Ty Warner

Ty Warner
Ty Warner, founder/owner of the Beanie Babies line, was sentenced in July 2015 for tax evasion.The panel of three U.S. District Court judges gave him 2 years of probation and 500 hours of community service. The sentencing guidelines ranged from 46 months up to a maximum of 57 months. He agreed to pay back taxes and interest of $16 million as well as a $53.5 million penalty (the full FBAR penalty of 50% of the balance of the highest account-$107,000,000). According to Melissa Harris (author of this article that appeared in the Chicago Tribune, July 15, 2015) Warner’s sentence was “a punishment that reduces evading millions in taxes to a speeding ticket,” and that the sentence “flies in the face of both reason and justice”.

Warner had an estimated net worth of $2.5 billion, and was the 209th richest American.   According to Janet Novak of Forbes:

He admitted that around Jan. 31, 1996, he flew to Zurich and deposited about $80 million at UBS AG, instructing that no account statements be sent to him in the U.S., and that he kept the account secret until November 2007. During that period he failed to report at least $24.4 million in interest income on the account to the Internal Revenue Service, evading at least $5.6 million in taxes. He also failed to file with the Treasury the required annual “FBAR” report on his foreign accounts

What beggars belief is that Mr. Warner never provided any explanation for:

  • why he opened the account
  • the origin of the funds
  • audits of his books & records show the funds did not come from his company
  • his personal domestic accounts showed no signs of the origin of the funds

In fact the evidence suggested that the funds may have been pre-tax payments of some sort. To this day, the extent of his willful tax evasion is in reality, unknown.

So why did Mr. Warner get off so lightly? Was it because his lawyer Mark Matthews used the Olenicoff Defense?
Was it because his creation, the Beanie Babies line of stuffed toys, was just too cute for anyone to believe he was guilty of such evasion?

Peter Henning a Wayne State University Law School Professor and co-author of ‘Securities Crimes ”said in an interview, “I don’t want to say anything goes,….Clearly you can’t consider race or wealth. But you are looking at character. That is something judges can take into account. The question is how much should it weigh into the decision?”

This is where Mr. Warner hit the jackpot. He received 70 letters of support from friends, employees and recipients of his charity, actions which had nothing to do with the charges and only someone with money could do.

U.S. District Judge Charles Kocoras (of the panel) based his sentence on:

…..a reading of 70 letters, Kocoras found that “Mr. Warner’s private acts of kindness, generosity and benevolence” were “overwhelming,” with many occurring before he was under investigation and, in Kocoras’ words, motivated by “the purest of intentions.” Most were done “quietly and privately.” The judge concluded: “Never have I had a defendant in any case — white-collar crime or otherwise — demonstrate the level of humanity and concern for the welfare of others as has Mr. Warner.”

So a man guilty of many years of tax evasion, who did not even account for the origin of the account nor any records of it, received an incredibly light sentence based upon support from his family, friends and beneficiaries of his kindness. Where is the law here?
 

*******

Dan Horsky
horskyThe second case is that of retired university business professor Dan Horsky. He amassed a $220 million dollar fortune, hidden in secret foreign accounts. He was a citizen of the United States as well as Israel and the United Kingdom. He spent thirty years teaching at the University of Rochester in Rochester, New York.

According to the Justice Department report:

One investment in a business referred to as Company A, however, succeeded spectacularly. In 2000, Horsky transferred his investments into a nominee account in the name of “Horsky Holdings” at an offshore bank in Zurich, Switzerland (the “Swiss Bank”) to conceal his financial transactions and accounts from the IRS and the U.S. Treasury Department.

In 2008, Horsky received approximately $80 million in proceeds from selling Company A’s stock. Horsky filed a fraudulent 2008 tax return that underreported his income by more than $40 million and disclosed only approximately $7 million of his gain from the sale. The Swiss Bank opened multiple accounts for Horsky to assist him in concealing his assets: including one small account for which Horsky admitted that he was a U.S. citizen and resident and another much larger account for which he claimed he was an Israeli citizen and resident. Horsky took some of his gains from selling Company A’s stock and invested in Company B’s stock. By 2015, Horsky’s offshore holdings hidden from the IRS exceeded $220 million.

Horsky willfully filed fraudulent federal income tax returns that failed to report his income from, and beneficial interest in and control over, his foreign financial accounts. In addition, Horsky failed to file Reports of Foreign Bank and Financial Accounts (FBARs) up and through 2011, and also filed fraudulent 2012 and 2013 FBARs. In total, in a 15-year tax evasion scheme, Horsky evaded more than $18 million in income and gift tax liabilities.

Professor Horsky’s willfulness was more involved than simply failing to report income. In 2011, He had another individual gain signature authority over the Zurich accounts. Horsky provided instructions to this individual. Then this individual was to relinquish his U.S. citizenship. In 2014, this operson filed a false 8854, did not disclose his net worth or his foreign assets and he falsely certified five years of compliance with all tax obligations.

Mr. Horskey’s sentence consisted of:

  • seven months in prison
  • one year of supervised release
  • fine of $250,000
  • $100 million penalty
  • over $13 million in taxes owed
  •  
    Again, the prison sentence was far below the maximum of five years. I guess committing an intensely willful crime which included outright fraud (and no letters attesting to his character), Professor Horsky failed to even receive one year of prison.

    An interesting observation of Eric Rasmussen at thetaxprof site : (Scroll down to “comments”)

    Interesting settlement. He’s paying just $13 million of the $18 million in taxes he owes, but $100 million more in penalties? Is this a whistleblower case? The IRS used to say the whistleblower gets a percentage only of the taxes recovered not the criminal violation penalties. They lost a big case on that in Tax Court. Is the idea going to reappear here?

    *******

    Milo & Lois Kentera

    NB: all printscreens in the Kentera account are from the Complaint filed August 13, 2016

    A more complete account of the Kentera’s situation is here
     
    The third case is that of Milo and Lois Kentera. This is much closer to the “minnow” level of FBAR “violation.” Even though this is not an expat case as the Kenteras live in the US, I am sure we all can identify with them.

    Milo Kentera was a pharmacist and inherited a Swiss bank account when his father died in 1984. At this time, the account was under $10,000 USD and remained so for twenty years. During that time, Milo added his wife Lois (a homemaker) to the account. Starting in 1984, he always advised his tax advisors/accountants of the account and he reported it on 1040 Schedule B. So far so good.

    In 2005, the account gained enough to be over the FBAR filing threshold. However, the accountant did not prepare or file an FBAR. In 2007, Milo received $257,112 (a portion of the sale of his parents’ property in Montenegro; his siblings received the other $371,536). He put this money into the Swiss account. A second accountant did not ask if any interest was earned on the account so that was omitted and again, no FBAR was filed. In 2010, yet another accountant failed to prepare or file an FBAR even though he/she included the interest and the account on Schedule B.

     
    balance of Kentera account
     
    Mr. Kentera came forward on his own, having heard of the OVDI on the radio.
     
    come forward on own Kentera
     
    By then the “2011 IRS Reign of FBAR Terror was going full throttle. Toward the deadline of the program, the Kenteras entered the 2011 OVDI program. They filed six years of FBARs for 2005-2010 (inclusive) and amended their returns to include the interest income from the account. The following printscreens show the amounts of money involved in terms of omitted tax income, balance of the account etc.
     
    changes income fbar kentera
     
    Nearly two years later, in August 2013, the IRS assessed a miscellaneous penalty of $90,092. The Kenteras then chose to opt out of OVDI. The agent who had their case then advised that they should receive non-willful FBAR penalties, which were as follows:

      Lois Kentera:

    • $500 for 2006;
    • $2,500 per year for 2007, 2008, 2009, and 2010,
    • for a total penalty of $10,500;

     

      Milo Kentera:

    • $500 for 2006;
    • $10,000 per year for 2007, 2008, 2009, and 2010,
    • for a total penalty of $40,500.

     
    The Kenteras were understandably upset and did not want to accept this fine of $60,000 either as they felt they had reasonable cause. Virginia la Torre Jeker defines what is involved in establishing reasonable cause when one has relied upon a tax adviser:

    “…various cases have noted that the taxpayer must prove three elements. First, the adviser must be a competent professional with sufficient expertise (for example, you cannot rely on an insurance agent for tax advice); second, the taxpayer must provide necessary and accurate information to the adviser; and finally, the taxpayer must rely in good faith on the adviser’s judgment.

    The Kenteras then filed a complaint in District Court alleging that the IRS had incorrectly calculated their penalties.
    The end result was unchanged; they still had to pay the penalties.

    It would appear obvious from the get go that the Kenteras did not belong in the OVDI program. However, “quiet disclosures”* were discouraged and Streamlined was not yet available (began Sept 1, 2012); the FactStatement 2011-13 came out during the first week of December. The Kenteras were put in a program they did not belong in; they clearly satisfied the three conditions for “reasonable cause” and most of all, they are an example of “those that are hurt the worst are the ones who try to come into compliance.”

    **it was not entirely clear at that time whether a “quiet disclosure” was simply filing going forward OR filing amended returns (presumably changed by FBAR accounts’ earnings). In any event, while the IRS insisted people enter the programs, there is no law that indicates one must do so.

    *******

    These three cases present some interesting observations about the treatment of those who had not filed FBARs.

    First of all, the first and second cases are Homelanders who had very large offshore accounts. Both took very deliberate steps to conceal the accounts. Mr. Holsky even went so far as to include fraudulent attempts as to ownership and citizenship of the person with signing authority for the account. Neither of them came forward on their own. Neither were able to enter the “amnesty” program, yet Mr. Warner received no jail time and Mr. Horsky received less than a year. The amounts of money involved for both are staggering to those of us who will never have anywhere near that kind of money.I can’t really evaluate their impact but I’d be willing to bet, that in proportion to their total wealth, both were able to absorb the loss without a major change in their style of living.

    In contrast, the Kenteras, also Homelanders, had a very modest account which they inherited. They always advised their accountants of its existence. Three professionals in the tax compliance community failed to prepare or file FBAR even though two of them did report the interest and existence of the account on Schedule B. They received very bad (I would say criminal) advice and went into OVDI coming out with an original penalty assessment of $90,092. So they opt out and the IRS agent then gives then a non-willful penalty totalling $60,000.

    Was it really necessary for Mr. Kentera to receive the maximum non-willful penalty for 4 years? It seems their honesty in pointing out the existence of the account counted for nothing. The fact remains that their situation clearly QUALIFIES FOR REASONABLE CAUSE. Yet the intent of Mr. Warner and even more so for Mr. Holsky, was clearly to conceal yet neither of them received anywhere near the maximum penalty; they did not come forward on their own and could not take part in the amnesty program.

    In the past (scroll down to “Statistics on Minnows in the OVDP”) we have seen demonstrations that the least wealthy pay the highest percentage of penalties, the comparison of the three cases cannot fail to boil your blood and make the average person seriously consider not becoming compliant due to obvious treatment of “minnows” as nothing short of appalling. Why does the IRS continually fail to see this? Is it really a surprise that 7 out of 8 million #Americansabroad have yet to become compliant in spite of Streamlined?
     
    Comparison Chart
     




     

 
This morning, I received a note bringing my attention to a comment left on the post that appears below. It is one of those comments that is so good, it really deserves its own post. So I am introducing this post with that comment. But I also want to introduce all of you, to the blog renounceuscitizenship in case you are not familiar with it. It was started in 2011, the year many of us found ourselves literally, under attack, from the U.S. government. I remember at the time, twinging just a bit, imagining how other people would react to the title “renounce U.S. citizenship.” Such an unthinkable action to take. And one I did take, just a few months later in January 2012. Yet the idea is commonplace now, discussed everyday online on Facebook, Twitter, individual blogs, in compliance journals, on TV news programs, in newspapers, etc.

Since that time, the renounceuscitizenship blog has been a very good place to go to for information, for identifying with others and seeing how they solve some of their problems, etc. IOW, it is a very, very good resource for anyone in our shoes and I hope many of you will take the time to go over and explore it. I do not know how I would ever have gotten through the early years without it as well as the Isaac Brock Society. So the actual post will follow the comment…….and please do take a look at the other interesting 32 comments to the post.

Lynn Milburn
May 31, 2016 at 4:44 am

I renounce June 8. I have not lived in the US at all since 1992. I did know about the ludicrous requirement to keep filing taxes annually and did so. Last year when I moved to France (from Australia), my “non-US person” husband and I opened a joint bank account. I did consider leaving my name off (to stop having to file fbars), but why should the one fact that I happen to be a US citizen dictate simple, everyday, choices like that? So we opened a joint acount. About a week later, the bank called us in–we didn’t know why. Our account representative (yes, a REAL person – in France people are still treated as humans – not as consumers with numbers and no faces) explained that because I had indicated on my application that I had been born in the US, I had to sign a form required by the US. This was the first I had ever heard of FBAR. Being called in and having to sign the form made me feel as if I had been raped by Uncle Sam! Only me–my husband was not a “US person” so no problem with him. That’s when I started really looking into it. And really thinking. Since 1992, when I started filing, things have just gotten so ridiculousy complex, and I can no longer suffer the intrusion on my time, health and freedom. Yes, I am forced to renounce because I happen to live overseas. For me, I had always seen the hypocrisy of the US–I remember in the 70s when I was in high school in the US reading things in the newspaper that the US did, and recognizing that what ‘we’ were doing was so often the exact things that ‘we’ criticized the Soviets for. doing, I could go on. I find that it is the US citizens who are worldly, can think deeply and widely to see various sides of issues (not just “You’re either with us or you’re against us!”) and are HONEST (i.e, file US taxes once they find out it is a responsibility to do so) who are the ones to renounce. Sadly for the US, we are exactly the type of people needed to make a country great in this globalizing world.

reposted with permission from renounceuscitizenship wordpress blog

My Wound is Geography

This is the “Home Page” of a blog with more than 600 posts about the plight of U.S. citizens abroad in the world of FATCA and “The FBAR Fundraiser”. If you are interested:

The blog begins here.

An archive of the posts is here.

Feel free to contact me here.

princeoftides“My wound is geography. It is also my anchorage and port of call.”

So begins one of my favorite books – “The Prince of Tides” by Pat Conroy.

There are many ways in which I can relate to the novel on a biographical level. The first time I read the book: the words “My wound is geography” had little meaning. They have now defined what is left of my life.

I was born in the United States during a different time and during a different era. I left the U.S. before I became a teenager and never returned. Although I was very young I did spend a few years in the public schools. I remember starting the day with the National Anthem. I remember being taught a certain version of history. That version of history depicted the United States of America as a land of opportunity, as a land of freedom and of justice. The American Revolution was necessary and heroic. The British were evil. The Colonists were oppressed but good people. Were it not for people like Paul Revere, we would have been slaves to the British and North America would have been a concentration camp. I learned that the Russians and Chinese were evil. I learned that the Europeans were primitive. To give you an approximate indication of my age, I remember the day that Kennedy was shot. I also remember my classmates crying. (I thought the tears were a bit much.) But, I did understand that Kennedy represented a period of idealism in America that ended with his death and probably never returned. Of course nobody could measure up to President Kennedy (including President Kennedy). After Kennedy died, President Johnson continued the escalation into Viet Nam. I lived in the U.S. during this period. Interestingly it was NOT until I left the United States that it was clear to me that the U.S. really was at war. (But I was young. What did I know?)

I learned that the United States was the center of the universe, the greatest country in the world, the most modern country in the world (did Canada have electricity?), the greatest and perhaps the only true democracy in the world. It was true then and it is true now that U.S. “Homelanders” have very little capacity for objective analysis and that U.S. Patriotism depends on that lack of capacity.

Sometimes you have to leave a place to really understand it. For me, this occurred years later while standing in the War Museum in Beijing, China. Like most countries/people of the world, the Chinese hate the United States. (Message to Homelanders: “Hatred” for the U.S. is NOT based on any kind of resentment of U.S. success. It is based on resentment of the U.S. involving itself in the affairs of others and infringing the sovereignty of other nations.) But what China and the United States have in common is the tremendous ability to mobilize their residents into a force of “blind patriotism”.

As a good “homelander” I believed all of this. I worked hard, studied hard (well not really but I managed to get good grades), was upwardly mobile in Scouts and played many sports. My life revolved around swimming, basketball and baseball. I was ambitious. I had a paper route. I was the “All American” person.

We all go through “rites of passage” in life. My first “rite of passage” was when I moved from the United States.

It was not my choice to be born in the U.S. It was also not my choice to leave the U.S. at a young age (who wants to move, much less move from the “greatest country in the history of the world”). Basically, I had no choice. I was thrown into a moving van and that was that. I was part of what I would call the third group to leave the United States for Canada. Interestingly, I have come to see that most people who are born in the United States and leave the United States (in one way or another) become exiled from the United States. There are four identifiable groups of U.S. citizens who have been exiled from the U.S. In all cases they were forced to leave. I was part of the “third group” to leave physically and part of the “fourth group” to leave mentally.

The first group were the Loyalists in the American Revolution. As Maya Jasonoff documents in her book “Liberty’s Exiles”, those who were not loyal to “The Patriots” could no longer live in post-revolutionary America. In fact there are many parts of Canada (particularly Ontario and Nova Scotia) that welcomed large numbers of Loyalists. This group was exiled from the United States. Like many things, this was both good news and bad news.

The bad news was that they were exiled from the United States.

The good news was that they were exiled from the United States.

History has proven that many countries are at least as free and (in many cases) much more free than the United States.

The second group was the slaves. The U.S. is full of hypocrisy. But, one of the most hypocritical examples was how the U.S. tolerated institutionalized slavery as long as it did. It is amazing that it took a war to free the slaves from their physical bondage. It is said that “Habit is the prison of the mind”. It would take many more years to free the slaves from the prison of their minds. Interestingly, Canada was a beacon of liberty for U.S. slaves wanting to escape. The freedom crossing in Lewiston, New York is a monument to the second group of Americans who escaped U.S. slavery by moving to Canada.

The third group was largely composed of the “draft dodgers” – those who did not want to participate in the Vietnam (it wasn’t a war, but young men were drafted and sent to their deaths).

Although this is a bit of an “aside” I have visited Viet Nam. I have seen the holes and tunnels that were used to attack American soldiers. I have seen the “Hanoi Hilton” which was home to John McCain. I have seen what is left of the prisons in Viet Ham that were used to house American soldiers. The prisons exhibit a level of brutality that is beyond what a U.S. homelander can imagine. They were (for the most part) built by the French and not by the Vietnamese. The point of the Viet Nam conflict is completely beyond me. Basically what happened was that the French tried to occupy Viet Nam and got their asses kicked. For completely inexplicable reasons the U.S. replaced the French and the result was the same – they got their asses kicked. If you want to see why – just visit Viet Nam.

Compulsory military duty is a form of slavery – perhaps a more socially accepted form of slavery – but slavery nonetheless. By accepting U.S. draft dodgers, Canada was once again providing “freedom” for U.S. slaves. After arriving in Canada, many of these newly freed slaves became Canadian citizens. By so doing they lost their U.S. citizenship (this was the law of citizenship of the time). I doubt that many of them cared. In fact, for many, obtaining Canadian citizenship was the last step in their journey to freedom.

I moved to Canada, not as a “draft dodger” but as a young kid who just happened to be part of a family that moved to Canada. My move was during the same time period that the “draft dodgers” sought their freedom.

The fourth group are U.S. citizens living abroad who have been and are being forced to renounce their citizenship. The “Obama Witch Hunt” has made it impossible for them to live a normal life abroad. Their treatment at the hands of the U.S. government has resulted in their having to renounce their citizenship in order to protect themselves from threats of fines, penalties, imprisonment and more.

During most of my life I have had to endure a tremendous amount of “anti-Americanism”. As a patriotic American I resented the resentment that non-Americans have for America. The more I experienced anti-Americanism the more Patriotic I became. In 2011 my life (like the lives of many U.S. citizens abroad) was turned “upside down”. I began to experience the United States the way the rest of the world does. The most painful realization for me is the realization that those who were “anti-American” were/are right. The United States of America is not – as Margaret Thatcher would say – “that great citadel of freedom and justice”. It is the opposite. Maybe it never was the nation we were taught (as school children) that it was. Maybe, it has evolved into the narcissistic nation that it is.

Regardless of the reason I am a U.S. person no more.

These thoughts are really my reflections on one year of blogging and healing. I hope that it will assist others who are sure to endure what is coming. The fastest growing source of anti-Americanism is being nurtured by “U.S. Citizens Abroad”.

It’s unbelievable and unconscionable, in 2013, how much of your life is determined not by who you are, but by where you are born!

I was born in the United States of America. Therefore:

“My Wound Is Geography”.

I hope you find this blog, in some small way, helpful. It is now close to 250600 posts. I am certain that there is something here to help you come to terms with the practical and emotional decisions that lie before you!