November 10, 2008 - Phil Hodgen

Foreign bank account prosecutions coming

Yet another indication that people with undisclosed foreign bank accounts should expect a trip to the pain factory.

Last weekend’s annual meeting of the California tax bars (I have spoken at this conference several times) had a visit from Nathan Hochman, Assistant Attorney General, and head of the Tax Division at the Justice Department. I don’t know him, but I know a number of the people at the Beverly Hills law firm he left in order to join the Justice Department. Good people, all of them. I’m sure he is, too.

Mr. Hochman’s comments were reported in today’s Tax Notes Today. He noted that exempt organizations with undisclosed foreign bank accounts should see prosecutions starting in 2009.

From Tax Notes Today:

In building a criminal case, the government looks for a pattern and “simple, provable lies,” Hochman told a meeting of the California Tax Bar and California Tax Policy Conference in San Francisco on November 7. For that reason, failure to acknowledge interest in or a signature or other authority over a financial account in a foreign country on Schedule B of Form 1040 or on Form 990 will be “a wealth of bases for criminal prosecutions,” he said.

E-mail is another rich source of material for prosecutors. Electronic communications are difficult to track, Hochman said, but “every time you push ‘delete’ is another act of concealment” subject to criminal prosecution.

In selecting cases to prosecute, the Justice Department is “going to be looking for cases to make a large deterrent statement,” Hochman said. The department will “look to leverage every case to ensure honest people understand there are consequences when you don’t do it properly and don’t feel like schnooks for doing it properly.”

FBAR case selections may seem unfair or arbitrary, but “‘Why me?’ has never been a constitutional argument,” Hochman said.

Juries do not struggle with convictions on tax violations, Hochman warned. He speculated that because they embrace the logic that the government uses their tax dollars to subsidize exempt activities, many jurors become angry with noncompliant organizations.

It’s not too hard to see where all of this is going. The government hands out money like a drunk hands out candy on Halloween. The government needs more money. Money comes from people.

It’s easy to tax people who are not like you. It’s easy to beat people up who you think must be up to no good. “If you’re not guilty, why were you arrested?” == “If you are using a foreign bank, you must be a tax evader”. Both are easy sales to the average voter.

Slashdotters will see the formula clearly:

  1. Identify a group of people sufficiently different from the general voter populace — people we can tax into oblivion.
  2. Make the rules they have to follow complex and hidden, with giant penalties for noncompliance.
  3. ????
  4. Profit.

I think we all know what Step 3 is. Careers Must Be Advanced, etc.

Recommendation: clean up your act. File the forms. Repent. Empty your wallet.

It’s Form TD F 90-22.1 (PDF) you’ll need, bucko. Start there. Maybe other stuff applies to you too, depending on what you’ve got, where, and how much.

US Real Estate Investments Voluntary Disclosure