IRS Investigates HSBC: Hits Customers With FBAR Penalties

Let's say that someone engages in the crime of tax evasion. Let's assume that as a result of the tax evasion, the US government lost out on somewhere between $80,000 to $200,000 of tax revenue.


What do you think the appropriate penalty be?

A. 10% penalty based on the high loss. $20,000.00

B. Half of the high loss. $100,000.00

C. Double the high loss, $400,000.00

D. $2,370,000.00


If you suspect the correct answer is D, your paranoia has served you well. Because that is exactly what happened in this one recent case from the Garden State. For evading at most $200,000.00, Sanjay Sethi of New Jersey will face up to 5 years in prison and a fine of $2,370,000.00 for failing to pay taxes in the amount of at most — $200,000.00.


For those with some knowledge of the US Constitution, they must be wondering, wait, is this proportional? Doesn't this violate the 8th amendment clause on cruel and unusual punishment?


David Voreacos at Bloomberg has the story:

"A New Jersey client of HSBC Holdings Plc (HSBA) pleaded guilty to conspiring to defraud the U.S. by hiding as much as $4.7 million through Swiss and Indian accounts not declared to the Internal Revenue Service. Sanjay Sethi, 52, who owns SanVision Technology Inc., conspired with HSBC bankers in New York, London and Geneva to hide assets from the IRS, he admitted today in federal court in Newark, New Jersey. Sethi will pay a $2.37 million penalty for failing to file reports required for foreign accounts."


As we have been blogging on extensively — the IRS is dead serious about offshore compliance and assessing FBAR penalties. The IRS is incredibly aggressive and will stop at nothing to see the maximum amount of fines assessed anywhere. Even in cases where the taxpayers have no possible way of paying the fines.


By the end of the year, the IRS will have 900 additional auditors specially trained in detecting International tax issues. The IRS has been given marching order to crack down on high-income taxpayers suspected of evading foreign income. Offshore audits super centers are forming around the country to process those who make the mistake of not disclosing accounts.


The IRS is very proud of the $5.5 billion dollars worth of revenue the OVDI programs have brought in ($5.5 billion pays for about 13 hours of federal government). Offshore tax cases like this one have everything the IRS wants. Ability to assess huge penalties AND the ability to actually get paid on the huge penalties it assesses.


UPDATE: I honestly thought there could be a reporting error, so I contacted the writer, David Voreacos to verify the penalty amount and this is what he responded with:

"The $2.37 mln is the fbar penalty, which is far more than the tax loss…"