Is the Government Letting Offshore Tax Cheats Off Easy?

The United States federal government began a high-profile crackdown on secret offshore financial accounts in 2009, but despite this mandate, the average sentence in prosecuted cases has been about half as long as in other types of tax cases, according to a comparison of Internal Revenue Service data compiled by former U.S. Justice Department lawyer Jack Townsend. From his statistics, it seems that U.S. courts are dispensing much more lenient punishments to tax evaders hiding money offshore than to other tax cheats.

Since tax officials began to focus on offshore tax evasion four years ago, 71 taxpayers have been charged with crimes. But offenders received average sentences less than 15 months, according to Townsend. Comparatively, the average sentence in other tax-shelter schemes has been 30 months over the past three fiscal years. Even more noteworthy, three-quarters of taxpayers charged in offshore account cases have pleaded guilty to the allegations, while judges have only handed down prison sentences approximately half the time.

“The cases involving offshore bank accounts are drawing lighter sentences than other criminal tax cases,” Townsend told The Wall Street Journal. He called the discrepancy “troubling, because cheating is cheating.”

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Many mitigating factors are responsible for the lighter sentences, but chief among them, according to tax experts, is the IRS’s limited-amnesty programs, in which taxpayers admit to having secret accounts. But it is also possible that judges have been more lenient because of the massive penalties many defendants owe. In these cases, tax evaders must pay a sum equal to half the highest balance in an account. Defendants have agreed to pay a total of more than $170 million to resolve their cases thus far, and more than two dozen cases are still pending.

Lenient sentences in these types of cases jumped into the spotlight late last month, after Mary Estelle Curran, who plead guilty in the largest individual case since the crackdown began, received probation only to have U.S. District Judge Kenneth Ryskamp revoked it a minute later. In fact, Ryskamp scolded prosecutors for pursuing her. Even though Curran did not go to prison, she agreed to pay the government almost $22 million.

Some experts have said Curran’s case is not representative, but two other similar cases stand out as other examples of sentences that were below government guidelines. On April 10, Sybil Nancy Upham, who pled guilty in 2010 to concealing about $11 million in accounts in Switzerland and Liechtenstein, was sentenced to three years of probation and fined $5.5 million. She was facing possible jail time of 30 to 37 months. Michael Canale was sentenced to six months in prison on April 25, compared with a possible 24 to 30 months, after being found guilty for offshore tax evasion.

Since many tax evaders facing criminal charges have similar circumstances to people admitted to the IRS’s limited-amnesty programs for offshore accounts, which offer protection from criminal prosecution, many judges “seem to feel it’s unfair to put these defendants in jail when thousands of people just like them are being processed civilly,” as Edward Robbins, a lawyer at Hochman, Salkin, Rettig, Toscher & Perez PC, told the Journal. So far, more than 39,000 taxpayers have been admitted to limited-amnesty programs and paid more than $5.5 billion to resolve their cases.

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Some legal experts have said the the first criminal cases that went to trial in 2009 were not well chosen and set a poor precedent. According to Townsend’s data, in all seven criminal cases prosecutors brought that year, all seven taxpayers plead guilty. But only one received a sentence longer than six months, and four were sentenced to probation. “When the history of sentencing is below guidelines,” Robbins said, “it becomes a self-fulfilling prophecy.”

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