Affirming that the DOJ is still prosecuting at least the more egregious offshore-reporting cases, the DOJ issued a press release recently detailing the plea agreement of an Emeritus Professor in Rochester, New York, focusing on a false expatriation statement, false returns, and false and unfiled FBARS. According to the press release (the full release at this link):
According to documents filed with the court and statements made during the plea hearing, Dan Horsky, 71, is a citizen of the United States, the United Kingdom and Israel and was employed for more than 30 years as a professor of business administration at a university located in New York. Beginning in approximately 1995, Horsky began investing in numerous start-up businesses through financial accounts at various offshore banks, including one bank in Zurich, Switzerland. Horsky created “Horsky Holdings,” a nominee entity, to hold some of the investments and he used the Horsky Holdings account, and later, other accounts at the Zurich-based bank, to conceal his financial transactions and financial accounts from the IRS and the U.S. Treasury Department.
Horsky made investments in Company A through the Horsky Holdings account using his own money, money provided by his father and sister, and margin loans from the Zurich-based bank. Eventually, Horsky amassed a four percent interest in Company A’s stock. In 2008, Company A was purchased by Company B for $1.8 billion in an all cash transaction. Horsky received approximately $80 million in net proceeds from the sale of Company A’s stock, but disclosed to the IRS only approximately $7 million of his gain from that sale and paid taxes on just that fraction of his share of the proceeds. In 2008, and in subsequent years, Horsky invested in Company B’s stock using funds from his accounts at the Zurich-based bank and by 2013, his investments in Company B, combined with other unreported offshore assets, reached approximately $200 million.
Horsky directed the activities in his Horsky Holdings and other accounts maintained at the Zurich-based bank, despite the fact that it was readily apparent, in communications with employees of the bank, that Horsky was a resident of the United States. Bank representatives routinely sent emails to Horsky recognizing that he was residing in the United States. Beginning in at least 2011, Horsky caused another individual to have signature authority over his Zurich-based bank accounts, and this individual assumed the responsibility of providing instructions as to the management of the accounts at Horsky’s direction. This arrangement was intended to conceal Horsky’s interest in and control over these accounts from the IRS.
In 2013, the individual who had nominal control over Horsky’s accounts at the Zurich-based bank conspired with Horsky to relinquish the individual’s U.S. citizenship, in part to ensure that Horsky’s control of the offshore accounts would not be reported to the IRS. In 2014, this individual filed with the IRS a false Form 8854 (Initial Annual Expatriation Statement) that failed to disclose his net worth on the date of expatriation, failed to disclose his ownership of foreign assets, and falsely certified under penalties of perjury that he was in compliance with his tax obligations for the five preceding tax years.
Horsky also willfully filed false 2008 through 2014 individual income tax returns which failed to disclose his income from, and beneficial interest in and control over, his Zurich-based bank accounts. Horsky agreed that for purposes of sentencing, his criminal conduct resulted in a tax loss of at least $10 million. In addition, Horsky failed to file Reports of Foreign Bank and Financial Accounts (FBARs) up and through 2011, and also filed false FBARs for 2012 and 2013.
Despite some setbacks when the DOJ and IRS pursued some less exceptional criminal FBAR cases, they will always be interested in pursuing low-hanging fruit with a lot of affirmative acts demonstrating intent to hide assets (see a similarly convoluted case in August here). This is in stark contrast to most FBAR cases which, from what I’ve seen, are simply folk who were unaware of the reporting requirements. Those cases would generally be able to self-comply before the IRS finds out on its own via streamlined domestic offshore procedures or a quiet disclosure, or would be facing only civil penalties if defended properly in an audit.
Daniel Layton, the author of this post, is a former IRS attorney and former Federal prosecutor. He is the principal of Tax Attorney OC.