A Dangerous Game: Jail Time for Inherited Foreign Accounts

You may remember my earlier blog post detailing the unenviable case of the wealthy New York Seggerman family which had undisclosed offshore bank accounts inherited from their father. Instead of coming clean and revealing the existence of the accounts to the US Internal Revenue Service (IRS), four of the Seggerman siblings created even more secret Swiss bank accounts to hold the hidden money they had inherited. In order to tap the funds, Henry Seggerman and his brother worked together, transferring funds from the brother’s Swiss account to a bank account for a foundation controlled by Henry. Henry then transferred the funds into the United States, in the guise of loan repayments.

In addition, Henry, was executor of his father’s estate. In his position as executor he was charged him with various responsibilities, including filing an estate tax return for his deceased father. Henry signed the estate tax return falsely underreporting the estate assets by over $12 million.

Ultimately, things didn’t quite work out as the Seggerman’s had hoped.  In the summer of 2013 they all plead guilty to various tax-related crimes. Each was facing a maximum prison sentence of 11 years for such crimes as conspiring to defraud the United States, and subscribing to false and fraudulent tax returns.

It was just reported by Crains (New York) that each of the siblings was sentenced by Judge Castel and each will now serve jail time.  This seemed surprising to the prosecutors since it had been reported that the government had not sought or recommended any prison time for the Seggerman’s.  Prosecutors had praised the Seggerman’s for testifying last year at the trial of their adviser, British lawyer Michael Little, who is now serving a 20-month sentence.  Judge Castel took note of the cooperation and commended the heirs for their philanthropic and volunteer activities with immigrant and school groups. The judge agreed that the Seggerman’s are unlikely to be repeat offenders. In a noteworthy twist to the case, however, the judge observed that a poor person who committed tax fraud would probably go to prison, as would a poor person who committed immigration fraud.  “There are not two federal systems of justice,” he said.

Henry Seggerman was sentenced to 6 months jail time and each of his siblings to four months. More details here.

Voluntary Disclosure Program

What should an executor or heirs do if they learn the decedent had undisclosed offshore accounts? In order to avoid what is called “transferee liability” and/or “fiduciary liability” as well as possible jail time for tax crimes a la Henry Seggerman and his siblings, the best advice is to come clean very quickly about the decedent’s undisclosed offshore accounts.

Sadly, unreported offshore accounts continue to plague both executors and heirs after the death of the account holder. The problem does not disappear upon death. Now, with the closure of the IRS Offshore Voluntary Disclosure Program (OVDP) this type of situation is even more difficult to navigate. Depending on the particular facts, it may be possible for an IRS Streamlined Procedure to be used to rectify the decedent’s past tax noncompliance. Read more at my US tax blog post  here.

If Streamlined procedures look unlikely, other avenues must be considered and the Voluntary Disclosure Program should be examined.  A new process now applies to all voluntary disclosures (regardless if domestic or offshore). These new procedures follow the closure date of the OVDP on September 28, 2018.  No exceptions – the guidance is now the Bible for all kinds of voluntary disclosures and you can read all the details at my blog post here.

Remember this!

I take this opportunity to remind readers that for those without criminal exposure, then the Voluntary Disclosure Program is not necessary as the IRS has other procedures. These include filing amended returns (that may be qualified amended returns avoiding the accuracy related penalties) and the special procedures for correcting offshore filings outside OVDP (such as the Streamlined Foreign Offshore (or Domestic) Procedures, Delinquent International Information Return Procedures or the Delinquent FBAR Submission Procedures .

If you need assistance with unreported offshore assets, please contact me.

Posted July 18, 2019

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8 thoughts on “A Dangerous Game: Jail Time for Inherited Foreign Accounts

    1. Sometimes people make mistakes – I have a feeling that this prominent family was concerned with its reputation, afraid to come forward, and perhaps felt somewhat invincible given their wealth and standing in society. In seeking to avoid all unpleasantness they made the bigger mistake of perpetuating the fraud. The judge’s ruling let’s everyone know they are not invincible no matter their position in society or the size of their bank account. There should not be two systems of justice… the judge was adamant to make that point. Well done.

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      1. Having been involved in several rather high profile cases including the tax evasion trial of Leona Helmsley, and dozens of OVDP cases, when I made the statement above it was based upon substantial personal exposure…so thanks much for the attempt at a lesson.

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      2. Call it what it was. Greed, and arrogance. Clearly, not a mistake…they didn’t think they’d be caught!

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      3. Hello Sully – I did not mean the word “mistake” as in a negligent action… I think they certainly knew what they were doing. Greed, arrogance and the feeling that they were invincible as a well-heeled and prominent family probably all played a role in making what was (most likely) the biggest “mistake” of their lives — that is, perpetrating the fraud that started with their father.

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  1. I read somewhere that they lied about their income so that their kids could get college scholarships. THAT was infuriating, since it channeled money from someone more deserving who may have not even gone as a result of their greediness. That is inexcusable.

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