United States v. Canale is another recent example of the possible outcome for U.S. taxpayers who do not disclosure income from foreign bank accounts and the fact that the account existed. Participation in the IRS Offshore Voluntary Disclosure Program (OVDP) would have resulted in no jail time and a far lesser monetary penalty.
Michael Canale, 62, pled guilty in New York federal court last December to willful failure to notify the IRS about Swiss bank accounts that held nearly $1.5 million in 2010. Specifically, he pled guilty to a one-count Information charging him with the willful failure to file FBARs, in violation of Title 31, United States Code, Sections 5314 and 5322(a), for the years 2005 through 2010.
Canale resided in Jupiter, Florida and was a retired paratrooper and surgeon who previously served in the United States military. From 2005 through 2010, Dr. Canale evaded approximately $216,000 in federal income taxes on the amounts earned in his Swiss bank accounts. Dr. Canale was required to pay a civil penalty of $766,423.50, representing 50% of the balance held in the Switzerland account totaling $1,532,847 in 2009. In addition to this fine, Dr. Canale was ordered by the court to pay a restitution amount of $216,407, a fine in the amount of $100,000, and an assessment fee of $100. In addition to over $1 million paid in connection to his offence, on April 25, 2013 Dr. Canale was sentenced to 6 months in federal prison for failing to disclose foreign bank accounts.
A $1.5 million offshore account resulted in the following costs:
A taxpayer in this situation who participates in the 2012 OVDP would receive no jail time, $216,407 in back taxes due plus interest, a 20% penalty on the underpayment of tax and a $412,500 FBAR penalty (27.5% of the high balance from 2004 through 2012) for a total due of $628,907.
Taxpayers who have a financial interest in or signature authority over, a bank, securities, or other financial account in a foreign country with an aggregate value of more than $10,000 at any time during a particular calendar year are required to file a Report of Foreign Bank and Financial Accounts with the IRS. From about 2003 through 2010, Canale, had a financial interest in, and other authority over, an undeclared account at Weglin & Co. Canale knew about the account since at least 1993, and inherited it in 2000, when his father died. The undeclared account at Wegelin was opened in the name of the Wanderlust Foundation. On December 31, 2009, the account at Wegelin held assets valued at approximately $1,532,847. These assets were later transferred into “Swiss Bank A.” According to the court report, Michael Canale, filed a U.S. Individual Income Tax Return, Form 1040 from 2007-2010. On each of these returns, Canale “knowingly and willfully failed to report as income dividends, interest, and other income received by Canale in one or more Swiss Banks.”
On April 25, 2013, Dr. Canale was to be sentenced on his guilty plea. According to the sentencing memorandum on behalf of Dr. Michael Canale, Canale’s plea agreement contains a Sentencing Guide range of 24 to 40 months’ incarceration. However, he argued that numerous other considerations should be made and that such a sentence is “much greater than is appropriate under the particular facts and circumstances of this case.” He argued that the most appropriate sentencing is a period of probation and community service. He also asserted that his guilty plea and cooperation with the government, his immediate and extraordinary acceptance of responsibility, his physical and mental health, and his “exemplary life” should be considered in the sentencing.
The memorandum relates his life to that of a “genuine American hero, who has served his country selflessly as a combat military doctor” and has “helped countless army personnel and civilians around the world.” He has already been severely punished “by the shame brought upon himself by his actions, which forced his retirement from the United States Department of Veterans Affairs after nearly thirty years of service with the U.S military.” It was also mentioned that Dr. Canale has already paid the government more than $1 million in connection with his offence. The memorandum also notes that Dr. Canale was advised by a financial management firm and his family to continue to conceal the Swiss funds from U.S. authorities.
He argued that, “since the recent enforcement initiative involving undisclosed foreign bank accounts, the majority of defendants who have been convicted have not been sentenced to a period of incarceration, and nearly half of the defendants have been sentence only to a term of probation.”
According to the sentencing memorandum by the United States of America, a sentence that includes a term of imprisonment is appropriate. The U.S. Attorney noted that even though Dr. Canale did not know about the voluntary disclosure program, he had a decade to “consult a tax professional or attorney to explore options regarding how he could end his illegal conduct.” The prosecution also stated that the conduct resulted in “substantial harm to the United States Treasury” and that a sentence involving “at least some substantive term of incarceration or loss of liberty should be imposed because of the need to deter others who would engage in similar misconduct.”
Quoting United States v. Engle, the prosecution revealed that the Fourth Circuit recently made the same point in a tax evasion case: “The vast majority of such crimes go unpunished, if not undetected. Without a real possibility of imprisonment, there would be little incentive for a wavering would-be evader to choose the straight-and narrow over the wayward path.” The prosecution also mentioned other judges who have imposed sentences involving a loss of liberty in similar cases. They mentioned that Judge Berman “imposed a sentence that included an 8-month term at a community confinement center on a 61-year old doctor who maintained undeclared account in Switzerland” in United States v. Reiss.
In the end, U.S. District Court Judge Denise Cote sentenced Canale to Six months in federal prison.
Vic Abajian, a former IRS tax lawyer, continues to assist taxpayers with foreign account and asset issues before the IRS. He currently represents dozens of clients with offshore bank accounts within the IRS 2012 OVDP (and 2011 OVDI) and those that are involved in aggressive civil audits outside of the programs. He also represents several clients who have received criminal grand jury subpoenas requesting information related to offshore bank accounts. To learn more about options and how to make a voluntary disclosure of an offshore bank account or asset (pursuant to the 2012 offshore voluntary disclosure program OVDP or otherwise), please contact Los Angeles Tax Attorney Vic at 818-396-5059. We have offices in Irvine and Los Angeles, California.