In his ‘Big Soccer’ blog (http://www.bigsoccer.com/soccer/bill-archer/2013/03/19/jack-warner-man-of-action-losing-traction/), Bill Archer made certain allegations about a former Vice President of FIFA. Of all the allegations made in the blog, there are three that jumped out at me.
Firstly, Bill Archer alleged that certain US law enforcement agencies including the IRS and Homeland Security were looking into the former Executive’s activities. Secondly, two of his sons tried to enter the US without declaring the large sum of US currency that one of them was carrying. They were both subsequently detained. Thirdly, either one or both of the former Executive’s sons is a US citizen whose income, as declared on their tax return (US$72 000 per annum), does not sufficiently explain how they could afford certain South Florida real estate purchases (4 condos costing US$400 000 paid for in cash).
Speaking strictly as a tax professional, if there is any truth to the series of events outlined in Bill Archer’s blog, I can see three areas which could present potential tax problems.
Firstly, the son(s) could be subject to Accuracy Related Penalties, of which the two most common are the ‘substantial underpayment’ (of tax) penalty and the ‘negligence or disregard of the rules or regulations’ penalty. An individual would be considered to have substantially underpaid if it is more than the larger of 10% of the correct tax or $5 000. For either ‘substantial payment’ or ‘negligence or disregard of the rules or regulations’ the penalty is a flat 20% of the net understatement in tax. This is not necessarily a huge problem so let’s look at the other two potential problems.
The second potential issue is around failure to declare foreign bank accounts to the IRS. The Financial Crimes Enforcement Network has delegated to the IRS its enforcement authority for penalties imposed under Title 31, Sections 5314 – 5321 for the failure to file Form TD F 90-22.1 otherwise known as the Report Of Foreign Bank And Financial Accounts (FBAR). Under this law, US citizens and lawful permanent residents are required to declare all their foreign financial accounts (including CLICO accounts, Unit Trust accounts, etc) over which they have signing authority (or other authority) if the aggregate balance of these accounts at any time of the calendar year exceeded $10 000. Penalties for willfully neglecting this obligation can be as high as the greater of $100 000 or 50% of the amount in the account at the time of violation. Furthermore, criminal penalties can be up to $500 000 or 10 years in jail or both.
The third area of potential violation comes under the Foreign Account Tax Compliance Act (known as FATCA), which does have some overlap with the FBAR requirements outlined in the previous point. Rather than FBAR’s $10 000 threshold, FATCA requires certain U.S. tax payers holding foreign financial assets with an aggregate value exceeding $50 000 to report certain information about those assets. Under FATCA, taxpayers could also be subject to criminal penalties found in Sections 7201-7212 with a potential sentence of up to five years of jail time, plus court costs and a potential fine of up to $250 000. It does not stop there as the list of civil and criminal penalties is a like an ongoing menu including a penalty of 75% of unreported income (plus interest).
So under the worst case scenario, the wrong-doers could be subject to 10 years jail time, a penalty of 50% of the maximum balance in their foreign financial accounts and 75% of any unreported income. Regardless of how wealthy someone is – charges like this would ruin them. The possibility of penalties so harsh would be enough to bring most people to the bargaining table. In his blog, Bill Archer alleges that the sons are cooperating with the investigating authorities as a sealed indictment has been obtained against their father.
It is interesting to observe how this situation plays out. If the allegations are true, it falls under the IRS Criminal Investigation (CI) team. This unit is comprised of approximately 3 700 employees worldwide, approximately 2 600 of whom are special agents whose investigative jurisdiction includes tax, money laundering and Bank Secrecy Act laws. The CI conviction rate is legendary. It is one of the highest in federal law enforcement. I understand that since CI’s inception in 1919 to the present, the conviction rate for Federal tax prosecutions has never fallen below 90%.
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