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DOJ Seeks Appeal of the Ty Warner Tax Evasion Sentence

This is a follow up to my September 23, 2013 article about Beanie Babies creator, Ty Warner, and his tax evasion plea. 

U.S. citizens and residents are required to disclose foreign accounts with an aggregate balance of greater than $10,000.00 by filing an FBAR (Form TD F 90–22.1) with the IRS. The FBAR is an information return and does not report a tax liability.  Taxpayers report on Schedule B of their US income tax return (Form 1040), income generated from offshore foreign accounts.

aaasaAs part of the plea agreement, Warner agreed to pay a $53.6 million in back taxes for failing to file FBARs and report more than $3.1 million in income.   Warner faced jail time, 46 to 57 months, but only received probation and community service.  The U.S. Justice Department has decided to appeal the billionaire’s sentence.

I was surprised with the sentence considering recent celebrity cases such as Lauryn Hill who went to jail for three months for failing to pay about $1 million in taxes.  Although the Hill case was not about an offshore tax haven, it’s ostensibly not as egregious as the Ty Warner case.  According to prosecutors, Warner’s activity was egregious.  Prosecutors alleged that Warner failed to tell his accountants and the IRS about the earned income and the existence of the UBS account.

In 2009, the IRS initiated a series of offshore voluntary disclosure initiative programs.  Each program was designed to settle with taxpayers who failed to report offshore income and file FBARs.  Each offshore initiative, with the exception of the 2012 OVDI program, which was open ended, seemed like it was the taxpayers last chance or the government would prosecute them for tax evasion.

Generally speaking, if you got to the IRS before they got to you, then you could participate in the offshore disclosure program.  Once cleared by the IRS Criminal Investigation Unit, you would:

  1. disclose all of your foreign bank accounts for the previous eight years;
  2. file 8 years worth of delinquent income tax returns and FBARs;
  3. pay all income tax owed plus interest on the understatement;
  4. pay an accuracy related penalty, 20%, on the taxes owed; and
  5. pay a penalty in the amount of 27.5% based on the highest aggregate balance in the previous eight years.  In consideration for the foregoing, the IRS would not prosecute you for tax evasion.

I believe the lenient sentence terrifies DOJ which is why they had to appeal this case.  DOJ is concerned that a slap on the wrist for such a large, high profiled case will not send the right message to others with offshore tax havens.  The IRS has been cracking down on offshore tax evasion and Warner’s case has been cited as one of the largest cases.  DOJ faces the precedent that if you’re wealthy and write a check to pay back taxes, then you could avoid jail time.

I will keep you posted on DOJ’s appeal of Mr. Warner’s tax evasion case as news develops!

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