Tax Return Preparers Helped Clients Hide Millions Offshore

 

On June 15, 2012, the US Justice Department and the IRS announced that David Kalai, Nadav Kalai, and David Almog were indicted by a federal grand jury in the Central District of California and charged with conspiring to defraud the United States. The superseding indictment, which was returned June 14, was unsealed following the defendants' arrests.
 
According to the superseding indictment, David Kalai and Nadav Kalai were principals of United Revenue Service Inc. (URS), a tax preparation business with twelve offices located throughout the United States. David Kalai worked primarily at URS's former headquarters in Newport Beach, California, and later at URS's location in Costa Mesa, California.
 
Nadav Kalai, who is David Kalai's son, worked out of URS's headquarters in Bethesda, Maryland, as well as URS locations in Newport Beach and Costa Mesa, California.
 
David Almog was the branch manager of the New York office of URS and supervised tax return preparers for URS's East Coast locations.
 
As alleged in the superseding indictment, US citizens, resident aliens, and legal permanent residents have an obligation to report to the IRS on Schedule B of Form 1040, whether they had a financial interest in, or signature authority over, a financial account in a foreign country in a particular year by checking "Yes" or "No" in the appropriate box and identifying the country where the account was maintained. They further have an obligation to report all income earned from the foreign financial account on the tax returns. Separately, US citizens, resident aliens, and permanent legal residents with a foreign financial interest in, or signatory authority over, a foreign financial account worth more than $10,000 in a particular year, must also file a Report of Foreign Bank and Financial Accounts (FBAR) with the Treasury disclosing such an account by June 30 of the following year.
 
The superseding indictment alleges that the coconspirators prepared false individual income tax returns that did not disclose the clients' foreign financial accounts nor report the income earned from those accounts. In order to conceal the clients' ownership and control of assets and conceal the clients' income from the IRS, the coconspirators incorporated offshore companies in Belize and elsewhere and helped clients open secret bank accounts at the Luxembourg locations of two Israeli banks (Bank A and Bank B). Bank A is a large financial institution headquartered in Tel Aviv, Israel, with more than 300 branches across eighteen countries worldwide. Bank B is a midsize financial institution also headquartered in Tel Aviv, with a worldwide presence on four continents.

Exceptions to the FBAR Reporting Requirement

Exceptions to the FBAR reporting requirements apply to the following US persons or foreign financial accounts:

  • Certain foreign financial accounts jointly owned by spouses;
  • US persons included in a consolidated FBAR;
  • Correspondent/nostro accounts;
  • Foreign financial accounts owned by a governmental entity;
  • Foreign financial accounts owned by an international financial institution;
  • IRA owners and beneficiaries;
  • Participants in and beneficiaries of tax-qualified retirement plans;
  • Certain individuals with signature authority over but no financial interest in a foreign financial account;
  • Trust beneficiaries; and
  • Foreign financial accounts maintained on a United States military banking facility.
 
Look to the FBAR instructions on TD F 90-22.1, Report of Foreign Bank and Financial Accounts, to determine eligibility for an exception and to review exception requirements. 
 
Source: IRS
 
 
As further alleged in the superseding indictment, the coconspirators incorporated offshore companies in Belize and elsewhere to act as named account holders on the secret accounts at the Israeli banks. The coconspirators then facilitated the transfer of client funds to the secret accounts and prepared and filed tax returns that falsely reported the money sent offshore as a false investment loss or a false business expense. The coconspirators also failed to disclose the existence of, and the clients' financial interest in, and authority over, the clients' secret accounts and caused the clients to fail to file FBARs with the Department of the Treasury.
 
If convicted, each defendant faces a maximum of five years in prison and a maximum fine of $250,000. 
 
Related articles:
 
Source: US Department of Justice

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