Beanie Babies Founder pays $53.6 million penalty for $885,300 of unpaid taxes on foreign income.

Billionaire Beanie Babies founder Ty Warner recently agreed to pay $53.6 million in tax evasion penalties and plead guilty to civil tax evasion.  This is the largest foreign account penalty ever reported. Mr. Warner, who also owns a real estate empire, held $94 million in Swiss bank accounts from 1996 to 2002 in a way prosecutors claim was used to hide Mr. Warner’s ownership of the account. Mr. Warner attempted to disclose his income under the IRS Offshore Voluntary Disclosure Initiatives (OVDI), but was rejected because of an ongoing government investigation at the time. Mr. Warner also faces a minimum of five years in prison for criminal tax evasion.

The OVDI program Mr. Warner attempted to use has terminated due to sunset provisions.  But in January of 2012 the IRS started a new amnesty program called the Offshore Voluntary Disclosure Program (OVDP).  OVDP has an indefinite time frame, but the IRS maintains the right to terminate the program and adjust the penalties at any time. The OVDP is more expansive than prior amnesty programs and allows the taxpayer to remedy a number of foreign income reporting omissions. The current penalty for failure to properly report foreign income is 27.5% of the highest foreign account balance during the eight year period covered by the amnesty. This is in addition to interest and penalties on the unreported foreign income. Another crucial aspect of the OVDP is the waiver of criminal amnesty. Finally, it can get even worse.  If the IRS determines there was intentional failure to report foreign income, the penalty can be as high as 50% of the highest account balance during the eight-year period covered, with a $100,000 minimum.

Under the 2010 Foreign Account Tax Compliance Act, the IRS has become very aggressive at finding previously unreported foreign accounts of US taxpayers.  As more and more “tax haven” countries are forced to report the identities of US taxpayers’ account holdings to the IRS, there is an ever increasing likelihood the IRS will discover it.

If you have a foreign bank account, own or control foreign assets or have an interest in a foreign business, and need help assessing your options, schedule your free consultation by calling (480) 888-7111 or submit a web request here