The former professor had invested in a number of startups over the years. Most went bust, but one took off and netted him $80 million when he sold his shares of company stock.
In the year he sold the stock, his first mistake was to under report his income and the gain on the sale. Then he used Swiss Bank accounts and the help of another individual to keep the assets (over $220 million) hidden.
Seven months in prison and supervised release
Why was he sentenced to prison? He had previously been ordered to pay a civil penalty of $100 million for failure to file Reports of Foreign Banks and Financial Accounts (FBARs) over six years. The FBAR penalty for willful failure to disclose is up to 50 percent of the highest account balance. This is steep in itself, but it was not the end of the former professor’s legal troubles.
The criminal sentence came after reaching a plea agreement with the government on a criminal charge of conspiracy to defraud the U.S. and submitting a false expatriation statement with the IRS. This prison sentence could have been up to five years
Apparently, as the U.S. began cracking down on Swiss banks, this former professor found a new way to conceal the assets. Instead of coming into compliance through an Offshore Voluntary Disclosure Agreement and paying back taxes and penalties he chose to shift nominal control of the account to another individual.
In 2014, their next step was for this person to give up his U.S. citizenship to further keep the account from being reported. On the expatriation form the ownership of foreign accounts was not disclosed.
The former professor did not file Reports of Foreign Banks and Financial Accounts up until 2011. Then in 2012 and 2013, he started filing FBARs but used false information. IRS agents knocked on his door in 2015.
The reported tax loss over the 15-year scheme was more than $18 million in income and gift taxes.
At many different points, it would have been possible to limit the consequences. For those with offshore assets, it is critical to obtain experienced tax counsel before taking any action.