Another foreign bank customer found guilty of foreign income under-reporting and FBAR violations.

A doctor has been convicted of failing to disclose to US federal authorities that he maintained offshore HSBC bank accounts in India and France and hid approximately $8 million in secret foreign bank accounts.

Dr. Arvind Ahuja of Wisconsin was convicted earlier this week by a jury on federal tax charges stemming from his failure to disclose offshore bank accounts maintained in India and in Bailiwick of Jersey, France, the Justice Department and Internal Revenue Service (IRS) said.

Ahuja managed his offshore accounts with the assistance of bankers who worked at an HSBC India office.  Ahuja’s bankers, advisors, and accountant probably testified against Ahuja (in order to avoid their own possible prosecution).

Ahuja’s trial began last week before US District Judge Charles Clevert in Milwaukee.  Criminal tax trials such as these are relatively short in duration because the evidence required to prove a false return is quite clear and unequivocal (however proof of intent is more uncertain and difficult to prove).

Ahuja was convicted of one count of filing a false 2009 individual income tax return for failing to report his foreign income and one count of failing to file a Report of Foreign Bank and Financial Accounts (FBAR).  It appears that he was not convicted for most of the tax years’ in question.

According to evidence presented at trial, Ahuja transferred millions of dollars from bank accounts in the US to undeclared accounts located in India at HSBC bank. He also maintained an HSBC bank account in the Bailiwick of Jersey, a British Crown dependency located off the coast of Normandy, France (generally known as a the Channel Islands).

Ahuja invested the funds in these accounts in certificates of deposit, which earned more than $2.7 million in interest income from 2005 to 2009. He used credit and debit cards linked to his accounts to pay personal expenses while on trips to London.

According to trial evidence, Ahuja filed a false tax return in 2009 with the IRS that failed to report the interest income earned on his certificates of deposit at HSBC India and also failed to report he had signature authority over bank accounts located in India and France.

Ahuja failed to file an FBAR for 2009 to report his offshore accounts to the IRS. Ahuja’s accountant testified that he never disclosed the existence of his offshore accounts during the preparation of his tax returns. Ahuja’s defense attorney stated that the prosecution’s case never should have been filed since Ahuja had filed amended federal and state tax returns and paid all amounts due, together with interest and penalties (a common strategy known as a quiet disclosure, which failed in this case). However, federal tax law criminalizes the willful failure to file an FBAR as well as the underreporting of income, at the time of filing, regardless of subsequent amendment.

“This prosecution reflects the continuing commitment to identify, investigate and prosecute individuals who fail to abide by well-established obligations to report and pay on their tax indebtedness,” US Attorney for the Eastern District for Wisconsin James Santelle said. Santelle said that underreporting income and failing to report foreign bank accounts will not be tolerated. Principal Deputy Assistant Attorney General for the Justice Department’s Tax Division, John DiCicco said the case is a warning to individuals who think they can use offshore bank accounts to commit tax crimes. The same Justice Department’s Tax Division attorneys are also actively prosecuting other individuals for similar violations of the law using the same successful trial strategies.

Ahuja’s sentencing has been scheduled for January 18, 2013.  Sentencing is based on various aggravating and mitigating factors, including criminal history and amount of tax loss to the government.  Regardless, Ahuja’s sentencing will likely include many months of jail time (and probable loss of his medical license due to felony conviction).

HSBC had been at the core of a US crackdown on offshore tax evasion and had faced pressure from federal authorities to provide information about account holders who may be evading taxes by using offshore accounts, particularly in India. Last year, the IRS had served a summons on the bank seeking information with regard to financial accounts of US persons maintained with its branches in India. Since then HSBC has stated that it has shared the names of numerous customers with the United States government.  Many HSBC (and other fearful foreign bank customers) have since successfully entered the 2011 OVDI and 2012 OVDP programs to avoid further civil or criminal complications.

US citizens and residents must report all worldwide income and file a Form 8938, if required, in their individual income tax returns.  Also, US citizens and residents are also required to file an FBAR with the United States Treasury disclosing any financial account in a foreign country with assets in excess of $10,000 in which they have a financial interest, or over which they have signature or other authority.

In the meantime, while new criminal prosecutions start and continue, our law firm expects unabated aggressive enforcement of the US tax laws, including increased criminal prosecutions and civil audit examinations. We have been advising our clients to expect the unexpected (and the worst) in their tax treatment and disclosure of offshore assets.

Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.

Patel Law Offices offers a strategy session to discuss how to resolve your legal problem. Conveniently schedule online today with our online scheduler and questionnaire.