Page 4 - Streamlined Disclosure in U.S. v. Brian Nelson Booker: A Former CPA Sets a Dubious Precedent

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that taxpayers are attracted to the 5% under penalty of perjury that their con- n Failing to tell accountant or other advisor
penalty offered by the SDOP. Most tax- duct was nonwillful. about the account, particularly in response
payers, upon reading about the SDOP, In the vast majority of situations in to a direct question on a tax organizer
believe that their circumstances fit per- which foreign accounts have not been n Failing to check the appropriate box on
fectly into its requirements. It therefore reported, however, the facts are not as Schedule B of Form 1040.
comes as a shock to many taxpayers when favorable and suggest that the taxpayer The allegations in the Booker indictment
their tax advisors inform them that their took steps to hide the account from the suggest that the government found
conduct would be construed by the IRS IRS in an effort to avoid paying tax on Booker’s certification of nonwillfulness to
as “willful,” and that they are not in fact the income earned in the account, or for be unbelievable, based on the following
eligible for the lower penalty. the purpose of hiding the source of the factors:
The circumstances under which the funds in the account. Some of the most n Booker had been a CPA and therefore
nonwillful 5% penalty would apply common badges of willful conduct, or had the training necessary to give him
include, for example, the following fairly fraud, seen in the foreign account context heightened awareness of the reporting
clear-cut scenarios. In each case, it is include the following: requirements.
assumed that upon learning of the report- n Using a bank secrecy jurisdiction, such n Booker had reported some of his foreign
ing requirement, the taxpayer sought as Switzerland or the British Virgin Islands accounts but failed to disclose accounts
advice from a tax professional: n Hiding money from a spouse or busi- holding over $9 million.
n Taxpayer’s grandparents established a ness partner n Booker’s accounts were held in the bank
foreign account for him when he was born n Failing to pay tax on the corpus of secrecy jurisdictions of Switzerland and
60 years ago. Taxpayer just learned of the Panama.
account, never deposited money into the n Booker’s Swiss account was held in the
account, and never took money out of the name of a Singaporean insurance company,
account. Taxpayers are attracted to thereby hiding his identity as the owner of
n Taxpayer, a U.S. citizen, was sent by the account.
her company to its London office and the 5% penalty offered by CPAs and return preparers should keep
established a foreign bank account in her the Booker case in mind when advising
own name to receive her salary. Taxpayer the SDOP, but they must taxpayers on their eligibility for the
was advised by her U.S. accountant— SDOP. As noted above, taxpayers are
incorrectly—that she did not have to qualify to earn that lower attracted to the 5% penalty offered by the
report the account to the IRS until she penalty rate. SDOP, but they must qualify to earn that
moved back to the United States. lower penalty rate.
Taxpayer has that advice in an e-mail
from the accountant. Violators Will Be Prosecuted
n Taxpayer, a French citizen, came to the The criminal charges against former
United States for school and ended up funds in the account (e.g., skimming from CPA Brian Nelson Booker, the first ever
staying and obtaining U.S. citizenship. a business) arising from the IRS’s Streamlined
Taxpayer worked abroad before coming n Failing to pay tax on the income earned Domestic Disclosure Program, serve as
to the United States and had no idea that in the account an important reminder to all return pre-
the foreign account that held his savings n Numbered account or pseudonym used parers of their duties not only to report
from his prior work needed to be reported to identify account their own income honestly and correctly,
to the IRS. n Entities or structures created solely for but to provide sound advice to clients
In all three scenarios, the taxpayers the purpose of holding the account, thereby whose interest in a lower penalty may
likely would be able to meet the non- insulating the taxpayer’s identity blind them to facts that indicate willful
willful standard of the SDOP; that is, n Instructions to bank to hold mail related nonreporting. Tax advisors now have
that the failure to report the foreign to the account and to not send any mail to concrete proof, through the Booker
account was due to negligence, inad- the taxpayer in the United States indictment, that submission of fraudulent
vertence, mistake, or conduct that was n Moving the account after being advised certifications in the SDOP could result
the result of a good faith misunder- by the first bank that the account would be in criminal prosecution. q
standing of the requirements of the disclosed to the United States
law. Each could comfortably submit a n Using cash or a debit card to extract cash Sharon L. McCarthy, JD, is a partner at
streamlined disclosure and certify from the account Kostelanetz & Fink, LLP, New York, N.Y.

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