HSBC India Foreign Bank Account Client Indicted on FBAR Tax Return Charges

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Jul. 8 – The U.S. Department of Justice (DOJ) and Internal Revenue Service (IRS) announced last week the indictment of an HSBC India client on four counts of filing false tax returns and four counts of failure to file a Foreign Bank Account Report, form TD F 90-22.1 (FBAR).

Each tax return charge can result in a penalty of three years in prison and a US$250,000 fine, and each failure to file an FBAR can result in 10 years in prison and a US$500,000 fine. The indictment is further evidence of the hardline positions that the IRS continues to take in FBAR cases. The maximum criminal penalty for willful failure to file an FBAR is “only” US$250,000 and a five year jail term, under 31 USC 5322(a). However, under 31 USC 5322(b) if the willful failure to file an FBAR occurs “while violating another law of the United States or as part of a pattern of any illegal activity involving more than US$100,000 in a 12-month period” that ups the ante to 10 years and US$500,0000. By referencing the 10 year jail term, the IRS is sending a message that it will seek maximum prison time.

The indictment alleges Dr. Arvind Ahuja, a U.S. citizen living in Wisconsin, transferred and maintained millions of dollars in accounts in India and the Bailiwick of Jersey (Jersey) through HSBC. Jersey is considered to be a tax haven jurisdiction, meaning its laws are intended to conceal financial information from authorities in other countries. The indictment further alleges the balances of Dr. Ahuja’s accounts ranged from US$5 million to US$9 million and generated interest income that was unreported on his U.S. tax returns.

The FBAR reporting requirement applies to individuals with a financial interest in or signature authority over foreign bank accounts if the aggregate value of those accounts exceeded $10,000 on any one day. The failure to file an FBAR is a charge independent of the failure to report taxable income. Foreign account holders with past unreported taxable income or undisclosed foreign accounts may make a voluntary disclosure under the IRS’s Offshore Voluntary Disclosure Initiative (OVDI) and avoid or decrease penalties. The OVDI is open until August 31, 2011 and certain individuals may be entitled to an extension.

If you overlooked your FBAR filing requirements or have unreported taxable income, contact Dezan Shira & Associates at for confidential advice.