FBAR Snags Manafort

Paul Manafort, Jr. and Richard Gates III were indicted on Friday. The 12-count indictment alleges “[C]onspiracy against the United States, conspiracy to launder money, unregistered agent of a foreign principal, false and misleading FARA statements, false statements, and seven counts of failure to file reports of foreign bank and financial accounts.” I’ll let others talk about the political issues related to this indictment (the indictment came from Special Counsel Robert Mueller III); I’ll discuss what may be the most serious charges (and the ones most likely to be overlooked by the political chattering class)—the FBAR charges.

The FBAR (Form 114) is a Report of Foreign Bank and Financial Accounts. Let’s say you have a bank account in France; it had €10,000 in it during 2016 (about $10,537). If you have any foreign bank or financial accounts you must check a box on Schedule B of your tax return noting that. If you have $10,000 or more aggregate in those accounts at any time during the year, you must check another box and list the country(ies) you have such accounts in on Schedule B; you must also file the FBAR.

The FBAR is simply a report of such accounts; it is not a tax. It does not change whether or not you have taxable income. It can, though, point investigators into areas where you may have unreported income. Willfully not filing an FBAR is a felony, punishable by a fine of $100,000 or half the balance of the bank account (per account), whichever is higher, plus possible time at ClubFed. It’s a serious charge. It’s no surprise to me that Mr. Manafort chose an attorney who was a former prosecutor in the DOJ Tax Division.

My quick perusal of the indictment shows that allegedly lots of money were in accounts in the Ukraine and Cyprus. So there’s the potential of both multi-year FBAR violations and multiple accounts. Mr. Manafort’s tax professional isn’t going to be indicted over this:

For instance, on October 4, 2011, MANAFORT’s tax preparer asked MANAFORT in writing: “At any time during 2010, did you [or your wife or children] have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account or other financial account?” On the same day, MANAFORT falsely responded “NO.” MANAFORT responded the same way as recently as October 3, 2016, when MANAFORT’s tax preparer again emailed the question in connection with the preparation of MANAFORT’s tax returns: “Foreign bank accounts etc.?” MANAFORT responded on or about the same day: “NONE.”

Interestingly, there are no allegations in this indictment that Mr. Manafort hasn’t paid his taxes. (It’s possible, of course, that additional charges are forthcoming.) As I tell my clients, “Just file the FBAR.” It appears Mr. Manafort should have done that.

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