that’s as far as she got. Her lack of education didn’t hold her back from blasting authority figures on Facebook. Turns out, the authorities were paying attention.

Investigators worked for two years to gather evidence against Rashia and a host of other fraudsters as part of Operation Rainmaker so dubbed because of the amount of money that was raining down. Included in that group was Rashia’s boyfriend, Maurice “Thirst” Larry, and a friend, Marterrence “Quat” Holloway.

Prosecutors said Rashia wasn’t just a queen, but also bragged about being the “first lady” of tax fraud.

Lesson 4 – Don’t assume that your luck won’t run out. Born into poverty to a coke addict and a father in prison, Rashia quickly took to a life of crime. She dropped out of school in the 7th grade. Since then, she has been arrested 40 times and held felony convictions for grand theft and burglary, but never did any time in a state prison. She came to believe that her streak would continue, bragging to practically everyone that she would never do any time. Well Rashia your streak ended July 2013.

Well it’s time for a break but stay tuned because we are going to tell you What Signs To Be On The Lookout For That You May Be Subject To An IRS Criminal Investigation.

You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team.

Calling into the studio from our San Francisco Office is my associate attorney, Amy Spivey.

Chit chat with Amy.

So Amy it has been about one year since the U.S. put down the hammer on Credit Suisse getting the bank to plea guilty to aiding and abetting U.S. Taxpayers for tax evasion. Please tell us what happened.

Amy Responds: You are right Jeff. Credit Suisse Group AG became the first financial institution in more than a decade to plead guilty to a crime on May 19, 2014 when the Swiss bank admitted it conspired to aid tax evasion and agreed to pay $2.6 billion to settle a long-running probe by the U.S. Justice Department. Then Attorney General, Eric Holder, in announcing the charges, said the bank engaged in an “extensive and wide-ranging” scheme to help U.S. taxpayers hide assets.

Jeff asks: Has any other bank suffered a similar fate as Credit Suisse?

Amy responds: Actually another Swiss Bank, UBS, also had to pay a $780 million fine in 2008 and release information on its U.S. accountholders.

Jeff replies: You would think that after Credit Suisse’s rival UBS fell prey to the U.S. that Credit Suisse would have cleaned up its act but instead Credit Suisse continued to take steps that hindered investigators, the filing said. Credit Suisse didn’t conduct a thorough inventory of the accounts its managers oversaw, and some managers helped clients move their assets to other offshore banks so they would remain hidden to the U.S.

Jeff asks: Do these big wins by the U.S. against UBS and Credit Suisse accelerate the momentum to break Swiss Bank Secrecy Laws that historically fostered tax evasion?

Amy replies. The momentum is stronger. Roughly a dozen Swiss banks are still subjects of criminal investigations by U.S. authorities and all of Switzerland’s 106 banks are taking part in a self-reporting program run by the U.S. Justice Department.

Jeff states: Don’t think that only Swiss banks are being targeted. This momentum is spreading to other countries. For example Federal prosecutors have negotiated a multibillion-dollar settlement with French bank BNP Paribas to end an investigation into alleged evasion of sanctions and the Department Of Justice is investigating other foreign banks all over the world.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff states: The penalties for not disclosing foreign bank accounts are very harsh. A taxpayer who willfully has not disclosed foreign bank accounts to the IRS must pay a miscellaneous Title 26 offshore penalty the greater of $100,000 or 50% of the total balance of the foreign account.

Jeff asks: When is a taxpayer deemed “willful”?

Amy replies: Well for the government to show willfulness, the government must prove that a taxpayer voluntarily and intentionally violated a known legal duty. In this case that duty is to disclose foreign bank accounts and report foreign income.  Jeff states: One thing the government looks at is how you completed the bottom of Schedule B of your income tax return in answering the question – do you have any foreign bank accounts? Answer “No” when you should have answered “Yes” and the government will use that response in charging that you voluntarily and intentionally violated your legal duty.

Jeff says, well I would think that most people never even paid attention to the bottom of this schedule. Does that mean every taxpayer would be willful?

Amy replies: Not really because there are many other factors that the government must consider to prove that the taxpayer knew or should have known about his failure to report worldwide income and disclose foreign accounts.

Jeff states: Now there is a different penalty structure if a taxpayer is non-willful. Non-willful violations that are not due to reasonable cause incur a penalty of $10,000 per violation – that is $10,000.00 per account/per year. And the government is not limited just to one year. The government can go back 6 years. And considering that the non-willful penalty is $10,000.00 per account/per year, this amount can expand rather quickly.

Jeff states: Let me illustrate this for you. Let’s say over the last 6 years you have 5 undisclosed foreign bank accounts. That would equate to 5 violations per year which at $10,000.00 per violation amounts to $50,000.00. Then multiply that by 6 and you are now looking at an FBAR penalty of $300,000.00 regardless of how much you have in the foreign accounts.

Jeff comments: And besides these penalties, criminal fines of up to $500,000 and/or 10 years in prison are possible.

So Amy, if one is in this situation what is your advice?

Amy responds: You should see tax counsel as soon as possible. The IRS has special programs in place that allow non-compliant taxpayers to come forward and avoid criminal prosecution and be subject to a lower amount of penalties.

Jeff states: And if you are in this situation you will want to avail yourself of one of these programs. The major program is called the 2014 Offshore Voluntary Disclosure Program. Like the 2009, 2011 and 2012 programs that preceded it, taxpayers must file up to 8 years of amended returns and up to 8 years of FBAR’s. Taxes on the unreported income, interest and a 20% penalty on the taxes seem reasonable.

Jeff continues: But the sticking point for many is the IRS program’s counterpart to the FBAR penalty. Currently, the program’s penalty is 27.5% of the highest aggregate account balance in the undisclosed offshore accounts. For many, that is a crushing penalty, and for that reason many taxpayers have still refused to come forward taking the gamble that even with the new reporting required by foreign banks they can remain undetected.

Jeff asks: So what is another option?

Amy replies: Fortunately, starting with July 1, 2014 the IRS has issued new Streamlined Procedures in its Voluntary Disclosure Program that certain taxpayers could qualify of a 5% FBAR penalty and in some cases all FBAR penalties can be waived.

Jeff states, PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Stay tuned because as I promised we are going to tell you What Signs To Be On The Lookout For That You May Be Subject To An IRS Criminal Investigation.

You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team.

And on the phone from our San Francisco office I have my associate attorney, Amy Spivey.

So to avoid the same fate as Rashia Wilson, you need to understand the IRS Criminal Investigation Process and What Signs To Be On The Lookout For That You May Be Subject To An IRS Criminal Investigation.

Jeff says the IRS criminal investigation process is serious business and is run by the Criminal Investigation Division known as “CID”.

Jeff states: CID is composed of federal agents (called “Special Agents”), who are highly trained financial investigators that carry a gun and wear a badge. Unlike your typical police department, CID conducts a very thorough investigation which may last years while they interview your family, friends, co-workers, employees, and business associates, and bankers, among others, to acquire evidence as to the extent of the tax evasion or tax fraud that may have occurred.

Jeff asks why should any one have a serious concern over a criminal tax violation?

Amy responds: A criminal tax violation conviction results in severe consequences, and in addition to monstrous fines, including the cost of prosecution and jail time. Each count can result in five years in jail and it could spell financial, personal and social ruin.

Jeff states: Compounding the situation is that often a taxpayer will not know when he is subject to an IRS criminal investigation until it is in its late stages at which time they surely have made incriminating admissions if they were not represented by competent counsel.

Jeff says: PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Four Signs that You May Be Subject to an IRS Criminal Investigation – Amy to read each sign and Jeff to discuss.

Amy says Sign #1 An IRS Revenue Officer abruptly stops pursuing you after he has been requesting you to pay your IRS tax debt, and now does not return your calls. Jeff is this a good sign?

Jeff responds: The Revenue Officer might be getting ready to refer your case to the CID to investigate previous or current tax evasion or crimes you may have committed within the collection process. (i.e., making false statements, hiding income or assets).

Amy says Sign #2 An IRS Revenue agent has been auditing you and now disappears for days or even weeks at a time. Jeff tell me about what this sign means?

Jeff responds: After a case is referred to the CID, both the Collection and Examination Divisions put things on “pause” because they do not want to jeopardize a successful criminal prosecution. CID is incredibly resourceful and tactful. To better position yourself against them, it is best to obtain an experienced IRS tax attorney as early as possible where criminal tax exposure is apparent in your fact pattern (like where you know you cheated on the return that is under audit). This is true even if your case is only at the civil investigation stage.

Amy says Sign #3 Your bank informs you that your records have been summoned by the CID or subpoenaed by the U.S. Attorney’s Office. Jeff if this happens what should one do?

Jeff responds – you have to hire an experienced criminal tax defense attorney right away.

Amy says Sign #4 Your accountant is contacted by Special Agents, or has been subpoenaed to appear before a grand jury and told to bring your tax records. Jeff does the accountant-client privilege prevent the accountant from disclosing anything?

Jeff responds: Unfortunately, the “accountant-client privilege” simply does not protect you in a criminal case and any statements made to your accountant can be used against you in a criminal investigation, either through the “discovery” process leading to trial or where the accountant is called as a witness during criminal tax trial.

Jeff states: As you can imagine, the IRS Criminal Investigation Division uses a vast array of tools to investigate a suspected tax evasion case or while conducting a criminal investigation. If you think about it, every employee of the IRS has a single task of ensuring that the IRS tax collections are maximized. IRS Special Agents, who work on the criminal tax cases, are no different. If you file your taxes, their goal is to prove that you may have understated or omitted income or sources of income or you may have falsified sources of income or taken deductions or credits for which you do not qualify.

Jeff asks: Should a taxpayer talk to the IRS Special Agent during an IRS Criminal Investigation and what are the taxpayer’s rights?

Amy replies, Since the IRS Special Agents conduct a criminal investigation, you have a right to remain silent and not incriminate yourself and the right to an attorney.

Jeff states: At your first encounter, the IRS Special Agent will advise you of your rights. You should exercise them and ask for an attorney. The Special Agent is then required to terminate the encounter. As you can imagine, nothing you say to a Special Agent is off-the-record! If you choose to disregard this advice, the IRS Special Agent will be more than happy to continue with the encounter. You’ll be surprised how people continue to dig themselves into a deeper hole even after all these warnings.

Jeff states: The “interview” is the most obvious and also the most common tool is the old fashioned approach of directly asking you if you are engaged in tax evasion. This interview can take place at your home or your place of business or both. When an IRS field officer comes to interview a subject suspected of tax evasion, that officer doesn’t just ask questions. They are also required to assess your standard of living as compared to the income shown on your tax return. In addition, the Special Agents have the legal authority to examine books and records and take your testimony under oath.

Amy states: During the interview, the Special Agents (they travel in pairs so one can interview and the other takes notes) will find out about other persons who may have knowledge about your sources of income and if there is cash that you may not have disclosed to the IRS.

Jeff states: One of the primary goals of the interview is to establish cash on hand because one of the common defenses is uncertainty about cash on hand. If they seem to always appear at the most inconvenient time, it is because they are required to timely obtain confessions or admissions from the subjects and witnesses who may have information about the case. These witnesses may include your spouse, friends, neighbors, your tax return preparer and others including others with whom you may have a business relationship like banks and brokerages.

Jeff states: A simple mistake, oversight, or your accountant’s malpractice may trigger an IRS criminal investigation. Specifically, unreported income, a false statement, the use of an impermissible accounting or banking service, or declaring too many deductions are things that could initiate an audit, which could then rise to the level of an IRS criminal investigation.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Stay tuned as we will be taking some of your questions. You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team along with my associate attorney, Amy Spivey.

If you would like to post a question for us to answer, you can go to our website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.

OK Amy, what questions have you pulled from the kahntaxlaw inbox for me to answer?

Ken from San Diego asks When Would I Need to Hire a Tax Attorney?

Well Ken I can understand that in a world of CPA’s, tax preparers, enrolled agents, bookkeepers, accountants and tax relief companies, it can be confusing to know when to hire a tax attorney. After all, you’re not hiring a tax lawyer to prepare your annual income tax return. You should think of using an attorney to resolve tax controversies which involve IRS And State Tax Disputes or for tax planning that involves Complex Legal Tax Issues.

Amy asks Jeff, What Constitutes IRS and State Disputes That A Tax Attorney Should be involved?

Most tax disputes arise in the form of an audit of one or several past tax returns. If the IRS notifies you of an audit, you should hire a tax attorney immediately.

Your tax lawyer can communicate with the IRS on your behalf, be present during your audit and help negotiate a settlement, if necessary. Having experienced legal counsel helps ensure that you don’t overpay as a result of your audit.

In some instances, taxpayers ignore letters and warnings from the IRS because they’re scared or don’t know how to respond. In those cases, the IRS may have no choice but to threaten you with criminal charges for tax evasion. If you learn that you’re the target of an IRS criminal investigation, you’ll want to hire a tax lawyer—and do it quickly.

Your tax lawyer can reassure the IRS that you’re taking its investigation seriously, work with the IRS in an effort to help you avoid criminal charges and represent you in court if you are charged with a tax crime.

Amy asks Jeff, What Constitutes Complex Legal Tax Issues That A Tax Attorney Should be involved?

A tax lawyer’s help can also be invaluable if you’re facing a complicated legal tax situation. This might include instances where:

• You’re starting a new company and are trying to decide between thevarious ways to structure your company
• You’re theexecutor of an estate and need advice regarding whether and how much is owed in estate taxes
• You want to challenge the IRS on a tax decision or appeal an audit
• You receive a Collections Notice telling you that tax is due and/or threatening collection action
• You want to sue the IRS
• You think or know that you’ve committed tax fraud

Diane from Newport Beach asks, What Questions Should I Ask When Interviewing Tax Lawyers

At your initial meeting, you’ll want to share the specifics of your situation and then ask the lawyer about their experience handling similar matters. Know that lawyers are bound by strict confidentiality rules. Even if you end up hiring a different attorney, the lawyers you meet with cannot share the information they learned with the IRS or anyone else.

Some questions to consider asking during your initial consultation:

• How long have you been practicing law?
• Do you just practice tax law, or do you also work in other areas of practice?
• Have you previously handled tax situations similar to mine?
• What’s your assessment of my situation? What works for me and against me?
• If I hired you, what course of action would you recommend?
• Do you charge a flat fee or hourly rate, or do you use some other billing structure?
• Can you estimate my total legal fees?

Sanjay from La Jolla asks: My CPA who I have been going to for years has never told me that I had to report my foreign income. Now that I know I have to report my foreign income and disclose my foreign bank accounts, do I accept my CPA’s offer to represent me in OVDP or do I hire you?

Taxpayers looking to come forward in a Voluntary Disclosure Program to report unreported foreign income and undisclosed foreign bank accounts would be best served by a tax attorney who was not involved in the preparation of the originally filed false tax returns. This is because the tax attorney does not have a conflict of interest and can present your case in the most favorable manner. This is especially important if you are looking to apply in the new Streamlined Procedures announced by IRS. The best way to explain this is by example – if a great defense is that you relied on your tax preparer to tell you whether you had to report your foreign accounts and foreign income, do you think your tax preparer will put himself under the bus to save you from the IRS – chances are not. A tax attorney who had no involvement in the preparation of your returns can make these arguments thus truly serving your best interests.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Thanks Amy for calling into the show. Amy says Thanks for having me.

Well we are reaching the end of our show.

You can reach out to me on Twitter at kahntaxlaw. You can also send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com. That’s k-a-h-n tax law.com.

Have a great day everyone!