Increasing number of financial crime investigations

The Internal Revenue Service's Criminal Investigation unit increased the number of its tax-related investigations last year. Some of the financial crimes include tax preparer fraud, identity theft and offshore accounts.

In fiscal year 2012, investigations increased to 5125 from 4720 in 2011. This was almost a nine percent increase, but the filing of indictments and charging documents was up 13 percent. The investigations lead to proportionately more charges being filed in the last year.

More tax preparers coming under scrutiny

The number of investigations of tax preparers rose from 371 in 2011 to 443 in 2012. The number of prosecutions also increased.

For example, a recent prosecution of husband and wife tax preparers in New Jersey alleged that the couple assisted in preparing fraudulent tax returns. In an attempt to increase referrals they sought inflated refunds by improperly using the "head of household" filing status for clients, increasing deductions and using false credits.

Allegations contained in the indictment also include that the couple took a portion of their client's returns by using cashier's checks. They have been charged with one count conspiracy to defraud and six counts of assisting in the preparation of fraudulent tax returns. On the conspiracy charge, each could face up to five years in prison. The false tax charges are punishable by up to three years in prison and a maximum fine of $250,000.

Offshore accounts and the FBAR requirement

Another focus of recent prosecutions is tax fraud and specifically the failure to disclose and pay taxes owed on foreign accounts. In a recent case, a retired bank executive was charged with the willful failure to file a Report of Foreign Bank and Financial Accounts or FBAR.

He was the beneficial owner of investments held at several banks in Switzerland. Yet in 2007, 2008 and 2009, he did not disclosure the accounts on his tax return. He also failed to file FBARs. The prosecution alleged that he knew of the filing requirement, but chose not to file the necessary disclosures. As part of a plea agreement, he agreed to pay a FBAR civil penalty, but could still face up to five years in prison and a maximum fine of $250,000.

The FBAR filing requirement applies to all U.S. persons who have foreign accounts with an aggregate value over $10,000 in a year. Those with signature authority on an account must also follow the filing requirements.

Penalties for failing to follow the requirements are draconian for a willful failure to file conviction. The civil penalty is up to 50 percent of the account value or a maximum of $100,000 per violation. Long prison sentences and even larger fines are also common.

When you become aware of a financial crime investigation, contact an experienced attorney. There could be defenses available and a lawyer will be able to ensure that your rights are protected.